Are 5% deposits when you're not a FTB a really stupid idea?

[OreoCheeseCake]

Hi,

Just that really.

Has anyone done this and regretted it?

We are really struggling to save 5% so that we can buy, but we are trapped paying high private rent. Why do you think it is a problem?

@TheReluctantCountess, I guess because the mortgage re payments are much higher. Sorry to hear you're struggling to save. Do you have an estimate of how much longer it will take you?

It just doesn't seem to be 'the way' iyswim. Most people I know will start with a 5% and then go in with a 10% plus deposit, for their next mortgage as they climb the ladder.

We're trying to sell currently, but what we can afford on a 10% for our next basically means it's not worth us moving. This is based on the fact we are having to reduce by a lot. Almost 30k so far. We wouldn't have put it on the market if we knew this was going to be the case tbh.

I think affordability of payments versus income is more important than how big your mortgage is.

Perhaps you should take it off and wait a bit.

I suppose the thing with the 5% deposit is there’s a greater risk of going into negative equity and being trapped. Plus the mortgage interest rates are worse. I wouldn’t do it if I had any other way round it tbh.

Mortgage repayments will be less than what we pay for rent, in the area we live in.

@MrsJ28903, we have a high income and could afford bigger re payments, but we would be living very differently. It's trying to figure out what is more important. A bigger house in a nice area, with little money for extras or a small house in a not so nice area, with lots of money for extras.

I think 5% deposit is fine as long as you're going to be happy in that house for a good period of time. There's always a risk of a negative equity, but if it gets you into the house you see as a home, You fix the rates for as long as possible, and can genuinely afford it, it should be fine.

Negative equity is what I'd be most worried about, especially with the political/economic climate as it is. I waited for 10% as a FTB last year for that reason. Can you wait and keep saving, or is the move unavoidable?

If you’re moving to a long term place, I don’t think a 5% deposit is an issue.

I don’t think MrsJ has grasped your question op.

The answer is not about whether you can afford the repayments it’s about risk in taking on debt proportionate to such a high percentage of the property’s value. So thst risk is then not about your income but about the property holding the value. I don’t know your area or market but if you’re struggling to sell a cheaper property and with the current uncertainty, it’s worth thinking about that risk.

Yes because Brexit will probably (temporarily) impact house prices by at least 5-20% thus forcing you into negative equity for as long as it takes to get trade deals finalized. So at least 10 years.

Having said that if you are buying your forever home (and plenty of FTB do) then you should be okay.

Sorry should have added if you need to remortgage eg at the end of a deal and your 5% you put in is less than 5% of the current value then you couldn’t and you’re stuck on your mortgage providers variable rate. Not sure I’m explaining that well!

@PurpleDaisies even if you're planning to be in the house for a long time, the concern would be coming up to the end of your fixed period in negative equity and being stuck on the SVR which is usually much more expensive. It does depend on your outlook and your willingness to take risk, of course. My advice would be to fix as long as possible if a 5% deposit is really unavoidable.

Thanks for all the replies and advice so far.

It would be a risk, that's for sure. We don't need to move, as in no relocation for work etc, but we're not happy here. There's zero sense of community and practically, the house just doesn't work for us anymore.

@RJnomore1, don't worry, you are! 😁👍 I do generally find it all very confusing, so I'm taking all the advice I can get.

Oh phew!

I’d work out if you could comfortable afford say a 5-6% interest rate on the amount you are borrowing and if you can then you’re probably fine. Whether you get stuck or not. I can’t see the 10-12% early 90s rates coming back. 🤞

Thanks, @RJnomore1. We worked out last night (assuming we could get a good deal on the next house) we could afford a 7% deposit, based on the latest offer we've just rejected. We are considering going back to them and accepting.

For this house, we had to. We had been renting a while and needed to move. We then spent the next 2 years overpaying the mortgage so that when our deal was up we didn't have to rely on an increased valuation for a better deal. It wasn't ideal but houses in our price bracket and in the area we wanted don't come up often.

@Disfordarkchocolate, do you think you'd be comfortable doing the same for your next house?

It worked for us but I think we had quite specific circumstances (age, budget, location, spare cash, time constraints). Under normal circumstances we'd have saved another 5%.

Ok, fair enough.

I know the most sensible thing to do, financially speaking, is to take it off the market and save like crazy for the next couple of years and then we can have a bigger deposit for a larger, long term house and we should have a higher income by that point too.

Saying all that, the thought of sticking it out for another couple of years, fills me with dread.

Oh and meant to add, glad it worked out for you.

For me it depends on your age (the younger the better) and the affordability/ repayments but also the alternative. If that’s renting then yes do it, if it’s stay where you are it’s less clear cut

I’d also be worried about mortgage availability when I came to both buy and remortgage with such a small amount of equity

@Passthecherrycoke,

I’d also be worried about mortgage availability when I came to both buy and remortgage with such a small amount of equity Yes, this is a worry for me.

I guess it's a bit head v heart.