Property purchase - big deposit or invest the funds elsewhere?

tdarr

Hi all,

I'm hoping to get some advice on whether to put my savings towards a big deposit on a property I'm buying or if it would be better to put down a smaller deposit and use the remainder of the funds in another way.

I'm buying a property that is £1.36 million, I was considering putting a deposit of around 950k.

My question is does this make sense or would I be better off to put down a smaller deposit and invest the rest of that money elsewhere?

The mortgage interest rates we've been quoted are 4 - 4.5%

Any broad advice much appreciated! Thanks

eskbanker

Presumably the mortgage rate will depend on the loan to value percentage and therefore will be lower the higher the deposit is, although these will normally operate in bandings, so it would be worth establishing what they are.

Fundamentally you need to decide how much of your capital you're prepared to tie up in illiquid form, and relative returns on investment are likely to be a side issue, although essentially you're comparing the mortgage rate with net returns elsewhere.  You'd also need to consider timescales, i.e. over what timeframe are you going to evaluate the options, as well as risk tolerance, and broader financial circumstances, e.g. age, health, family, job security, other assets, etc, etc....

Cisco001

Is your return of investment after tax likely to higher than 5%?

tdarr

eskbanker said:

Presumably the mortgage rate will depend on the loan to value percentage and therefore will be lower the higher the deposit is, although these will normally operate in bandings, so it would be worth establishing what they are.

Fundamentally you need to decide how much of your capital you're prepared to tie up in illiquid form, and relative returns on investment are likely to be a side issue, although essentially you're comparing the mortgage rate with net returns elsewhere.  You'd also need to consider timescales, i.e. over what timeframe are you going to evaluate the options, as well as risk tolerance, and broader financial circumstances, e.g. age, health, family, job security, other assets, etc, etc....

Many thanks for the response.

In terms of my situation I'm relatively risk averse in terms of investments. I'm mid 40s and considering retirement in around 15 years. I have good pension savings and my job is secure for the next 10 years or so before AI technology potentially has more of an impact on my line of work.

tdarr

Cisco001 said:

Is your return of investment after tax likely to higher than 5%?

Many thanks for the reply

Very good point, as mentioned above I'm relatively risk averse when it comes to investments so to achieve a return on investment after tax of higher than 5% may be tricky...

Bostonerimus1

tdarr said:

eskbanker said:

Presumably the mortgage rate will depend on the loan to value percentage and therefore will be lower the higher the deposit is, although these will normally operate in bandings, so it would be worth establishing what they are.

Fundamentally you need to decide how much of your capital you're prepared to tie up in illiquid form, and relative returns on investment are likely to be a side issue, although essentially you're comparing the mortgage rate with net returns elsewhere.  You'd also need to consider timescales, i.e. over what timeframe are you going to evaluate the options, as well as risk tolerance, and broader financial circumstances, e.g. age, health, family, job security, other assets, etc, etc....

Many thanks for the response.

In terms of my situation I'm relatively risk averse in terms of investments. I'm mid 40s and considering retirement in around 15 years. I have good pension savings and my job is secure for the next 10 years or so before AI technology potentially has more of an impact on my line of work.

If you have 1 years worth of savings in cash in the bank or an ISA and are saving at least 10% of your gross salary into pensions, and you don't have any other pressing use for your capital I would put down a big deposit and bargain for as low an interest rate as possible. If your mortgage rate was 1% or 2% I'd probably be investing rather than making a large deposit, but a 4% or 5% saving your overall interest payments looks like a reasonable deal. Of course only lock the money up in the house if you don't need it for anything else.

tdarr

Bostonerimus1 said:

tdarr said:

eskbanker said:

Presumably the mortgage rate will depend on the loan to value percentage and therefore will be lower the higher the deposit is, although these will normally operate in bandings, so it would be worth establishing what they are.

Fundamentally you need to decide how much of your capital you're prepared to tie up in illiquid form, and relative returns on investment are likely to be a side issue, although essentially you're comparing the mortgage rate with net returns elsewhere.  You'd also need to consider timescales, i.e. over what timeframe are you going to evaluate the options, as well as risk tolerance, and broader financial circumstances, e.g. age, health, family, job security, other assets, etc, etc....

Many thanks for the response.

In terms of my situation I'm relatively risk averse in terms of investments. I'm mid 40s and considering retirement in around 15 years. I have good pension savings and my job is secure for the next 10 years or so before AI technology potentially has more of an impact on my line of work.

If you have 1 years worth of savings in cash in the bank or an ISA and are saving at least 10% of your gross salary into pensions, and you don't have any other pressing use for your capital I would put down a big deposit and bargain for as low an interest rate as possible. If your mortgage rate was 1% or 2% I'd probably be investing rather than making a large deposit, but a 4% or 5% saving your overall interest payments looks like a reasonable deal. Of course only lock the money up in the house if you don't need it for anything else.

Thanks a lot for the response, that makes a lot of sense!

Bostonerimus1

tdarr said:

Bostonerimus1 said:

tdarr said:

eskbanker said:

Presumably the mortgage rate will depend on the loan to value percentage and therefore will be lower the higher the deposit is, although these will normally operate in bandings, so it would be worth establishing what they are.

Fundamentally you need to decide how much of your capital you're prepared to tie up in illiquid form, and relative returns on investment are likely to be a side issue, although essentially you're comparing the mortgage rate with net returns elsewhere.  You'd also need to consider timescales, i.e. over what timeframe are you going to evaluate the options, as well as risk tolerance, and broader financial circumstances, e.g. age, health, family, job security, other assets, etc, etc....

Many thanks for the response.

In terms of my situation I'm relatively risk averse in terms of investments. I'm mid 40s and considering retirement in around 15 years. I have good pension savings and my job is secure for the next 10 years or so before AI technology potentially has more of an impact on my line of work.

If you have 1 years worth of savings in cash in the bank or an ISA and are saving at least 10% of your gross salary into pensions, and you don't have any other pressing use for your capital I would put down a big deposit and bargain for as low an interest rate as possible. If your mortgage rate was 1% or 2% I'd probably be investing rather than making a large deposit, but a 4% or 5% saving your overall interest payments looks like a reasonable deal. Of course only lock the money up in the house if you don't need it for anything else.

Thanks a lot for the response, that makes a lot of sense!

For me the primary personal finance things to get nailed down are savings, pensions and ISAs. Once you are funding those adequately then think about deposits and mortgages.

k6chris

How would you feel if the headline value of your investment went down by £50,000 in a few weeks?  If it would cause you to lose sleep, buy the house (where the value is not calculated every day!)

tdarr

k6chris said:

How would you feel if the headline value of your investment went down by £50,000 in a few weeks?  If it would cause you to lose sleep, buy the house (where the value is not calculated every day!)

Thanks, that's a good point - that likely would cause me some sleepless nights