Keep saving or buy now?

[Thirstpocket]

We are renting and saving for a deposit.

We have a small amount which we could use now to buy but I wonder whether it would be worth carrying on saving instead?

Thing is, each month we are wasting money paying rent as we save.....any advice on what the best thing to do is financially?

Depends. Could you get what you want now - will you get a mortgage? Can you afford payments if rates go up, or higher payments from the start for a fixed rate? What are house prices doing in your area?

If you want a home of your own, you have enough to put down at least a 10% deposit on place and if you have a realistic chance of meeting the mortgage payments for the next few years (including if rates go up) then buy somewhere. Depending on location house-prices are static or falling but, if you're not buying a property as an investment and if you're not planning to move out soon, it doesn't actually make a lot of difference over the long-term. The interest on savings is being wiped out by inflation so it's not necessarily a good move to build up big funds.

The last property I bought was in 1990 when the housing market was plummeting, negative equity was rife and interest rates were at scary levels. 5 years on and the situation was similar. 22 years down the track I've still got a lovely home and the fact that it's worth more is a bonus.

Financial adviser has said we could get a mortgage now, even with 5% deposit, which is all we have at the moment. Repayments are affordable, and interest rate is high due to small deposit-so don't think interest rates increasing would affect us (hopefully?!) as it is already very high to begin with.

House prices in area are being reduced.

No plans to move out soon, and if we could make improvements as an investment then great, but primarily it is so we can have a family home and stop renting.

Cogito-should we save 10% rather than sticking with 5 and going for it?

It comes down to maths ultimately. If it would take you another year or 2 years to double your savings, how much will that cost you in rent? How much would house-prices have fallen? Whereas if you buy today how much extra are you paying because you only have a 5% deposit? My guess is the second option will cost less.

I'd add that there are other costs involved in house-buying which you'd have to factor in on top of the deposit. Various legal fees, stamp duty, removal costs, furnishings. Once you own the property, also factor in things that you may not have paid for as a tenant. Maintenance being the obvious one.

Did your adviser recommend a variable or fixed rate mortgage?

Wait till you see a house you really really want.

Advisor recommended fixed rate. Rent currently £900pcm. Yes, another year or two of that adds up to a lot of money! We have accounted for the other costs-fees etc....hopefully won't have to get too much furniture at least to start with as are renting unfurnished. As for maintenance etc, that's a worry, having rented for so long!

Endangered-sadly that won't happen in our price bracket ;)

What kind of fixed rate can you get?

Hi Phishing - it was pretty bad - around 5%

Don't knock it. Back in 2008 I fixed at 6%.... just before the SVR went through the floor. A steady 5% isn't a bad deal if you're borrowing 95% of the value.

Thanks Cogito - I guess we haven't really got much choice - we have limited options with such a small deposit so we are just going to have to take whatever we can! It was probably nearer to 6% come to think of it...

On the plus side, I am almost enjoying the saving bit, it is very empowering and really makes you realise how easy it is to waste money on rubbish!

There's nothing to stop you saving even once you've bought the property. However, with interest rates sub 3% for savings, if you're paying 5% or 6% on a mortgage, it makes sense to try to overpay if you can. My fixed rate mortgage, for example, allows me to pay 10% of the balance each year without a penalty for early repayment. So I save hard all year and, come January, they get a big cheque. It's well worth checking with your mortgage adviser what the penalties are for early redemption or overpayments. If they are too stiff, consider a different lender. If you like saving, it's a good way to make the most of your money.

Thanks Cogito, that's good advice. I really hope that we can save once we have bought the house but we'll have to see!