Mortgage Deposit Saving and Need a New Car

Smiddlewood

Long time lerker, first time poster. 

My wife and I are successfully building savings for a deposit on our next home (currently mortgaged on our first home, and will sell and move)

However, we need to buy a new car as the current daily driver is on its last legs. We are looking as spending around £15-18k on a nearly new. 

The question is:
Is it a better option to

A) cut into our continually building savings (future deposit pot) and likely have £15-18k less when it comes time to buy.

Or 

go through a PCP for the car 'purchase' (using the term loosely due to finance rather than owning the car) and have an additional regular monthly outgoing, when comes the time for mortgage applications.

Or

C) is there another avenue at the moment which is worth considering (i.e. loan instead of PCP, but noting monthly payments would be higher with the loan as it would cover the entire cost of the car, where as PCP monthly would be lower thanks to the optional balloon payment at the end)

Thank you MSEF hive mind!
Moderators - please move this if I have not found the right place. 

Albermarle

When money is tight, maybe look at an older car.
Although 'nearly new' takes some of the edge off new car depreciation, it will still lose a lot of value in the first 3 years.
You would expect a car that was only 4 or 5 years old, to still be pretty reliable for some years. 

Smiddlewood

Thank you for your reply Albermarle.
To clarify, money is not right per say, and we can fund the car purchase outright as per option A above. The question is more related to if this is the right choice given the intention to sell the house and move to another, and need to remortgage for this propose within next 24 months or so. 

Smiddlewood

Smiddlewood said:

Thank you for your reply Albermarle.
To clarify, money is not right per say, and we can fund the car purchase outright as per option A above. The question is more related to if this is the right choice given the intention to sell the house and move to another, and need to remortgage for this propose within next 24 months or so. 

Money is not 'tight'
And to remortgage for this 'purpose'...

to correct my spelling errors. Clearly time to stop posting using autocorrect. 

jimjames

I'd agree with Albermarle that option D is probably better. Spending less on a car will get you to your deposit amount faster. If you're not in a rush to move and can delay by whatever time it takes to rebuild that £18k then go ahead as planned. I can't see many circumstances (at least from a financial perspective) when paying 14% interest on PCP and getting 4% on the same amount in savings is better than using savings instead.

n15h

If you took the money from your savings, how long would it take you to save 15-18k again? Would it be possible to save that in less than 24 months e.g., to save 18k in 24 months = £750 per month, to save 18k in 20 months = £900 per month.

If you took out some form of loan or finance, what are the monthly payments and would you pay more or less a month than the amount to save? An example personal loan calculator shows 18k at 6% for 2 years = £796 per month; 4 years = £420

You may want to do your own research on finance rates, costs, etc. and whether its better for you to use savings and build them back up, or to take out finance without depleting some of your savings.

However remember that when you apply for the new mortgage, the lender will check your income and expenditures to determine if you can afford the mortgage. This will include credit checks for any loans/finance you have and then use that as part of checking your affordability. So you'd need to be able to show the lender that you can afford the monthly mortgage payment and any other finance/debts without leaving yourself at risk of not having any money leftover each month.

Middle_of_the_Road

Albermarle said:

When money is tight, maybe look at an older car.
Although 'nearly new' takes some of the edge off new car depreciation, it will still lose a lot of value in the first 3 years.
You would expect a car that was only 4 or 5 years old, to still be pretty reliable for some years. 

Totally agree, a well maintained car can last up to 20 years, although the industry average is ~14 years.

@Smiddlewood
This being a moneysaving site, I doubt many would recommend depleting your house deposit savings to fund a car, either by way of loan or PCP arrangement.

You haven't said when the house move is likely to happen, or what age car you have presently, and any possible repairs it might need. If it is under around 10 years old, likely spending on repairing/ maintaining could well be cost effective.

If the car is truly beyond cost effective repair, and replacement being the only option, if I'd saved 100k towards a house move I'd really not want to spend 18k of it on a car, especially not with finance.

As we don't know the level of your deposit savings, and how much longer you'll be adding to them, it not possible to advise if the amount you're earmarking for the car is a good financial proposition. 

Altior

You could get a perfectly decent car for a few K cash as an interim measure, and upgrade after moving. 

Changing to any car is an inherent risk, even a brand new car can be off the road and back to the dealership for repairs (even though the money is covered, it's still inconvenient). 

InvesterJones

All other things being equal.. go for whichever option costs you the least interest overall. You are borrowing money for the house, or you are borrowing money for the car. I suspect the interest rate on a mortgage will be less than the real interest for car finance. The only exception being whether the additional deposit makes enough of a difference to the loan to value ratio that you end up with significantly better mortgage terms.

Albermarle

Also normally when buying a house, as well as the deposit, you need a few grand to pay the solicitor, surveyor, stamp duty etc.
Then most likely another few grand as soon as you move in for repairs, new carpets etc .
So saving £10K on buying a car would help a lot.

Smiddlewood

Thank you all for your views so far. I will add the needed specificity to my post:

Currently we have £80k saved, and are looking to move in 24 months from now. 
We don't really have the option to delay this as need to move into the area we want our daughter to attend school. So best to assume we do not have longer to make up the additional savings gap (from potential car purchase) 

Current car is 14 years old and beyond economical repair, and on top of that no longer suits our needs, so would be going at this point anyway. 

If we went down financing route of any sort, I would be looking for 4 years duration - most you can get on PCP and loan repayments although higher, would be containable within our monthly out goings now, and with the believe mortgage rates would not be sky high at the time we needed to get a new one. Obviously, if they were it probably curtails the move regardless and we need to think everything over.