How much of a deposit to put down on first house.

[AdviceHunter]

In parallel to another recent post, I just want to run my logic by the PH Finance crowd to see if my reasoning makes sense, or if I’m missing something fundamental.

I am around 30 years old and have always rented due to being mobile with work, in UK and overseas. In a few months’ time, I will have accrued approximately £100,000 which I intend to put towards my first house, ideally a ‘keeper’. I anticipate the value of the house will be around £250,000 (four bed, nice area, up north). I earn a relatively steady wage and don’t see this changing, at least £40,000 in the North of England. I also have the option to earn more overseas if required.

I always wanted to have a small a mortgage as possible if circumstance allowed and have always been risk averse in terms of credit, loans and the like.

So, the question is, does my life long belief of putting down as much as possible make sense (ie. the full £100,000, with a bit aside for a rainy day) or do I just go for the ‘enough to get a good rate’ (ie. £62,500, or 25%) and invest the remainder elsewhere?

I have researched online, and often see 'above 25% for the best mortgage deals' mentioned, but very little information regarding higher deposits.

Just looking for advice on how others would handle similar circumstances.

Cheers.

[AB]

All of it.

Look at the interest you'll pay on anything you don't put down and borrow. Instead...

[vescaegg]

Perhaps look at an offset mortgage? That way you have the money for whenever you need it but your mortgage interest will be reduced?

[red_slr]

It looks like rates are going to rise - so I think the less you have to borrow the better.
I think most banks stress test at 6 or 7% now?

[Shirt587]

Was in a similar position with similar numbers a couple of years ago. We put down approx 75% of what we had as a deposit (which just got us into the 70% LTV bracket for the mortgage rates) and sat on the rest. We then had to do a few repairs to the house, spend money on paint/carpets/etc which came out of the remaining "deposit" so we didn't suddenly find ourselves struggling for cash.

Once all that was done, we threw what was left into the mortgage - we could do this because we picked a tracker rate because we wanted to overpay from the get-go and fixed (at the time) made no sense at all.

[gibbon]

Pay down the minimum required to get the best rate.

35% to secure a sub 1.5% fix for two years I would imagine.

Then readdress in 2 years time.

[gangzoom]

A 40% deposit gets you the best rates, that's what we are saving towards for the next house.

I'm always intrigued by people offering up investment ideas for large pots of money rather than getting rid of the mortgage...My current mortgage repayment is £470/month, but the bank takes £170 of that as interest, this is on a 3.99% APR. Personally I struggle to find any investment that can return that amount of interest...Hence for the last 10 years I've always tried my hardest to overpay the mortgage.

[gregf40]

AB said:

All of it.

Look at the interest you'll pay on anything you don't put down and borrow. Instead...

I don't agree at all - mortgage money is the cheapest you will ever get.

I'd pay the minimum deposit/repayments you can and invest the rest.

[iphonedyou]

gregf40 said:

I don't agree at all - mortgage money is the cheapest you will ever get.

I'd pay the minimum deposit/repayments you can and invest the rest.

In what? Give us some rough, achievable figures based on, say, a 10% mortgage on a £250,000 house. It's a given that you'll need to beat the stupidly high interest rate OP will be paying if following your advice.

Go go go!

[gregf40]

Giving figures is pointless as nothing is guaranteed.

Saying that - buy a FTSE100 tracker...use the dividends to pay the mortgage (and top if if necessary) and you can bet your house (literally) that over 25-30 years the FTSE100 will be up and not down.

The FTSE100 based on most fundamental analysis is historically low at the moment - and currently yields about 4%.

That's what I would be doing if I was in OP's situation.

[yellowtang]

OP has stated that he is risk averse, wants a small a mortgage as possible and that his future earnings are secure.

Surely then the answer is simply to put all of the capital into the deposit and mortgage the balance for as short a term as he can afford.

[Beggarall]

My view (for what it is worth) and what I would do in the same situation. I wouldn't sink all my savings into the mortgage at this stage as borrowing is at its lowest historic level ever and I don't see any drivers to increase it any time soon. I also like to keep a contingency fund against unexpected catastrophe or major unforeseen expense. Therefore, I would use the minimum amount of my savings to secure the best mortgage rate I could and with the rest put some on short term deposit (poor interest rates but immediately available or even premium bonds) and consider a longer term investment for the remainder but use some of the cash to furnish my home to a high standard. So figures look like £40-50K deposit, £20K contingency, £10K furnishings generally and rest somewhere safeish (FTSE tracker for example) and longer term but knowing you could use it to reduce your mortgage if rates went up. Or you could take the lot to the race-course!!!

[Beggarall]

My view (for what it is worth) and what I would do in the same situation. I wouldn't sink all my savings into the mortgage at this stage as borrowing is at its lowest historic level ever and I don't see any drivers to increase it any time soon. I also like to keep a contingency fund against unexpected catastrophe or major unforeseen expense. Therefore, I would use the minimum amount of my savings to secure the best mortgage rate I could and with the rest put some on short term deposit (poor interest rates but immediately available or even premium bonds) and consider a longer term investment for the remainder but use some of the cash to furnish my home to a high standard. So figures look like £40-50K deposit, £20K contingency, £10K furnishings generally and rest somewhere safeish (FTSE tracker for example) and longer term but knowing you could use it to reduce your mortgage if rates went up. Or you could take the lot to the race-course!!!

[Pit Pony]

Having become addicted to Homes under the hammer, I'd suggest spending £60K cash as auction, and another £40K on fixing it up and it'll definitely be worth £200K once done. Then you can remortgage it taking out £100K of equity and spend that £100K in the same way.

Back in the real world, spend a bit less than the £100K deposit you have, because you are going to need carpets and kitchens and repairs and improvements. I suggest £70K deposit, on a £210K house.

[economicpygmy]

Work out how much you could survive on over 6 months. Keep that aside and put the rest into the house.

Its refreshing to hear someone else who doesnt like debt!

[davepoth]

Whatever you do, factor in for as much overpaying in the next couple of years as you can. Even paying in £1 extra a month will save you £200 over the life of the mortgage based on £125k at 4%. If you are lucky enough to be able to find £100 a month you'll save 16 grand and pay off the mortgage 5 years earlier. It also protects you against rate rises.

[brickwall]

gibbon said:

Pay down the minimum required to get the best rate.

35% to secure a sub 1.5% fix for two years I would imagine.

Then readdress in 2 years time.

+1

Depends on the back, but 35% or 40% deposit tends to get the lowest rates - as gibbon says you should be able to get a 2-year fix for under 1.5%

In this scenario there is no point putting down 37% if you can get the same rate on a 35% deposit.

This is precisely what I did - I could afford ~30% deposit, but put down 25.01% and kept the rest in the bank (earning a higher interest than the mortgage, and giving me renovation funds).

[gangzoom]

gregf40 said:

Giving figures is pointless as nothing is guaranteed.

Saying that - buy a FTSE100 tracker...use the dividends to pay the mortgage (and top if if necessary) and you can bet your house (literally) that over 25-30 years the FTSE100 will be up and not down.

The FTSE100 based on most fundamental analysis is historically low at the moment - and currently yields about 4%.

That's what I would be doing if I was in OP's situation.

So guess the 2008 financial crash will never happen again, and we could have all predicated that oil prices would be half what we were paying 12 months ago??

If you have the funds and appetite for gambling with your money than go for it, I wish you luck and I guess your probably a millionaire rolling around in cash, so the thought of losing £100k is nothing..but we've had to work hard to achieve our savings, and as long as I have a mortgage out standing I wouldn't be betting my money trying to second guess the markets. Though I do know our pensions are pretty dependent on it.

Edited by gangzoom on Saturday 20th December 09:29

[BoRED S2upid]

Just take a look at your mortgage offer over 20 years to see how much interest your paying an eye watering amount over that period. Far better to get it cleared ASAP and not pay the bank tens of thousands in interest.