Nearly new car purchase - bank loan advice

[liquiddb]

Hello,

I've been lurking for a few years and this is my first topic, so please go easy on me

Long story short, I need to replace my current car as I'm preempting it's inevitable death. I'm 27, rent in the centre of Manchester and I'm in a good job with significant money saved up. I finished paying off a £7.5k loan on my previous car with no missed/late payments. Credit score is excellent.

I'm angling towards a 13/14 plate M135i for a whole host of reasons, but how I fund that car is the burning question. I want someone with more logic/intelligence than me to sanity check what I'm thinking of doing basically.

I don't want to buy the car with all of my own cash, as I'll be buying a house in the next 12-18 months hopefully. The plan is to part-ex my current car for £2k, chuck in £2k of my own cash and borrow around £15k from Sainsbury's @ 3.4% over 4.5 years. If I run into trouble or choose to buy a house sooner, I can sell the car and clear the loan as I should be in positive equity right? I'll be doing average mileage and I'm looking at examples with no more than 35-40k on the clock (seen some as low as 15k but poorly specced).

Leasing and PCP are more expensive over the full term, and I won't have 100% flexibility if I A. run into trouble or B. choose to buy a house earlier. Even with the personal loan @ £299 a month, plus other expenses such as insurance/tax/MOT/servicing/warranty/maintenance I can still afford to save money towards a house and have disposable income to live my life.

I know the simple answer is keep my current car, save even more per month and buy a house sooner, but I desperately need a new car (and something I can enjoy as my job requires me to be in a car a lot). By my probably flawed logic, I can enjoy a lovely car and still take steps towards a house.

Any help would be greatly appreciated!

[mike9009]

This is a really complex question which at the end can only be answered by you. A lot of things can change in the next four and a half years (the term of the loan)

1. Interest rates (for the mortgage) may well go up so you might not be able to afford the house you really want. Plus the loan will count against you in terms of affordability)
2. Housing market (where is it going to go?) If up then in five years time you won't be able to afford the same house as now. If down then you may catch a bargain in 12 months or so.
3. Depreciation of the BMW?
4. Are you in a relationship/ planning for kids? Will you?

I bought a house before I started buying nicer cars. Now, at the grand old age of 42, I have almost paid my mortgage off, owned some nice cars, but now have two kids. My cars in the last few years have been cheaper, older and I hang on to them longer (better the devil you know!). I did go through a stage of cheaper cars which I changed more frequently which was good fun too, as I could experience different things.....

It sounds like the £300pm is affordable, so if you need to itch the itch, I would just go for it - but when you have two kids, that £300pm goes a long way to helping and you may look back ad think it was a little frivolous. (It has enabled my wife to give up work and drag the kids up which I firmly believe will really benefit them).


Mike

[jonny70]

Know-one here can give you accurate/good advise without knowing how much cash you have saved up( towards deposit) , the cost of flat/ house you want to buy and thirdly your salary .

If you have a 5k deposit and wanted to buys 150 k flat and earned 25k a year would be a different answer from having 80k saved up for a 120k flat and earning 22k ! ( you have missed the key details to give the right answer)

[Evanivitch]

I'd wait it out if you're planning to buy a house in the near term, it could be the difference between what you want and what you get in terms of available mortgage.

If you think your car might expire, get a 2 grand Yaris, it'll be worth about that in 18 months time.

[liquiddb]

Firstly, thanks for the replies guys. Really helpful and always good to get more well rounded advice!

In answer to a couple of your questions:

1. By the end of the year I'll have £20k in the bank. Salary £40k and my current outgoings are rent+bills £370, phone £20, gym £70 and bank £17. I will be moving into a higher paid job Q1/Q2 2017, likely to be £45k+ if this year pans out well!
2. No fiance/wife, no kids and I don't plan on having them either
3. I can claim business miles back at 45p/m for the first 10k then 25p/m after that

I'm in absolutely no rush to get on the housing ladder. Quite happy to keep on saving until I find something I like! I can say for certain that I have no interest to buy in the next 12 months due to work, relationship and the fact I'm happy to share a city centre apartment with a good friend.

My plan is to purchase the M135i and sell around 3 months before I get a mortgage so it doesn't impact affordability etc. This is the main reason I'm against PCP, leasing etc - I want complete flexibility.

With regards to the info above, how does that sound? A bit more favourable?

[jimmybell]

I went through this process recently - both house purchase, and considering an m135i and the possible finance options for it. FWIW i ended up buying a C63 but that's neither here nor there, the m135 is a sensible choice. Not many cars that tick practical and performance and be modern at that price. It's worth running the numbers on a new purchase - there are huge discounts available (checkout babybmw and look for the dealer that is offering forum discounts - ie.. 38k list at 30k on pcp). The loan does give the benefit of flexibility though - not being tied to the car enables you to cash out whenever you like (at a 2 month's worth of interest penalty).

After evaluating all of the options (PCP new, used, hp, loan, etc) i determined the sainsburys loan is the cheapest method.

Personally - I'd go for i. Bare in mind the sainsbury's listed rates are not always what's offered once you apply - they may just tack on 1% and see if you'll go for it. If so - ring them up - say the rate isn't what you'd wanted/expected - can they improve on it? They can improve on it (and did - for me), but presumably it's your circumstances that dictate.

What i would suggest is more important (the car is a no brainer as long as you can afford it comfortably, it's a great hot hatch) is to consider the implications to your mortgage application - typically mortgage apps are based on salary multipliers. Any monthly outgoings (such as credit card commitments, loans, student loan etc etc) are subtracted from your monthly gross - and the resulting figured multiplied by 12 to create your 'salary' in the lender's eyes. This is then multiplied by whatever the mortgage firm's multiplier is to determine the max lending amount. IT maybe you're only looking to borrow a small percentage, but if you're anywhere near your max potential borrow - consider this. Stupidly most lenders ignore any actual outstanding debt and only look at the monthly commitments - so a 72 month loan vs a 48 month loan would improve this, despite the increased cost of the finance and the longer commitment.

[jimmybell]

liquiddb said:

Firstly, thanks for the replies guys. Really helpful and always good to get more well rounded advice!

In answer to a couple of your questions:

1. By the end of the year I'll have £20k in the bank. Salary £40k and my current outgoings are rent+bills £370, phone £20, gym £70 and bank £17. I will be moving into a higher paid job Q1/Q2 2017, likely to be £45k+ if this year pans out well!
2. No fiance/wife, no kids and I don't plan on having them either
3. I can claim business miles back at 45p/m for the first 10k then 25p/m after that

I'm in absolutely no rush to get on the housing ladder. Quite happy to keep on saving until I find something I like! I can say for certain that I have no interest to buy in the next 12 months due to work, relationship and the fact I'm happy to share a city centre apartment with a good friend.

My plan is to purchase the M135i and sell around 3 months before I get a mortgage so it doesn't impact affordability etc. This is the main reason I'm against PCP, leasing etc - I want complete flexibility.

With regards to the info above, how does that sound? A bit more favourable?

Looks like i hit reply, waited 10 mins then typed it. feel free to ignore some of my blurb but at least you're considering it

The loan method definitely offers flexibility (and is in fact cheaper to own per annum than PCPing it).

[Rosscow]

You say you do average miles, but then say you'll be in your car a lot?

What do you class as average miles and have you factored in running costs of 135i?

[MrBarry123]

jimmybell said:

I went through this process recently ... considering an m135i ... i ended up buying a C63

OP - on the basis of this, don't take any advice from this poster!



No offence Jimmy!

[liquiddb]

jimmybell said:

I went through this process recently - both house purchase, and considering an m135i and the possible finance options for it. FWIW i ended up buying a C63 but that's neither here nor there, the m135 is a sensible choice. Not many cars that tick practical and performance and be modern at that price. It's worth running the numbers on a new purchase - there are huge discounts available (checkout babybmw and look for the dealer that is offering forum discounts - ie.. 38k list at 30k on pcp). The loan does give the benefit of flexibility though - not being tied to the car enables you to cash out whenever you like (at a 2 month's worth of interest penalty).

The above is the main logic behind my thinking. If for some unforeseen reason I can no longer afford to the run the car or I don't actually like it, I can sell it to clear the loan. Yes, I'll be back to square 1 essentially. But I have peace of mind with the flexibility available.

jimmybell said:

Personally - I'd go for i. Bare in mind the sainsbury's listed rates are not always what's offered once you apply - they may just tack on 1% and see if you'll go for it. If so - ring them up - say the rate isn't what you'd wanted/expected - can they improve on it? They can improve on it (and did - for me), but presumably it's your circumstances that dictate.

I'm looking at 4.5 years for £15k which comes in just shy of £300. If they offer me something ridiculous like 7-8% and I can't negotiate closer to 3.4%, I'll reevaluate my options.

jimmybell said:

What i would suggest is more important (the car is a no brainer as long as you can afford it comfortably, it's a great hot hatch) is to consider the implications to your mortgage application - typically mortgage apps are based on salary multipliers. Any monthly outgoings (such as credit card commitments, loans, student loan etc etc) are subtracted from your monthly gross - and the resulting figured multiplied by 12 to create your 'salary' in the lender's eyes. This is then multiplied by whatever the mortgage firm's multiplier is to determine the max lending amount. IT maybe you're only looking to borrow a small percentage, but if you're anywhere near your max potential borrow - consider this. Stupidly most lenders ignore any actual outstanding debt and only look at the monthly commitments - so a 72 month loan vs a 48 month loan would improve this, despite the increased cost of the finance and the longer commitment.

In my mind will this issue not be eliminated if A. I sell the car prior to applying for a mortgage or B. salary increases to cover the deficit before the application. Obviously the former is more likely in this scenario.

My thinking is to sell prior to applying and then PCP/lease/buy a new car after the house. Does that sound daft or reasonable?

Thank you for the help - much appreciated.

[liquiddb]

Rosscow said:

You say you do average miles, but then say you'll be in your car a lot?

What do you class as average miles and have you factored in running costs of 135i?

My work is completely flexible. So in a typical week I'll work from home 1-2 days, in the office 1-2 days (60 mile round trip down the M62) and potentally a site visit which can be anywhere in the country (Lake District at the moment so a 240 mile round trip). I'll fly to longer site visits so the car will sit at home on the road.

Personal mileage is very much based around my work schedule. The occasional trip to footy practice which is a mile etc.

I've factored in the following:

Servicing: ideally source a car with the pack but £140 from Coastal Racing (favoured independent) every 1-2 years
Tyres: 4x MPSS once every two years at the most - £530 for set
Warranty: BMW AUC ideally with 12 months - £330/y after that
Fuel: I currently spend around £40-50 a week in my Mini which averages 36mpg, I'm expecting this to increase by £10-20 per week at the most

Can't think of much else other than repairs/brakes/discs etc?

Edited by liquiddb on Friday 15th July 12:56

[Liggle]

You've already justified it and can comfortably afford so go for it. Having chosen a 'sensible' diesel daily (325d E92) cash bought rather than something like you are talking about, the extra costs of maintenance and faults have wiped out the fuel saving of diesel. I do 3k miles a month and it would have been cheaper for me to run a warranty covered more expensive petrol car such as a 135i !

As someone else has mentioned your mortgage affordability will be based on the monthly commitment not the amount owed.

[fat80b]

Personally, I would put your sensible head on and look at a different option rather than a 15K loan when you don't own a house.

Selling the car and paying off the loan will seem highly unpalatable when the time comes. Even if you were positive equity wise, you would still have to buy a car at that time which will end up costing more than the equity and hence taking money out of your savings / house deposit. You'll then try and convince yourself that it is cheaper to keep the car & the loan.......

If you are going to go down this route, I would consider something that will not depreciate as much as a 135i / costs less to start with.

But the correct answer is to find something for £4K that is fun (a little bit older). Even if it does have problems, you can easily fix them / rent a replacement temporarily as you'll be £299 per month better off every month.....

Nissan 350Z perhaps (other good choices also exist)

Bob

[liquiddb]

I was expecting sensible answers, so thank you for the advice!

From a personal perspective I'm holding fire on buying for a couple of reasons:

1. I pay basically nothing for my current flat and I'm planning to stay here until my flatmate moves out (next 12 months). Yes, the saving could be put towards a house, but it could also be put towards a car
2. I want to move in with the girlfriend before buying, which will be after my flatmate moves out (minimum of 6 months renting together)
3. As I'm planning to move into a new job Q1/Q2 next year, I want to settle into that before considering to buy (approximately 12 months on from that)

So taking those into account I won't be buying for 18 months at the minimum. I'm not sure if I can last in a £4k banger for 18 months+.

From an "enjoying the fruits of your labour" perspective, I can afford to run the car and save for a house. So why not do that for 12-18 months, firm up the job/relationship situation and then look to buy? Who know's, I might end up in a higher paid job which cancels out costs associated with running the car so I won't even need to sell. This makes some sense right?

If I was buying in the next 6 months, I'd be saving every last penny and running my car into the ground, rather than looking to purchase something more up market.

[rossub]

£19k does seem a lot to spend when you're not a home owner - about 50% of gross salary too.

A lot of nice metal available for £10-12k that would be fast and reliable for the next couple of years. No need to run a £4K stter on £40k a year given your circumstances though.

[liquiddb]

rossub said:

£19k does seem a lot to spend when you're not a home owner - about 50% of gross salary too.

A lot of nice metal available for £10-12k that would be fast and reliable for the next couple of years. No need to run a £4K stter on £40k a year given your circumstances though.

If I'm spending £12k in total, why not spend the extra and get the car I really want?

[Trabi601]

liquiddb said:

rossub said:

£19k does seem a lot to spend when you're not a home owner - about 50% of gross salary too.

A lot of nice metal available for £10-12k that would be fast and reliable for the next couple of years. No need to run a £4K stter on £40k a year given your circumstances though.

If I'm spending £12k in total, why not spend the extra and get the car I really want?

Because getting a house should be your first priority. Manchester is still very affordable, so best to do that whilst you can.

I wouldn't agree with the post above - adjusting for inflation, that's circa the salary I was on at the same age - and I was running around in £2k worth of VW Passat with 150k miles on it - what I was doing, however, was ensuring I was paying the house down as quickly as possible.

[rossub]

liquiddb said:

If I'm spending £12k in total, why not spend the extra and get the car I really want?

Because £19k is 60% more than £12k and £12k is a bit more palatable 30% of gross salary. It's your money at the end of the day though.

[jimmybell]

I'd personally worry more about the cost to own (monthly outlay, vs net income) above the ticket price.. if you have all of money saved and can afford to temporarily part with it (and lose some in depreciation) then it's an easy decision.

If you earn 1500 a month and are spending 500 on a car.. perhaps think again. (example)

[Audemars]

You cant afford a £15k car. There are plenty of decent reliable cars out there for less than £5k. Buy one of these and run it for 10 years.