5% Mortgage or push for 10% opinions

[big_hairy_rob]

The only real advice that I can offer is as follows:
Factor in what will happen if and when the interest rates rise. For both mortgages at what interest rate can you no longer afford your repayments?

It's also well worth having some money to over pay at the beginning, as this (usually) has a significant reduction in duration and total amount re-payed. It would also give you a cushion should anything happen later on.

I will counter the 'dead money' bit though saying that while a mortgage can give you stability (providing you're solvent), don't forget to factor in the day to day repairs and maintenance costs which are often included in a rental house. Couple of thousand on a boiler here, new windows there... Likewise buying a house removes the flexibility to quickly move should your circumstances change. While I understand the dead money thought, there are times that I have regret having bought a house...

Good luck with your choice, and congratulations on the marriage!

[jim]

I know what you mean, Jim, but rent is "dead" money in the sense that it's never-ending. So Neon will be paying £650/month, or £7800 / year, indefinitely. If you have a mortgage then, all other things being equal, it's for a defined period. In my case, 25 years. But then, typically, as time goes past, incomes tend to rise a bit faster than mortgage payments so the proportion of disposable income eaten by mortgage tends to drop. And depending on mortgage type, so does outstanding capital, so you overpay a bit, thus reducing capital even further, and thus the future interest yet to be incurred. Then, a few years from the end, you look at the outstanding balance and think "aw, nuts to that" and just pay it off.

So ..... we paid off a 25-year mortgage about 7 years early, not only saving a lot of interest but also meaning we saved, using Neon's example, £650 / month for the rest of our lives. That's worth about a £10k / year gross pay boost because you deduct tax before paying mortgage. As we're now free of mortgage OR rent for 11 years (7 paying off early, plus now being 4 years after when it would have been paid off anyway), that's saved about £86k over that period, during which disposal income has been higher by that £650 / month, had we been paying rent, and will continue to be £650 / month better off in disposable income, for the rest of our lives.

Yes, there are some expenses to owning rather than renting, but with that also comes the option of what you do to the home, much of which landlords would refuse to renters. And, on top of that £85k saved, we have a house larger than we need, so are planning on moving, downsizing, and trousering a very substantial chunk of change, by which I mean in the hundreds of thousands, in the process. That sum gives either a source of additional income, or a buffer zone, or both.

Had we rented, we'd have neither the £85k we've saved so far, nor the lump sum. And if we live our expected average life spans, at £650 / month, we'll save something like £175k more, still on Jim's current payment levels, over paying rent.

The problem is making the assumption of 'indefinitely', as that's rarely the case. I would agree that in most cases, on an indefinite basis, you would want to buy (though of course if house prices collapsed you would have been better off renting).

In this event, we're talking about a very ill-defined period of time. If you buy a house, and sell it a week later, we can all agree that you would have been better advised to have rented. For a month, likely the same. At some point, we'll reach the balance-point, where both are equally expensive - but it's never the case that buying is best across all time periods.

Further to this, the mortgage rate is very important. If you're paying considerably more interest on the mortgage than a landlord might be, then the costs of buying will increase dramatically, and will extend the period in which it would be more beneficial to rent - and as Neon has mentioned, a 5% mortgage would indicate a higher-than-usual rate of interest in his particular scenario.

My main point is that there's no right and wrong, that everything depends on your circumstances, and that you shouldn't feel pressured by society (and by that I mean our national obsession with buying) to do the wrong thing.

[pp05]

Hi folks, just looking some opinions.

Me and my wife (just got married!!) are looking to get our first home soon.

However we are currently deciding whether to go a 5% Mortgage now or wait and gather a 10% Mortgage?

I know the interest rates are higher for 5% but we currently pay 650 a month on rent. Would paying the higher interest rates be better than paying rent which is, in many ways, dead money?

All feedback welcome. The houses we are looking at are costing around £220k.

Thank you

If you are on good terms with your landlord and can lock in your rent for a few years without increase then consider that.

[Dashers]

On the long-term renting subject. You have to consider your retirement. My in-laws are currently moving house but are going to have to briefly rent whilst the house is finished as they have already got a buyer for their current home. They don't have a significant income any more so their rent comes out of the capital from their existing home, which means they have to buy a cheaper house to move into.

[TheAnimus]

Anyone miss Rave telling us that house prices are going to crash? It's been 10 years and most have doubled around me in London. What happened to him?

[TooNice]

Haha, I remember that. London recovered pretty quickly after the last market crash, but how about other cities? Are there any cities where housing price where raising significantly but never recovered after the crash?

[scaryjim]

Haha, I remember that. London recovered pretty quickly after the last market crash, but how about other cities? Are there any cities where housing price where raising significantly but never recovered after the crash?

Manchester has just - this month - got back to 2007 prices, according to the charts at https://www.hometrack.com/uk/insight...e-price-index/

In fact, it looks like most cities are more like Manchester than London - only Oxford, Cambridge and Bristol seem to have recovered to prices well beyond their 2007 peak - most other cities have only just recovered to those levels, or are still below them.

[Saracen]

The problem is making the assumption of 'indefinitely', as that's rarely the case. I would agree that in most cases, on an indefinite basis, you would want to buy (though of course if house prices collapsed you would have been better off renting).

In this event, we're talking about a very ill-defined period of time. If you buy a house, and sell it a week later, we can all agree that you would have been better advised to have rented. For a month, likely the same. At some point, we'll reach the balance-point, where both are equally expensive - but it's never the case that buying is best across all time periods.

Further to this, the mortgage rate is very important. If you're paying considerably more interest on the mortgage than a landlord might be, then the costs of buying will increase dramatically, and will extend the period in which it would be more beneficial to rent - and as Neon has mentioned, a 5% mortgage would indicate a higher-than-usual rate of interest in his particular scenario.

My main point is that there's no right and wrong, that everything depends on your circumstances, and that you shouldn't feel pressured by society (and by that I mean our national obsession with buying) to do the wrong thing.

The "indefinitely" referred to the period after the mortgage is paid off, when a renter will still be paying, month in, month out, and the ex-mortgage-payer is free and clear.

But yeah, it doesn't suit everybody, and for sure it depends on circumstances.

[Dashers]

Anyone miss Rave telling us that house prices are going to crash? It's been 10 years and most have doubled around me in London. What happened to him?

London has rules of it's own. There was a significant down turn in the property market during the recession largely due to banks not lending under such favourable conditions. This had the biggest impact on the bottom of the market. Desirable and exclusive areas were fairly well insulated from the price drop as they operate at a different point of the market.

I know many people who got "stuck" due to the caving of the market.

There would have to be something seriously screwed to not see an increase in prices over a ten year period. The question is, how would this perform without these dips in the market, and how has it performed against inflation.

Rumours are suggesting another dip as a result of Brexit - time will tell.

[TooNice]

It will be interesting to see the long term impact of Brexit. London always had a certain lure to many parts of the world, and until now there are enough wealthy people in the world wanting properties in London. Many may do it for investment purpose, yet for others it's might be a holiday home. Right now, the low pound makes it cheaper for buyers using other currencies, but some might be nervous over how London might change 10, 25+ years down the line after Brexit, whatever shape it takes place.