I'm currently buying, but getting cold feet...!

want2beMF

You sound similar to my position a couple of months back when we were deciding to rent or buy. We made the same calculations as you and realised tat paying rental is approx the same as paying a mortgage (we are staying in London). So we decided to make the decision to buy.

I know someone else has mentioned abt counting interest on deposit, mortgage etc before buying and we didn't do tat much detailed calculation but we roughly did the sums and renting would cost us 1200 per month while mortgage on interest only (800) so it did seem worthwhile for us to go ahead and buy.

HTH.. And as others in this post have also said, there's nothing like a first night in your first home. :j

geoffky

If i was you i would get fast feet.right out of the market

hethmar

You need a place to live, you can afford this place and you have knocked a large percentage off it. If you both like it, if its what you really want, then go ahead.

vwjo

Hi Bishop - we've just bought our first house, and are due to move in next Friday! I, too, got a little panicked at one stage, reading some of the posts on here.... When I stood back and looked at the situation I realised that the people in my life with financial know-how (my boss, dad, stepdad) all advised me to go for it. They all know me personally, care about my welfare, and know my financial situation. When I weighed this up against the posters on here (one of which once referred to me as 'stupid') I knew what to do.

For me, I have as steady and reliable a job as anybody, am well organised with my finances, and have no intention of moving again for at least another 10 years. It might go wrong. It might not! That's life!

I say, if you go into it with your eyes wide open, then know and trust your own judgment and instincts. And most of all, the very best of good luck to you!

franklee

want2beMF wrote: »

I know someone else has mentioned abt counting interest on deposit, mortgage etc before buying and we didn't do tat much detailed calculation but we roughly did the sums and renting would cost us 1200 per month while mortgage on interest only (800) so it did seem worthwhile for us to go ahead and buy.

Interesting figures, that's miles sway from what renting vs buying costs round this way. I'd be interested to know purchase price of the property, size of mortgage and approx. value of the property you would rent for 1200 per month. Round here rents are approx. the same as an interest only mortgage with a small deposit for a similar property. So rent vs buy is pretty much break even if house prices remain static. Therefore the financial part of the decision comes down to what one thinks house prices will do and how much one wants to buy If I was to downsize from a two bed to a one bed then of course I'm no longer comparing like with like

franklee

Hi Bishop87,

The figures you gave:

Buy:
Purchase price: 103k
95% mortgage.
Mortgage interest rate: 6.4% (5yr fixed rate)
Monthly mortgage payment: 590

Rent:
Monthly rent: 650

Crash:
Possible house price drop 20%

I can't get your figures to fit so I've done as near an example as I can using the mortgage calculator here:

http://www.fool.co.uk/mortgages/CalculatorRepay.aspx

I input:

How much do you want to borrow? 99000
For how many years? 35
What is the rate of interest on the mortgage? 6.4

I guessed your deposit as 4K and mortgage term 35 years as the monthly repayment was too high compared to yours for 25 years. The answers it gives:

The monthly payment for an interest only mortgage will be £528
The monthly payment for a repayment mortgage will be £591

In this example the amounts paid off the mortgage each year is:

Year 1 779
Year 2 830
Year 3 885
Year 4 943
Year 5 1005

I've assumed:
Savings rate: 6% less basic rate tax.
Rents remain static for three years.
Obviously you can tweak these to fit your circumstances.

So to compare buying vs renting to see where you will be in three years time:

Buying:
Mortgage payments: 591*12*3=21276
Amount paid off mortgage: 779+830+885=2494
Total outgoings: 21276-2494=18782

Renting:
Rent 650*12*3=23400
Interest on 4K deposit: 576
Total outgoings: 23400-576=22824

So if house prices remain static over the next three years you will be 22824-18782=4042 better off buying than renting in this example. At the end of three years you will have equity in your property of:

Purchase price and value after three years: 103000
Deposit paid: 4000
Amount paid off mortgage: 2494
Total equity: 4000+2494=6494
Total owed on mortgage: 99000-2494=96506

You mentioned what would happen of house prices drop 20% in three years.

Drop of 20%: 103000*20/100=20600
Value of house would then be: 103000-20600=82400
Amount of negative equity: 96506-82400=14106

So if house prices drop 20% over the next three years you will be 20600-4042=16558 better off renting and you will not have the headache of negative equity.

Interesting to note that your rent compared to house value is a lot higher for you than it is for me. I'd expect to pay 695pcm rent for a property worth approx. 200K.

Hope this is useful.

franklee

PS: When I say if house prices drop 20% over the next three years you will be 20600-4042=16558 better off renting I mean that's the immediate saving at the time. How much extra you would save after that depends on what you then do. For example if you were to purchase the (or a similar) house for 82400 then over the lifetime of the mortgage your saving would be even greater as there will be less interest to pay as it's a smaller loan. This is a bit hard to quantify as it's hard to predict exactly what you would do if you waited for and got a 20% crash, you may just decide to buy a better house instead

PPS: This doesn't mean I think there will be a 20% crash, that was your figure.

Alan_M_2

Also factor maintenance into the above figures, which is a somewhat unknown quantity with owning.

With renting however, it's always zero.

There is no doubt in a static or rising market that home owning makes sense.

In a falling market it's not always clear cut, but each case is different.

In the figures I'm not sure you're comparing like with like. Not many properties valued at £103,000 rent for £600 - £650 a month.

The property I currently rent at £800 per month is currently worth in the region of £230,000 - £250,000 depending on which estate agent you believe, and this has come down from close to £300,000.

Run the figures through on the the basis of the figures above
and the difference is so clear cut you'd come to the decision of why would I buy at all? But like I said, each case needs to be taken on it's own merits.

brit1234

franklee wrote: »

PPS: This doesn't mean I think there will be a 20% crash, that was your figure.

Your right it is going to fall 20% this year alone and down 40-50% in the next couple of years.


Makes sense to rent and see how the market will go to save you making the biggest financial mistake of your life.:exclamati

clobber_2

Does anyone else wonder how they got the pool table into the attic room?