[Archived] Mortgages

[vintageadidas]

Has anyone got any tips or words of advice for those BRFCS members thinking of becoming a home owner.

[Paul]

This is something I've thought about a lot recently. I've reached the happy stage in life where I own my house, no mortgage left to pay each month, but I have children who are approaching the age I was when I first bought a property. As I'm also approaching the age when a pension becomes important this is large in my mind. If my sons ask advice on owning a house and pensions I would suggest they put as much as possible in to the pension pot but carry on renting flats / houses. The British (English?) seem to have an obsession with "owning" a house, while it's a nice feeling I'm not sure if there is a real benefit to finally owning the house. It's worth money but has cost a great deal and will continue to do so, there is no way to cash in the investment unless we move to a smaller house.

If I was 26 again I think I might rent rather than buy. If you have a good landlord and a longterm deal there are plenty of benefits to renting as opposed to a mortgage. Of course the issue I don't have to face is renting through retirement because I own my house.

[jim mk2]

If you are in a steady well-paid job and unmarried my advice would be to enjoy your life, holidays etc and not take on a mortgage until you are at least 30. There is no need to rush into the housing market at present because prices are still too high after the last property boom and likely to get cheaper still over the next few years as demand for housing falls as a result of rising unemployment following the Tory public sector spending cuts.

If you really do want to buy a house in the near future the golden rule is not to take on a mortgage bigger than you can afford. In the past borrowers always geared up to the maximum borrowing levels because house price inflation always came to their rescue, but that does not apply anymore. Do not take on mortgage on a silly multiple of income such as 5 x salary (as some people did in the previous boom) that will leave you with little or no spending money at the end of each month. A sensible ratio would be a maximum of perhaps 2 x salary and if that does not buy you the house of dreams, set your sights lower or wait until you have saved a larger cash deposit. There is nothing worse than having a large mortgage on a home with no equity that is going down in value.

When it comes to choosing the type of mortgage, there are many different types such as fixed rate, standard variable rate and discount rate and this is where you might need the specialist advice of a mortgage broker. On no account go to your local bank who in all likelihood will sell you one of their own very expensive products.

Good luck!

[dave birch]

I take Paul's point about renting, but I would take a different point about buying.

I don't know what the tax laws are in the UK, but buying and then letting the property could be an option. That way you get someone to buy you an asset and receive(?) a possible tax benefit.

Buy in an area that people want to live (near a hospital, shopping centre, a station) and there'll always be someone wanting to rent the place.

Over time, you will need to balance your investments with cash and shares. So, try to get to a situation of 30+/30+/30+ for your investment portfolio and you'll be pretty well covered against anything causing upsets.

Whatever you do, I'd talk to someone that could advise you of the best option. They can look at your current situation and advise you of the best course to take.

[Mattyblue]

God love you jim, never miss an opportunity!

[Ricky]

I bought my first house last June. We had to do one of the first time buyer schemes which I initially didn't want to do as the purchase price always seems a little inflated to me.

However it's worked out ok. I'm now paying less for my mortage on a brand new 3 bed semi than I was for a 2 bed flat previously.

It also meant we only needed to find a 5% deposit on a mortgage of £120k, the other £40k of the house price is funded by the government and the developer with us starting to repay it after 5 years. If we sell in that time we pay them back 25% of the sale price.

We are now able to save for the next 4 years as our payments are reasonable so we'll sell up (housing market permitting) then and hopefully have a decent deposit saved for our next house.

I'm not expecting my house to increase in value over the 5 years if I'm honest. I didn't buy it for that reason. At the end of the day I was paying out £6600 in rent every year so even if my house value stays the same I'm better off over the 5 year period, factoring in the amount I would have paid off my mortgage over that time.

[jim mk2]

I'm not expecting my house to increase in value over the 5 years if I'm honest. I didn't buy it for that reason. At the end of the day I was paying out £6600 in rent every year so even if my house value stays the same I'm better off over the 5 year period, factoring in the amount I would have paid off my mortgage over that time.

But you will be worse off if your house falls in value, which is a possibility in the present economic climate. There are also the maintenance costs of owning of property which you do not have if you rent.

[Ricky]

It would have to fall quite a bit for me to be worse off though Jim. I'd hope over 5 years for it to have stayed at the same value. Guess it's wait and see time.

[broadsword]

That's fine if you can afford it.

The problemw ith renting is your paying off someone's mortgage for them. You might as well use your money to pay off your own!

[Tom]

We were recently looking at moving to a new build in Buckshaw Village but we currently can't afford the deposit required (between 10 and 20%) so we are staying where we are for now and hoping to move in a couple of years after saving for a larger deposit.

Our problem is space as we live in a 2 bedroom terraced house and although the rooms are large we seem to have a lack of storage space and with a nipper on the way it's only going to get tighter.

We'll manage though and I'd rather do that than rush into something which will make us struggle

[philipl]

Unless there is a compelling reason to jump in which as nothing to do with economics, I would steer clear of buying for the next 18 months.

There is only downside in property prices at present.

[Ricky]

To be fair Phil I don't think I would buy now if I hadn't bougy last year. We actually completed last march but had to wait for the house to be built which took us to June.

At the time things weren't as bad as they are now. Add that to the fact that both my wife and me work in local government and it all adds to the uncertain times.

[jim mk2]

To be fair Phil I don't think I would buy now if I hadn't bougy last year. We actually completed last march but had to wait for the house to be built which took us to June.

At the time things weren't as bad as they are now. Add that to the fact that both my wife and me work in local government and it all adds to the uncertain times.

You should be OK as long as you take a long term view - which might take 20 years or more.

Remember there was a property bear market from 1989 - 97 when the Tories last screwed up the economy and house prices did not recover to 1989 levels until about 2000. We've just had a massive11-year run of rising prices from 1997 - 2008 so it is entirely possible that prices will take a decade to correct themselves.

[Baz]

I bought a 2 bed-house on Buckshaw Village 12 months ago on a scheme which sounds the same as Ricky (I used home-buy direct). I'd been looking to buy before that point, but the housing market was beyond my reach. Prices have been pretty settled for the past 18 months or so, and I dont think they will go down any further, albeit they may also not rise for a few years either.

After delaying last time and missing the boat, and if you can afford to do it comfortably and are doing it for the medium to long term, then I see no reason not to buy at this point. You can get good fixed rate mortgage deals at low %'s at the moment. If you can raise a deposit you will have a better market choice for mortgages. Also as the market is slow its a buyers market, so you may find someone willing to take a much lower figure than the properties worth.

[Hughesy]

Depends what your going for....going for an interest only mortgage? Then you are basically renting anyway - as both are dead money.

IF you want to buy, ensure you have at least 15% to put as deposit...just incase you ever need some equity.

Also work out your finances before you jump in, factor in all house costs + some for say car maintenance (if you drive) and also house repairs. Never leave yourself with a minimal amount of cash spare or you will always be in a struggle from the start.

[Ricky]

Yep Baz we did homebuy direct as well. Worked out ok for us as It meant our mortgage was pretty much the same as the rent on our last place.

[DP]

That's fine if you can afford it.

The problemw ith renting is your paying off someone's mortgage for them. You might as well use your money to pay off your own!

Not when the mortage interest alone cost more than cost of renting the property. (common in many cities in the UK)

A very misguided view that renting is 'dead' money. If you rent, you have no ties, no risk, more flexibility with your life, less stress = more fun and more opportunity! Surely you have to add a lot of value to that...

So, I would agree entirely with Paul in that if you're in your 20s (or early 30s), better to stay out and keep your options open.

Of course if you're looking to build a family home, commit yourself to the area, and you have a long term view (like Ricky) then yes it makes sense if you have the right deal.

[broadsword]

Quite ironic in a way that "mortgage" actually means "dead loan" (I think).

[Al]

How anybody can advocate long term renting beats me. Apart from the deposit the rent can be practically as much as the mortgage payments and it is money thrown down the drain. The property is never yours and rental continues into old age when you are on a pension.

I bought my house, spent some, invested some and put some into a company pension scheme. When my house was paid for I invested more.

Now I am retired I have no rent to pay, have a good pension, still have my investments and am living comfortably thank you.

If I was still paying rent that would certainly not be the case. The mortgage lasts 25 years, not a lifetime and once the house is paid for the value is not important. It is a place to live free and something to leave for your children.

[Paul]

I think Al has a good point here and suggest it is very difficult for young people to make a decision on house purchase. When Al and I first bought houses things were rather different; one saved with a Building Society for as long as it took to raise the 10% deposit one needed. This did two things, proved financial discipline and raised the deposit. Then we were allowed to borrow 2 x times our income and perhaps adding half or the whole of the partners income. Our first house cost £21,000 with the repayments supported by my wife's earnings - her job was secure, mine was not and six months later I found myself unemployed. We always tried to run the household on the basis one income would support us and this has largely worked over the last three decades. I spent the unemployed year gutting and doing up the house so we made a decent profit when selling it.

Today it seems one needs 25 / 30% deposit to get a good interest rate and of course property prices have risen enormously. Clearly property cost is relative to income and I can't recall my earnings 30+ years ago. I'm fairly confident my sons incomes are lower relative to the cost of house purchase. Add to this it is clear young people should be looking seriously at how their retirement will be funded, very boring for them I know, and I feel pension contribution is currently more important when young than house purchase. Long term both property ownership and pension are important and like Al I would not want to be renting in retirement - rental is commoner on the continent and I'd be interested to know how that works. I nag my lads to get a pension fund started but don't worry if they don't buy houses until they reach their 30s. The only way I can currently see my kids getting on the property ladder is when I die, which hopefully puts them well beyond their 30s!!!!

What do I know though? Bought a new house yesterday!! Anyone looking for a mid-terrace, mid-19th century cottage in a rural conservation area, get in touch. Seriously!