5 percent deposit / 95 percent mortgages

[MagggieMay]

Hi, just wondering what your thoughts are on this?

I currently pay 1000 pcm rent, and mortgage would likely be around 600. If I carry on renting for 6 months I could save up a 10 percent mortgage but would waste 6k in rent in this time. I'm looking to buy a property to last around two years as I'll be in a much better financial position after this and can afford something nicer.

Obviously the rates are much higher for a 5 percent mortgage but if I only fix for two years, I will either move or get a new mortgage for the current property with a higher deposit.

Thoughts?

I think you should go for it - I agree that you should go with a good rate until you can re-mortgage later. Have you found a property?

Thanks for your quick reply! Yes I have found somewhere, but am just a bit nervous about 5 percent deposits as on paper the rates are so bad. But I'm unlikely to spend the 6k (on extra interest) in 2 years that I would have saved by moving earlier. And I would have some equity if I move. Also as the house is quite inexpensive I wouldn't be too worried about negative equity.

I would just consider the cost of stamp duty and the interest on your mortgage

So if your stamp duty is £12 then if your only there for 2 years that has cost you £500 a month. If your interest on your mortgage is £1000 then that is the same as renting.

If however you buy in a location when prices are rising then of course you’ll make money on the house.

Are you interested in new builds at all? If so you can look into the help to buy scheme, the government will loan you the other 5% for your deposit at 0% interest.

I would also be factoring in stamp duty and conveyancing fees as well as moving costs. You'll be doing it twice so quite a big cost.

No stamp duty this time as we are first time buyers. Stamp is likely to be minimal next time as it's still likely to be under 200k.

It can take months from offer to completion factor that in - you can start looking when you're still a tad short.

Have you done actual numbers to see how much interest you'd be charged? If it's only, say, 100k you're borrowing, then 1% extra interest will amount to 1k over a year so no point paying thousands in rent to then save 1k on interest.