FTB with deposit seeking advice. Keep renting or buy?

[amir_j]

Our situation

Married couple living in London, educated professionals in relatively good carrers.
50-75k deposit (50 cash/instant savings and rest in liquid investments - all saved ourselves with no help)
Would be looking go pay 1,300 ish a month mortgage with lots of overpayments and looking for a semi/detached or even a terrace(no desire to buy a flat)
We are saving around 3k a month. Wifes income is lower but secure and stable, im self employed so could see a decrease if economic events turned to the worse

Current situation:
Cheap (for london) rent on a 2 bed flat (£1k a month) with no/mininal increeses in forseeable future (private rental and well off landlord who isnt the penny watching type)
Fully furnished, minimal energy bills, low tax band, near a tube so home fo work in 30mins door to door, no noisy neighbours etc

Or in a nutshell a stress free lifestyle.

But getting into early 30s and planning to have a child in around 2 years so starting to think we need to move out to surbarbia, being prudent would not wanting to have too high a mortgage commitment (1.3k ish) incase my income affected in the future/wife takes time off for kids so looking at averge 2/3 bed homes in average towns.

Should we wait untill nearer having/had a child or move now is my dilemma, the fact that 12k a year is being spent on rent is not ideal but if we buy now then
-will likely not be the ideal house in the ideal location so if then moved again would be stamp duty twice and other moving costs,
-a good school today maybe poor in two years,
- would be spending in the home furnishings and maintenence which dont have fo worry about now,
- a longer commute etc

It make sense from a lifestyle point of view to leep renting here and saving to increase the budget but have the niggling worries of what if we miss out on the low mortgage rates of today, having a home, a garden. Possible capital appreciation etc

So am I mad fo not rush out and buy?

[pauldavies85]

I'm no financial expert but always remember how little of your mortgage repayment actually pays off the capital.

You say £1k a month is money down the drain, but in London to own a property of that sort you would be paying that at least in interest, this is a total guess understand!

No massive help to your question i know, there are better people to advise on this.

[walm]

You need to sit down and have a good hard think about understanding the difference between interest payments and interest+capital payments.

Paying interest (only) is almost exactly the same as paying rent.
You are just renting from a bank not a landlord.

So ignore paying down the mortgage - that is a saving decision and almost nothing to do with owning a house.

The problem you are probably going to have is the deposit.
Most decent rates need 25% minimum.
With £75k you could afford a £300k place.

How much do you think your current place is worth?

There are some 5 year fixes out there at close to 3% interest rate which means paying <£600 a month in interest.

That is a HUGE saving over your current rent but it depends on how much you think your place is worth.
Or looking at it another way - can you afford what you need for £300k?

If you don't mind compromising on the interest rate because you want a bigger place then you could get one of the 5 year fixes at 4.8% on 90% LTV so you can afford £750k but that's £2,700 interest a month!

The range is obviously pretty wide so the most important thing is working out what you are comfortable borrowing...
Speak to an IFA.
I am sure Scotal or Sarnie (IIRC) will help...

[amirzed]

I would buy for the simple fact that its nice to feel settled and chipping away at a mortgage feels nicer than paying rent. Even if you buy somewhere that isn't ideal for kids it doesn't stop you from renting that place out and then renting somewhere yourselves?

So Amir where you from anyway?

[walm]

amirzed said:

I would buy for the simple fact that its nice to feel settled and chipping away at a mortgage feels nicer than paying rent.

OP - note this is the oft repeated misunderstanding about rent vs a mortgage.

The INTEREST ONLY part of a mortgage payment isn't chipping away at anything.
That is the part you need to compare with rent.

If you can afford to save over and above the interest only part and choose to put that towards paying off the mortgage then fine.
You could likewise choose to save over and above your rent.
It is a SAVING decision.
Not a decision about buying a house.

Unless of course your main reason for buying a house is that you absolutely have to have the option of saving by paying off a mortgage.
That's an option not available to renters, obviously.

Just to spell it out:
The INTEREST payments to a bank are exactly similar to paying rent.
It is rent to the bank (who own your house really).

The PRINCIPAL payments are a choice about SAVING. You don't HAVE to make these payments - for most mortgages they are optional. You can go interest only.
You could choose to pay into an ISA or a pension or just keep the cash in the bank.

[amirzed]

walm said:

amirzed said:

I would buy for the simple fact that its nice to feel settled and chipping away at a mortgage feels nicer than paying rent.

OP - note this is the oft repeated misunderstanding about rent vs a mortgage.

I was referring to Walms prediction of a £75k deposit, £300k property and £600/month interest - given the OPs rent of £1000 there would be £400 to 'chip away' at the mortgage

[walm]

amirzed said:

I was referring to Walms prediction of a £75k deposit, £300k property and £600/month interest - given the OPs rent of £1000 there would be £400 to 'chip away' at the mortgage

Sorry, sorry.
Ignore me then!

[fido]

amirzed said:

I was referring to Walms prediction of a £75k deposit, £300k property and £600/month interest - given the OPs rent of £1000 there would be £400 to 'chip away' at the mortgage

What about property maintenance? - that's only £4800 a year, which depending on the state of the property, or if it's Leasehold (service charges) is going to dissappear rather quickly.

[Tino]

fido said:

amirzed said:

I was referring to Walms prediction of a £75k deposit, £300k property and £600/month interest - given the OPs rent of £1000 there would be £400 to 'chip away' at the mortgage

What about property maintenance? - that's only £4800 a year, which depending on the state of the property, or if it's Leasehold (service charges) is going to dissappear rather quickly.

There will be property maintenance, but also teh cost of property could rise, especially in london.
A 4% annual increase in property prices would put 12k on a £300k house.
If you are settled, rather than have your money in accounts earning nothing, I would at least consider a rental property, under the 1% stamp duty threshold(£250k) to then rent out. At least, if there is a rise in values, then there would be some return from the property.
Obviously there will be income tax to pay on any gains, as well as capital gains tax if you do sell without living in it.

[bigunit00]

I was in a very similar situation to you towards the end of last year and made the decision to buy.

I was renting a 2 bed place in East London for about £1400 a mth and had saved a similar deposit to you. I didnt want a flat (wanted outdoor space mainly)and bought a 3 bed semi in good order for around £320k. It still allows access to London for work in about 40-45mins door to door.

I was self employed as well and was able to put down a 15% deposit and got a 2 year fixed rate mortgage around 3.79% IIRC. This loan does not allow an offset account (I needed 25% depo for that) but it does allow 10% overpayments per year in those 2 years. So my plan is to pay 10% off of the outstanding loan balance each year so after 3 years I should have close to 45-50% equity not including any price appreciation (assumed minimal given current economy). So in 3 years my mthly repayments should halve (assuming no significant increase in IR's) to around £700 a mth and I own half the house. I think doing the hard yards early will pay off later

Current repayments on the mortage = £1450 ish a mth........so net net...my outgoings are pretty flat but I own my own place. I think the only thing that is a lot more expensive is council tax which is more expensive for a house.

Its a no brainer i think given how much goes out on rent paying off someone elses mortgage

Also - from offer acceptance to getting the keys and moving in takes about 3-6mths depending on chain...I think it took me 5mths to get the keys and move in

[amirzed]

fido said:

amirzed said:

I was referring to Walms prediction of a £75k deposit, £300k property and £600/month interest - given the OPs rent of £1000 there would be £400 to 'chip away' at the mortgage

What about property maintenance? - that's only £4800 a year, which depending on the state of the property, or if it's Leasehold (service charges) is going to dissappear rather quickly.

Fair point, or if the property is in good health it may cost a lot less than £4800, i've certainly not spent that on a property on maintenance - unless you're talking new kitchens and bathrooms etc, but when it's your own place it'll be a lot more than 5k..