House Deposit

[Ciphon]

This is intended to be a bit of a "How did you do it" and "What would you do in our shoes" type of thread...

My girlfriend and I are currently saving for our first home together. We're doing everything we can to cut back to absolutely maximize our savings. We're living as frugally as we can without going insane; I can't remember the last time we went for a meal out, or to the cinema .

Anyway... We both earn reasonable wages, are in our mid-20's, rent a flat, and run 2 cars just to give you perspective of our situation.

My "dilemma" is that although we're saving as hard and fast as we can and have been for months, we're still only 63% towards our target amount for deposit and fee's (I have a spreadsheet ). We're looking at a minimum of 5 months if jobs go exactly as we hope they do, and a maximum of 8 months if they don't.

Now, we've had a parent offer us the remaining 37% we need as a gift, which is incredibly generous of them. However, we both feel as though we should be doing it on our own, but the temptation of being able to get on with it right now is very strong.

The temptation is made even stronger by the fact that our landlord / letting agent are trying to get us to sign into a new 12 month contract to accept responsibility for all white goods and an increase in rent following a rent review. All of this came off the back of them trying to blackmail us into signing the new contract by not replacing a broken fridge freezer, which is their responsibility under the current contract. I argued this, and we have now received a new fridge freezer and are awaiting the outcome of the rent review.

What would you do / How did you do it?

 

[Ciphon]

Thanks for your opinions guys.

Just ensure it is a GIFT and not a LOAN.

My girlfriend and I were kind of torn on the gift / loan thing.

It's her parent who has offered us the money. Perhaps strangely, I'm the one that would rather it be a gift than a loan, as I don't really want to be in a situation where we have already increased our monthly outgoings (still to a level we can comfortably afford), but also have debt to pay back.

Take the gift but keep saving. It could be 8 months before you have to hand over any cash anyway so then you could either give it back or use it for renovations that may be required.

I quite like this idea. As you've said Asprilla, it could be months before we're actually in a house, and could therefore pay it back with the money we save in that time...

 

[Ciphon]

Have you got a place in mind? if not start looking now... took me best part of last year to get into my first house.

We've got a general area in mind, and look at houses regularly on Zoopla & Right Move.

A few of our friends think that we should be out looking at houses with the intent to put an offer in right now, but I feel as though it's too early for that as we've only got enough money to cover the fee's and a 5% deposit (ideally want 10%).

 

[Ciphon]

you're going to need money for small things like towels and cutlery. They're not things you think about but you do need them, even things as small as soap o.O

Haha, indeed! We're quite lucky (maybe unlucky, as it prevents us from saving more) that we're already renting a semi-unfurnished flat, so we have things like towels, couch, table & chairs, beds, TV, etc.. The only things we'll need are fridge/freezer and a washing machine.

 

[Ciphon]

I'll be sure to get something sorted in writing if we end up accepting the gift so the banks don't go crazy.

As a single male of 26 who earns mid £20ks I have no idea how I am going to afford a house. It scares the **** out of me.

It is damn tough, and it is scary. I'm sure you'll get there, as will we!

Quite a few people I know have the attitude of "I'll rent forever" - I always think, what happens when you're coming up to retirement and you're still renting? Unless you've got an incredible pension in place, I can only imagine it would be a struggle for the rest of your life?

 

[Ciphon]

Mr-White... If you do have a load of cash just sat around, you could invest it into a flat and get some tenants in to pay the mortgage?

If you like the idea of being a landlord that is...

 

[Ciphon]

3) Buy before this new help-to-buy scheme comes out in full force as it makes more people able to afford a home and will push the bottom of the market up.

4) Renting is urinating money up the wall - Get yourself on the housing ladder .

Ahh, #3 has been a thought of mine, and I couldn't agree with your more! It's April that it kicks in, isn't it? #4... Yep!

If you take on a mortgage at the moment, surely the only way interest rates can go from here is up seeing as they are pretty much rock bottom?. When I bought my first place the rates were about 8% and currently I could have remortgaged at something like 2%, about a quarter of my original loan fee for interest.

So 25 years of praying that rates don't rise - not a situation I'd like to be in, I'd rather rent than be a 1st time buyer. Rents can only go up in line with wages because if people can't afford them = no rent cheque for the LL. Mortgages can go up to beyond people's "affordability" level, the bank will just repossess the house if arrears amount to approx 3-6 months of payments.

I would MUCH rather be on the housing ladder than rent. For the rough house price we're looking at, interest rates could go up to 15% and we'd still manage.

We're looking at getting a 5 year fixed mortgage at about 4.3%. In those 5 years, we should easily be able to clear another 20%+ off the mortgage, allowing us to remortgage with at 30%+ deposit at hopefully a similar rate.

You are absolutely right though, interest rates are only going to go one way from here, but that just gives me even more motivation to get into a 5 year fixed deal as soon as we can.

 

[Ciphon]

Ah, but you're presuming that the value of your property is going to stay the same or go up in that time period, if it drops then your loss of equity could wipe out anything that you've paid off the mortgage.

If rates hit 15%, house prices would drop like a stone. Heck, prices dropped on average 20% from 2007-'09 until rates were slashed in steps down to 0.5% from 5.75%.

I read a report somewhere recently that a lot of people would in trouble if base rates went up to a lowly 3%, given the sort of spread between base rates & mortgage rates.

You're right, I am presuming prices are going to stay roughly the same or increase a little.

I've just read that the help to buy scheme is going to be running from the 1st of Jan 2014 for 3 years (http://www.bbc.co.uk/news/business-21849974), which will surely only push prices higher, and maybe interest rates will increase a little a long with it, causing, like you say, house prices to drop a little. The two will essentially nullify each other and prices will stagnate.

Just out of curiosity, do you rent or own?

 

[Ciphon]

I look at renting vs owning slightly differently...

When you are paying off a mortgage, the interest you pay each month is essentially your "rent", any money paid on top of that can be considered an investment.

So, in our case, we're currently paying £650 a month to live in a small 2 bed flat, plus having to save a great deal to afford our deposit.

If we were to buy a £200,000 house with a 10% deposit, our monthly repayments would be roughly £981, £645 of which is interest ("rent").. leaving us £5 a month better off.

The additional £336 can be considered an investment, and is far less than what my partner and I put into savings at the moment.. leaving us £100's a month better off overall.

So, we would have far more money to spare each month, be living in a bigger and nicer house, have a garden, and we could do what we want with the property. Win win in my mind.

 

[Ciphon]

Sorry for reviving a relatively old thread - but I thought I'd close the loop on "our story".

My partner and I were both lucky enough to have our jobs go exactly as we'd hoped in the last month, and have therefore decided not to accept her parents offer.

We should have all of the money we need by December, so the light is well and truly at the end of the tunnel!

Good luck to all those struggling their way to their deposit!!

 

[Ciphon]

Yep, I totally understand where you're coming from, and know it would give us a lower interest rate.

However, even with the lowly 10% deposit we're aiming for we'll have more than enough left over each month to overpay a considerable amount.

The satisfaction of having done it on our own whilst renting is too much to just give in now .