Buy or save

[Foradvice]

Hello,

Please can you give me your opinion on the below scenario. I would like to say in advance though, I realise it's quite a privileged/middle class problem to have and am not oblivious to that reality but still, it's a problem I'm stuck on and have little experience with so I'd be grateful for any thoughts/input anyone has.

I am in my early to mid 30s, earn a healthy salary and currently rent. I am single and have no children. I am lucky enough to be able to put into savings in the region of £1400 per month after all outgoings are paid. But I don't own a property, despite having the relevant deposit and mortgage capacity to do so.

I have seen a property that I like and have agreed a figure which I think (!) is good for what it is. It's a property which I'm unlikely to find again in future with all the features it has. So in that sense, it seems exceptional.

However, to buy it then my outgoings would double and I'd go from saving circa £1400 per month to circa £500 per month. Still a healthy amount, I appreciate but much less. Even with the capital element of the mortgage repayment, I'd only be 'retaining' around another £200 and so circa £700 per month between savings and capital element of the mortgage payment each month. The interest I would pay each month alone would be higher than my total rent and bills now (madness, I know) because the interest rates are so high at the moment. They are predicted to fall but over time and will never go back to anywhere near what they were. They will likely always be 4% + for first time buyers, in the near future, it seems.

So my question is, do I buy now, own a property but drop my disposable income substantially with barely any of the mortgage payment each month being retained as capital and no guarantee the property will go up in value either. But own a property, be on the ladder and potentially benefit from an increase if the market goes that way. Or do I continue to rent, be hitting mid 30s soon but not own a property however, continue to put away £1400 per month in straight cash, or invest it elsewhere. Or of course have it immediately accessible if I want to use it to do something else in life in the meantime (although I have no set plans for this).

Am I stupid to throw away the current situation and buy when I'd 'save' more each month by continuing to rent and stay where I am? Or am I doing the right thing by taking the hit now and getting on the ladder.

Thank you in advance!

FA

How are your savings invested, and what annual return on them are you getting?

At your age, I would either buy the property or invest in low cost stock index tracking mutual funds from Vanguard.

If you found the perfect house and can afford it (and still have some savings to boot), I'd say buy. Do you still want to be renting after you are retired? It is a no brainer.

The interest proportion of the repayments are highest in the early years of your mortgage but they get smaller by proportion the further into the loan you go so more of your capital gets repaid per month. If your job has bonuses, you can also prepay. That helps to shave off the interest.

Since you are in your early/mid-30s, you have lots of gas in your tank to go for promotions and take high-paying roles. I'd focus on that rather than the fact you are saving less by buying.

I still think of the property I could have bought when I first started working in the UK. It was perfect in the best location. It was also the one that got away. I wish I bought then.

And whatever you still manage to save, once you have your rainy day fund set aside, invest in a low cost index tracking from Vanguard as @MissConductUS suggests within an ISA tax wrapper.

Definitely buy. And having £500 pm to save after this is more than most FTB can even dream of doing.

Interest rates are now on a downward trend. I expect the Base rate to be 3.5%-4% in a couple of years so your mortgage costs will fall too.

It sounds quite unusual for a mortgage to be so much more than renting so either your rent is very cheap or this property is very expensive.

People often want to buy because renting is poor value for money but if you have cheap rent it's not as bad to keep renting.

But you say this property ticks all your boxes which might be hard to find again so that's obviously a consideration. If you did buy would it suit you long term especially if your circumstances changed? Eg wanted to live with a partner or have children? Or what if you wanted to move for work. Could you rent it out or sell it easily?

Do you feel like it's the time to buy for you?

Property prices (in most places) have been increasing faster than wage growth and interest rates on savings.

Thank you all for your responses so far.

To answer some of the points raised:

Currently most of the funds are in accounts which return 5% per annum but if I decided to commit to renting for the next X years then I would get some financial advice about best options for investing. I would look at the Vanguard option.

I don't want to still be renting after I've retired but I'm wondering if it's better to have £1400pcm in a bank account each month which can then be used as more deposit towards a property and then buy in X number of years when rates have come down a bit. Although even at as low as 3.5% the interest is still a lot.

Yes I am in an usual situation in that my rent and bills are extremely cheap. To give you an idea, we are talking £1k per month tops. The mortgage repayment is around £1250 per month, of which £1,050 is interest. Then another circa £550 for all the other stuff. So around £1800 per month vs £1k per month.

I don't know about my future circumstances. I can't have children but yes may have a partner at some point in future. I've looked into the renting it out option in future and spoken to a tax advisor. It's absolute madness but with such high interest rates then I'd actually make a loss to rent it out. Because of being a high rate tax payer and only getting a 20% tax discount on the interest element of the mortgage payments. There are other deductions but then the government are due to increase CGT to income tax thresholds etc. So that wouldn't be an option in future unfortunately.

Selling, well I don't know much about the property market. It's in a good, central location and so I'd hope so but who knows.

It's very, very bleak for first time buyers right now unfortunately!

100% buy the property!

Buy!

You will never save enough to keep up with rising property prices.
With a mortgage, while the payments can fluctuate due to interest rates, you can to a certain extent limit this by fixing.The important point however is that the repayments do not go up for any other reason (inflation etc) so whereas rent will always rise, a mortgage will year on year be taking less of your income.
Make even moderate overpayments and you can make real reductions to the term and eventual amount paid back.

As you get older you will look back and wonder why you pondered on it for so long.

How long do you expect your cheap rent to last. Is it forever?

Is the property a flat or a house? If it is a house or a flat in a small conversion, I'd say go for it.

As for waiting for interest rates to come down, I am not sure it will drop by a significant amount and if it did, how long that will last.

In the long term, these minor gyrations in interest and property prices and trying to eek an extra 1,000 here and there pales in significance to the peace of mind of a owning a mortgage free property.

At your age, you should focus on improving your earning potential and bonuses which is the best long term strategy there is.

The cheap rental situation is indefinite really as the landlord has no plans to sell and will pass the property onto his daughter to manage after he retires properly. But no not forever.

I would buy at some point. I'm just not sure if holding off another couple of years and having more disposable income to save is better. Then having less of a mortgage to take out.

The property for purchase is a maisonette with 3 bedrooms. So I could also get a lodger to make up some of the loss but I'm not sure if I want to be living with a lodger in my 30s.

Thanks again all

I would buy ASAP.

Mainly because your mortgage repayment doesn't go up (other than because of interest rates) so starts to feel cheap after a good few years have passed. Then eventually, you stop paying altogether forever and that's great!

You are overthinking this hugely with all the talk about capital element of mortgage repayment.

How much do you have in savings and how much will you have left after your deposit etc?

You should buy the property. Still saving £500 is fab.

Thank you both.

I have around £36k in savings. Between the deposit and conveyancing/surveyor fees etc there will be about £30k of that eaten up. But the property comes largely furnished as part of the deal so I should be able to move straight in and then furnish as I go along. But have the other £6k (plus whatever I save over the next few months as the purchase process happens) to do any immediate furnishings or to have as backup.

I went for the purchase, got a report and turns out that it's a massive red flag.

Typical.

But the above has reassured me that buying is still the right thing to do and so back to the search I go!

Thank you all

Out of interest, what was the red flag?

Good luck with the search

Basement of the property has areas which could cause significant problems. In short the advice was it would be a risky first property to buy, I could get a more detailed report done but it's almost impossible to guarantee it wouldn't need major work in due course. Sometimes the price of something is too good to be true!

Makes sense to walk away.

Somewhere out there is the perfect property for you