molko

Ok, yeah i know.....we've had this quesiton a million times. My mate in a predicament.

My mate and hit missus have £800 a month to either

a) rent a house for £300 and save the £500 in a high interest account
b) get a 100% mortgage for around £100k which is around £700 payments and then save £100 n a high interest account.

Note : the above is over 2 years, as if they pick option 'a' they then want to use the saved up money to put a large deposit on a house

What the pros and cons of doing either ?
I guess its all down to whether you think house prices will rise/fall over the next two years.

Any comments/advice/recommendation etc

Cheers

M

Jamz3k

if they can rent a house for 300 somewhere i want some of that action!

molko

heh heh they have some deal with one of their parents or something like that

chocolate_o_brian

iTrader: (22)

ive never regretted getting onto the property ladder aged 20.

id rather be paying money off a loan (which a mortgage essentially is) and have something at the end of the term, than be paying some landlord rent into his back pocket.

thats my tuppence on it, simple opinion, but has always swayed me.

andy

Drunken Bungle Whore

Just had a dig on the net - this might help...?

savings calculator

P1Fanatic

Tbh if you can rent somewhere decent for £300 by whatever means then do that. Obviously they have to make sure they save the extra £500 and not blow it.

Thats £12,700 saved over 2 yrs if you can find a 6% account and pay £500 in a month. If they are looking at buying a £100k house then thats a large chunk off it and I dont think that a 100K house is going up over 12.7% in 2 years.

Also Id say their mortgage options with an LTV of less than 100% would be better.

Not your normal scenario but I cant see anyone saying buy tbh.

Simon

Luminous

iTrader: (3)

Given those options I would tend to agree with the above.

The rental deal offered is so preferential that the rate of savings increase is almost certainly going to better the gain in value of the property you buy given the current market.

However, there are always good deals to be had. So if you can find the right house that can be bought at a discount then that may be the best option.

I'd suggest that an interest bearing account with fast access is used. That way when they do see the right property, at the right price, then they have the deposit money at their fingertips.

fatherpierre

£300 per month in rent?

Are they renting a 1 man tent in a field?

jaytc2003

iTrader: (1)

the thing is if they manage the 12+k savings over the 2 years then they will want a better property than 100k can buy

Terminator X

iTrader: (7)

Here's a web quote for you:

"HOUSE prices rose by two per cent during July"

Could be way more than 12.7% ...

TX.

fast bloke

For 300 quid a month you can park near some nice houses in Belfast. I would usually say buy every time, but if they have an option to rent a decent property long term for 300 a month it might be worth consideration. (Depends on incomes, ages and status of the rental really)

Petem95

You mean "asking prices" rose 2% in July according to the most optimistic stats of that month, a month before the credit crunch started...

IMO I would definitely rent, and save your money. Some great rates about at the moment as banks as desperate for cash due to the credit crunch - Anglo Irish offering 6.9% AER on a 1year fixed rate.

House prices look set to fall sharply (IMO - but look set to fall however you look at it) thanks to mortgage lenders pulling many mortgages and upping rates on many more - as well as tightening lending criteria.

Save your cash, rent for a couple of years and buy a cheaper house and get a smaller mortgage!

fast bloke

Pete - can you let me know who has tightened criteria and what mortgages have been 'pulled'? Then seem to be keeping it a secret from us brokers

Luminous

iTrader: (3)

Some savings accounts now offering 12% fixed for one year. I've not looked into this deal yet, but I will be (I think its Alliance and Leicester)

PaulC72

Houses in the 100 - 150k bracket have probaly rose by 8 - 10% last year however that is no guarentee they will this year or next year also it is also about where in the country you are.

If you have your money tied up in a mortgage then you have no way of blowing it on useless things which would be the temptation unless they are really strict if they have a lump sum of money sitting there looking at them that they can get there hands on.

Some places do offer 12% savings however they are limited to what you can pay in each month plus the maximum you can have in the account to get the 12% allowance.

It may also be worth remembering that a 100k house now will be probably worth 110k next year {roughtly speaking} however they may just hold and not move too much but a crash IMO is unlikely especially on the lower value houses. If they save then they will gain no additional benefit from buying a 110k house all they would have done is wait 12 months, IMO get on the ladder see what happens.

Good luck to them. For alot of people these days it is very hard to get on the ladder, but it is one of the best things you can do.

[Davey]

100% interest free mortgages are for C**T's...

You make more money renting a small (1-2 bed) house than buying one..

For example.. Locally to me you can get a 1 bed room flat for £160k, you can rent the same flat for £600/month..

Re-payment mortgage on the flat is £950/month.. so thats £350 more than rent.. That £950 payment each month gives you £20 equity..

So say you live there for three years, with 1 bedroom flat/house prices as stagnant as they are a conservative estimate would say the flat would be worth £170-175k so we'll say you made £12.5k over 3 years.. You can wipe £3k off that for the cost of moving and you've made £9.5k.. BUT you've also spunked £34.2k up the wall in mortgage payments so its cost you £24.7k to live somewhere for 3 years which is like paying £686/month for rent... Oh yeah and your pittiful £3k equity.


So lets look at renting.. £600/month over 3 years is £21.6k.. which already is less than buying cost you.. so now lets say you saved the difference which was £350/month.. that gives you £12.6k in savings..

Yes its only a short term look at things *BUT* nobody in their right mind will live in a 1 bedroom flat for the majority of a mortgage term

So the moral of the story is live in rented accomodation for 5 years and use the money you save to put down as a deposit on something bigger (3bed+) that you can live in for the long term and will make more money

The housing market is spannered and it only makes sense if you can buy a long term property and you have a healthy deposit.

OllyK

How is a £100K mortgage costing £700 pcm when my £85K mortgage is costing £500?

[Davey]

Depends on the term doesnt it

Luan Pra bang

Bristol and west are definately tighter. Some lenders have removed 100% deals and HSBC and other large banks have stopped offering interest only deals. HSBC are also now only offering 90%ltv as a maximum for re-mortgages

OllyK

Aye, suppose so, was assuming 25 years, but ho hum.

PaulC72

Alot depends on what you think the housing market is going to do over the next 2-5 years, it could go up at the steady 8 -10% it has been per year or it could just stop and hold where it is, who knows....I am sure some the SN users do

Factually a house we are selling has risen at least 8% steadily in the last couple of years as we have had it valued every year this house is in Birmingham but other areas would vary somewhat.
Along with that the house we currenlty live in out side Birmingham has also risen in the last 12 months by 8% based on sales values in the area for similar houses so make of that what you will, it's all about personal opinion & what you feel will happen.

[Davey]

Also 1 bedroom cluster homes and 1 bedroom flats are pretty much stagnant these are also primary targets for first time buyers which is a bit of a shame as they are the people who cant afford to lose out!

MattN

160k at 5.89% over 25 years is £1020 a month. AT the end of 3 years assuming no rise means you'd have paid 27k in interest and have 9k in equity.

Simon C

I'm in the rent / buy situation at the mo. The more I look at things the more I'm looking at renting.


I asked a few estate agents about 2 months ago prices on rent and buying a 1 bed flat. Then prices were 95k give or take a couple of thou. Last week I had a phone call and prices have gone up 5k on 1 bed flats and 10k on 2 beds.

[Davey]

I'm only quoting figures my colluege was given by his potential lender

Still makes no sense though £1020pm over 3 years = £36k You can take 3k from the equity froom that so its £33k against £21.6k renting.. And with renting you've saved £15.1k if its £1020pm.. You'ed have to make £15k in house price increases alone over 3 years just to break even.

rossyboy

iTrader: (8)

and the rate. My £85k costs me £550 per month at 5.99%

Petem95

I'm surprised fast bloke - you just need to read the business news. A quick search finds that;

- Victoria Mortgages pulls all mortgage products, and has now gone bust;
Victoria goes into administration - 10 September 2007

- DB Mortgages;

https://www.db-mortgages.com/EpsomWe...x?articleid=28

- Northern Rock and others;

Knock on effect of US sub prime mortgage meltdown on UK market

Plenty more if you are willing to look fast bloke. I guess being a mortgage broker would explain why you are keen to talk up the property market however!..

fast bloke

Victoria - gone bust - slightly different to tightening up criteria
DB - Sub prime only lender
Northern rock - mainstream criteria remain unchanged - sub prime fixed rates increased with Libor rates.

No denying that the sub prime sector isn't a good place to be lending/borrowing, but in reality the sub prime market is a very small fraction of the total mortgage market. To balance the view, Bank of Scotland have started to do 90% self cert instead of 85%, A&L now go up to 125% while previously wouldn't go above 95%, Birmingham Midshire have introduced 125% mortgages. Several lenders will now lend in excess of 5 times salary in certain cases. All these are of course for people with a clean credit history - which is about 99% of the business I do.

Can I ask you why being a mortgage broker would make me keen to talk up the property market?


p.s. - DB will lend someone on 35k with a poor cedit history up to 200k. At their average sub prime rates that is likely to cost in excess of £1600.00 per month. What would the take home pay on 35k be? 2k a month? So they are prepared to leave someone with a history of poor financial management 400 quid a month to month to live on..... and that is AFTER they tighten up. This kind of lending is insane.... it is no wonder thay are feeling the pressure

PaulC72

it is just wrong to lend that much on the basis of that sort of situation, with normal bill, council tax etc they would be lucky to be able to eat. Its shameful really & they wonder why so many people ar ein trouble.

FlightMan

Agree, but there has to be some personal responsibility surely?