Rent/mortgage conundrum
Discussion
I'm looking to make my first step onto the property ladder over the next couple of years and have a few options available to me. Completely unsure which one would be best for me so would be good to get the opinions of others who have experience in the market.
Bit of background:
I'm 24 living with a long term girlfriend. Combined income of around 60k, currently saving around £1500 between us so by July we will have saved around 15k. We are in a rent contract until July so in no rush to make a decision.
Option 1. Continue renting until I have around a 10% deposit (approx 25k) to put down. This would probably be around a year. Go and rent in the mean time. My problem with this is that the rent is dead money and pretty much paying off someone' else's mortgage.
Option 2. Take the 15k saved by July and buy a nice 2 bed apartment/flat. I'd be paying off my own mortgage that way at least. In the meantime I can continue saving for the next step up the property ladder. Issue wih this is that I'd prefer a house but I would be able to survive in a flat for a few years.
Option 3. Take the 15k and look for a 95% deposit on a similar house to what I'd be looking to buy in option 1/next step in option 2. My issue with this is that I have heard that 95% deposits are pretty risky in case of a sudden house price drop.
What would you do?
Bit of background:
I'm 24 living with a long term girlfriend. Combined income of around 60k, currently saving around £1500 between us so by July we will have saved around 15k. We are in a rent contract until July so in no rush to make a decision.
Option 1. Continue renting until I have around a 10% deposit (approx 25k) to put down. This would probably be around a year. Go and rent in the mean time. My problem with this is that the rent is dead money and pretty much paying off someone' else's mortgage.
Option 2. Take the 15k saved by July and buy a nice 2 bed apartment/flat. I'd be paying off my own mortgage that way at least. In the meantime I can continue saving for the next step up the property ladder. Issue wih this is that I'd prefer a house but I would be able to survive in a flat for a few years.
Option 3. Take the 15k and look for a 95% deposit on a similar house to what I'd be looking to buy in option 1/next step in option 2. My issue with this is that I have heard that 95% deposits are pretty risky in case of a sudden house price drop.
What would you do?
Option 1
OR borrow the cash from family citing the dead money of renting for another year issue.
Also, in practice it's easy to say you'll have 25k saved in a year, but given you're starting from not a lot, I would see how you get on; a lot can change in a year. Job loss, car issues, etc etc. I don't think it's worth buying a stopgap for the sake of another 6-12 months renting. Buying twice when you could have bought once will cost you more in fees and stamp duty than a few months rent anyway. Not to mention the stress of moving and all the rest of the hassle that goes with moving.
OR borrow the cash from family citing the dead money of renting for another year issue.
Also, in practice it's easy to say you'll have 25k saved in a year, but given you're starting from not a lot, I would see how you get on; a lot can change in a year. Job loss, car issues, etc etc. I don't think it's worth buying a stopgap for the sake of another 6-12 months renting. Buying twice when you could have bought once will cost you more in fees and stamp duty than a few months rent anyway. Not to mention the stress of moving and all the rest of the hassle that goes with moving.
If the time to save for the house he wants was measured in years vs the flat then yes. But am extra few months is nothing. You'd be a fool to buy something that didn't really satisfy you for the sake of saving a few quid in rent. And as said above anything you saved would be eaten by moving twice vs once.
fiatpower said:
I have heard that 95% deposits are pretty risky in case of a sudden house price drop.
This is only relevant if you decide you need to sell the house (in the event of job loss or something).Lots of people got in to negative equity when the recession kicked in a few years ago but it really doesn't make a blind bit of difference unless you actually want to sell the property.
Incidentally, I'd go for option 1. I'd guess you've been renting for some time anyway so another 6 months to a year probably wont hurt much.
okgo said:
If the time to save for the house he wants was measured in years vs the flat then yes. But am extra few months is nothing. You'd be a fool to buy something that didn't really satisfy you for the sake of saving a few quid in rent. And as said above anything you saved would be eaten by moving twice vs once.
I think it could be 18 to 24 months until I had a reasonable amount saved up. If I'm lucky it could be 12 months but like you said unseen circumstances could hinder my saving. skahigh said:
Incidentally, I'd go for option 1. I'd guess you've been renting for some time anyway so another 6 months to a year probably wont hurt much.
Unless the property you want is going up by £1500pcm, in which case your saving is for nought.I think of the time I got on the housing ladder. Bought a house in 1987 for £40K. 16 months later it was worth £70K. Now that might not happen again, but the point is that I was renting for all of 1986. If I'd bought a year earlier I might now be living in a 5-bed house not 3-bed. Had I delayed any longer I'd be in a 2 bed and had a bigger mortgage...
Simpo Two said:
skahigh said:
Incidentally, I'd go for option 1. I'd guess you've been renting for some time anyway so another 6 months to a year probably wont hurt much.
Unless the property you want is going up by £1500pcm, in which case your saving is for nought.I think of the time I got on the housing ladder. Bought a house in 1987 for £40K. 16 months later it was worth £70K. Now that might not happen again, but the point is that I was renting for all of 1986. If I'd bought a year earlier I might now be living in a 5-bed house not 3-bed. Had I delayed any longer I'd be in a 2 bed and had a bigger mortgage...
Thing is, buying now and moving again in 18-24 months is going to incur lots of additional costs like solicitors fees, moving fees, stamp duty, etc. which could run in to several thousand and should be factored in.
steve954 said:
I'm thinking option 3 but then overpay the mortgage to bring it down 10k to 10% you are looking for! Plus put the mortgage over 35 years to start with to make payments easier then remortgage in a few years time for a lower term.
This so when you are looking at 95% mortgages look at the amount that they let you overpay per year to make sure that it works for you.Froomee said:
Buy as soon as possible. House prices generally go up and renting is dead money.
Lots of factors like the stamp duty change, low interest rates, etc mean this is unlikely to change anytime soon in my opinion.
and this is why the government has to prop up the property market because we have such deep routed stupid ideas about propertyLots of factors like the stamp duty change, low interest rates, etc mean this is unlikely to change anytime soon in my opinion.
house prices generally go up: it's a cycle. not an upward trend
renting is dead money: as supposed to an interest only mortgage which exposes you to a variable asset?
To all those writing "renting is dead money" I think you need to learn some basic finance.
If you do the numbers on renting vs. buying, rent is effectively the equivalent of the interest only part of a mortgage.
Almost everybody has to pay "rent" either to the landlord to let you live in his house or to the bank who lend you the money to buy a house.
The major difference is that obviously you don't participate in the upside/downside of house prices if you rent.
(Frankly, even if you buy a house outright you are really paying "rent" in the form of opportunity cost of not investing that money elsewhere to give you income.)
So for 95% of cases trying to determine between rent vs. buy you need to consider the short term house price movement.
Since most of the world seems to think house prices only ever go up, almost inevitably people say you should buy as early as possible.
But in London right now we saw £30k knocked off the average house price last month.
So there is no major hurry to buy in London.
You should also make absolutely sure about what interest rate hit you will take with the higher LTVs - as that will make a very large difference to your monthly outgoings.
If you do the numbers on renting vs. buying, rent is effectively the equivalent of the interest only part of a mortgage.
Almost everybody has to pay "rent" either to the landlord to let you live in his house or to the bank who lend you the money to buy a house.
The major difference is that obviously you don't participate in the upside/downside of house prices if you rent.
(Frankly, even if you buy a house outright you are really paying "rent" in the form of opportunity cost of not investing that money elsewhere to give you income.)
So for 95% of cases trying to determine between rent vs. buy you need to consider the short term house price movement.
Since most of the world seems to think house prices only ever go up, almost inevitably people say you should buy as early as possible.
But in London right now we saw £30k knocked off the average house price last month.
So there is no major hurry to buy in London.
You should also make absolutely sure about what interest rate hit you will take with the higher LTVs - as that will make a very large difference to your monthly outgoings.
walm said:
To all those writing "renting is dead money" I think you need to learn some basic finance.
If you do the numbers on renting vs. buying, rent is effectively the equivalent of the interest only part of a mortgage.
Almost everybody has to pay "rent" either to the landlord to let you live in his house or to the bank who lend you the money to buy a house.
The major difference is that obviously you don't participate in the upside/downside of house prices if you rent.
(Frankly, even if you buy a house outright you are really paying "rent" in the form of opportunity cost of not investing that money elsewhere to give you income.)
So for 95% of cases trying to determine between rent vs. buy you need to consider the short term house price movement.
Since most of the world seems to think house prices only ever go up, almost inevitably people say you should buy as early as possible.
But in London right now we saw £30k knocked off the average house price last month.
So there is no major hurry to buy in London.
You should also make absolutely sure about what interest rate hit you will take with the higher LTVs - as that will make a very large difference to your monthly outgoings.
30k off is just the fact that its over priced due to bein in the smoke IMO. If you do the numbers on renting vs. buying, rent is effectively the equivalent of the interest only part of a mortgage.
Almost everybody has to pay "rent" either to the landlord to let you live in his house or to the bank who lend you the money to buy a house.
The major difference is that obviously you don't participate in the upside/downside of house prices if you rent.
(Frankly, even if you buy a house outright you are really paying "rent" in the form of opportunity cost of not investing that money elsewhere to give you income.)
So for 95% of cases trying to determine between rent vs. buy you need to consider the short term house price movement.
Since most of the world seems to think house prices only ever go up, almost inevitably people say you should buy as early as possible.
But in London right now we saw £30k knocked off the average house price last month.
So there is no major hurry to buy in London.
You should also make absolutely sure about what interest rate hit you will take with the higher LTVs - as that will make a very large difference to your monthly outgoings.
And people are saying renting is dead money as all you are doing is payin someone elses mortgage off for them, and at the end of it you have zero assets whilst the landlord has an asset.
I know which id rather be paying.
cossy400 said:
30k off is just the fact that its over priced due to bein in the smoke IMO.
And people are saying renting is dead money as all you are doing is payin someone elses mortgage off for them, and at the end of it you have zero assets whilst the landlord has an asset.
I know which id rather be paying.
you're an idiot And people are saying renting is dead money as all you are doing is payin someone elses mortgage off for them, and at the end of it you have zero assets whilst the landlord has an asset.
I know which id rather be paying.
cossy400 said:
30k off is just the fact that its over priced due to bein in the smoke IMO.
And people are saying renting is dead money as all you are doing is payin someone elses mortgage off for them, and at the end of it you have zero assets whilst the landlord has an asset.
I know which id rather be paying.
you're an idiot And people are saying renting is dead money as all you are doing is payin someone elses mortgage off for them, and at the end of it you have zero assets whilst the landlord has an asset.
I know which id rather be paying.
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