Active discussions

Meet the Other Phone. Flexible and made to last.

Meet the Other Phone.
Flexible and made to last.

Buy now

Please or to access all these features

Talk
Money matters

Find financial and money-saving discussions including debt and pension chat on our Money forum. If you're looking for ways to make your money to go further, sign up to our Moneysaver emails here.

Original poster

Get mortgage or pay upfront?

31 replies

IamPotty · 27/01/2007 20:37

I have a choice - buy a house NOW and get a mortgage of around 200,000 or wait 5 years and more or less pay for the house upfront. Would it make more sense to pay rent for the next 5 years - 500 quid a month or to get a mortgage now?

OP posts:
TravellingontheClaphamOmnibus · 27/01/2007 20:42

Yes, you are potty.

It makes no sense to rent whatsoever if you can afford a mortgage. Where wll you get the cash from in 5 years?

Gingerbear · 27/01/2007 20:44

Why not get the house and pay off the mortgage in 5 years when you get the windfall?

PanicPants · 27/01/2007 20:45

Buy house now, pay mortgage off in 5 years time. At least the mortgage payments you make in the next 5 years will decrease the ammount of money you owe. If you rentnow, your money's going nowhere. And house prises will probably continue to rise.

Gingerbear · 27/01/2007 20:45

Can you afford a £200,000 mortgage now?

nearlyfourbob · 27/01/2007 20:46

When you say wait for 5 years - are you coming into 200K in 5 years or is that how much you reckon you could save in five years?

nearlyfourbob · 27/01/2007 20:47

Also house prices will probably go up - so what you will be able to get in 5 years isn't what you can afford now.

Original poster
IamPotty · 27/01/2007 20:50

I will have saved up the 200,000 in 5 years time (already have a good amount saved up). From what I´ve seen of mortgage calculations, the majority of each monthly payment is the INTEREST on the loan. I guess what I have to do is check if this interest will be significantly higher than my current rent..?

OP posts:
Gingerbear · 27/01/2007 20:54

mortgage calculator here

A £200,000 mortgage will cost considerably more than £500 per month rent.

Twiglett · 27/01/2007 20:57

buy now

take interest only mortgage

rent is dead money

tribpot · 27/01/2007 20:59

200 grand on an interest-only mortgage should cost somewhere between 850 and 950 a month. Although that's based on you putting down a sizeable cash deposit, so you're only borrowing 80% of the house value.

Ladymuck · 27/01/2007 20:59

It is essentially a gamble on what house prices will do. Your mortgage interest payments for the next 5 years will be more than the £500 per month rent that you're paying and if the property is of a similar size and standard, then you're best off paying rent rather than paying higher interest (you actually pay relatively little capital off in the first few years of a repayment mortgage). However if you think that house prices will increase then you are probably best off getting onto the property ladder sooner in order to a) watch your asset increase in value and b) ensure that you can still afford the property in 5 years(Eg worse case is that house prices double in 5 years and you still have to take out a mortgage!).

There is no guarantee as to what will happen with property prices.

Original poster
IamPotty · 27/01/2007 20:59

So, on balance, it´s probably worth waiting..? Given I will have to pay all bills etc on top of the mortgage every month? I am happy in my rented accommodation. I don´t see any shame that many people see in it nowadays. I think I´ll wait and buy upfront.

OP posts:
NannyL · 27/01/2007 23:00

wow, i woukld LOVE to have £40k nett spare income a year!

TravellingontheClaphamOmnibus · 27/01/2007 23:03

good point - although the OP did say she had a fair bit saved.

Judy1234 · 27/01/2007 23:42

Just be careful. My brother sold and has been renting waiting for prices to drop, waiting, waiting... my sister just emailed him to say prices in her area went up 23% in her area in the last 12 months. I was pushing her to buy 12 months ago on a bridging loan and he was telling her to hold on.

Sounds as though you are quite happy in rented accommodation however and at least there someone else pays if things break down etc. A lot of people have a psychological and emotional set of reasons to want to buy but if you are free of that like most of our continental cousins then bask in that freedom.

NannyL · 28/01/2007 00:39

good point

i bought a 3 bed hosue last year (offer accepted in april 2006, completed in augaust)

my sister is now in a position to get a mortgage, and with her mortgage and savings combined has more £ to spned on a hosue than i had... and already she has been priced out of the market.

there are now no 'houses' at all in the area that she can afford according to right move! (same area as ilive in, but within a 5 mile radiou) 6 months aago she could have bought a lovely 3 bed house with garden and parking etc, also interest rates being lower she could have got a higher mortgage so been able to afford even more IUSWIM

nearlyfourbob · 28/01/2007 02:33

We stretched outselves to buy a house I could use to work in (so we weren't stretched long term as once I started working we had the money ITSWIM). Nearly 3 years on I would have to work full time and put my entire income into the mortgage to afford our house if it was on the market now. It's gone up by 20%.

Now no savings account is going to pay 20% over 3 years, so I think you need to consider this, rather than just looking at how much interest you will have to pay.

Or continue to rent and buy a rental property yourself, so that you are on the property ladder (my friends did this and then bought a small house for themselves 2 years later, and then kept that as a rental too and bought a really big house 2 years after that.)

sibble · 28/01/2007 02:47

Get a 1 year fixed rate repayment and pay lump sums off each year at the renewal date. If you can afford it keep paying the higher repayments as you do this. This will reduce the sum borrowed and the amount owed over time. In 5 years you will still be mortgage free without having to wait the 5 years to pay it off. We are currently doing this and are looking at paying our 25 year mortgage off realistically in 5 years, optimistically (?sp) in 2 years. Good luck

Twiglett · 28/01/2007 08:57

good idea .. if you get an offset mortgage then all your spare cash will go into the mortgage automatically .. although offset mortgages don't generally give as good rates ..

look for a repayment mortgage that calculates interest daily (95% of mortgages do this but not all .. its a trick some companies use to screw you calculating interest monthly or annually) and allows additional payments with no penalties then just massively overpay it

I do think you'd be foolish to wait ... house prices are hardly going to drop .. they may stabilise (which I doubt) it depends on area ..

In the last 5 years I would say that houses round here have virtually doubled in price

Kittypickle · 28/01/2007 09:06

I would do what Sibble says but I would personally would be tempted to hold on for a few more months just to see what interest rates do. My brother sold up a few years ago saying there would be a crash. I told him not to but he wouldn't listen. He's finally accepted that he needs to buy again but I have advised him just to hold on for a little bit. Can't help feeling that the combination of rising interest rates and the level of personal debt is likely to cause a few problems this year and whilst I don't think it is going to lead to a big crash, I think it might be possible to save a fair bit of money by holding for a little bit, but jumping in quickly if the market doesn't slow.

However I lasted 3 weeks with A level economics so am definitely not the person to listen to !

Ladymuck · 28/01/2007 09:20

It does depend on the type of house and area you're buying in. In the last 4 years our house price (in Greater London) has gone up by around 10%, and I could easily have gotten more in a savings account! I wish mine had doubled though!

Twiglett · 28/01/2007 09:23

I think interest rates are going to go up another .25 - .5 percent over the next year tbh

skiwear · 28/01/2007 10:40

NannyL last time I did the maths you are better off wiht higher interest rates and a smaller mortgage than the other way round (assuming the deposit stays the same)

skiwear · 28/01/2007 10:43

In answer to Iampotty you're asking a much debated question wish I knew what was going to happen to house prices over 5 years!! (A lot depends on where you live I guess)

Hideehi · 28/01/2007 14:02

I'm buying after 3 years of waiting for the big crash, i think what will happen is stagnation and then inflation which is already 3% will start to erode the debt.

If you get a big windfall and in 5 years times the prices have tumbled you could either buy a 2nd rental property or move up the ladder.