Renting VS Buying - what should we do?

[E4N2019]

Caution: long post!

I will try and keep this as short as I possibly can.

6 months ago me and DP moved in with DP’s parents to save and get on the property ladder
We are a young(ish) couple late 20s.
Now have £10k+ savings plus £7k which will be gifted from DM
DP has bad credit (1 CCJ and multiple defaults)
I am on £44,000 and DP is on £35,000
6 months into living at theirs I am now 6 weeks pregnant and if all goes well baby will be here in December/Mat leave will start in November.

Do we:

Rent
Cheaper than a mortgage (£1,200 - £1,300 a month not inc bills)
Keep the savings we have and build on them for the next few years until we have even more (albeit of course won’t be able to save at the rate I just have!) in that time I will have been on mat leave with a baby and DH is planning to climb a ladder in his career so is gunning for more payrises. I will either return to work full time (I work from home) or maybe reduce hours if I can.

Buy
Help to Buy - 40% equity loan (we’ll be buying in a London borough)
Mortgage plus equity rent and service charge £1,600+ a month (not inc bills)
Wipe all my savings but own a 2-bed flat at least
Struggle immensely financially and emotionally when I go on SMP and we have no savings because we spent it all on buying a flat
Stay there for 4 years approx and gain enough equity for a deposit on a bigger house when it comes to moving again (probably outside of London - more for our money)
Have our foot on the ladder rather than throwing thousands of pounds away renting

As you can see each has pros and cons and we are completely torn between what’s best for us in the LONG RUN.

Please no snipey comments about my pregnancy - after suffering immensely over the last 18 months with 2 miscarriages this is the best thing that’s happened to us and I wouldn’t change it for the world even if it meant living in a shed. I’m actually very lucky with the choices that I DO have, compared to some people who are less fortunate.

Sorry for the long post. Advice greatly appreciated.

DH and I are in rented, a years stay turned in to 10 years ... but it was the cheaper option for us all those years ago. We wasn't pregnant, but DH and a lot of debt so being in the rented flat allowed us to clear that, paid for our wedding outright, allowed us to do things we wouldn't have been able to had we bought somewhere straight away and of course have a great deposit.
The space for us was important not the ownership but now we are done rent (beware bad neighbours) and are trying to buy a house. Both have pros and cons but we found this way worked for us

Have you considered moving out of London now?
Buy where you’d eventually settle anyhow, do nct classes and make some local friends etc.

I personally would be very wary about using help to buy on a property you plan on spending less than 10 years in though. You cannot assume property prices will continue to rise, no one can predict what they’ll do so tread carefully or you might find you don’t have that equity in 4 years.

If I had to pick one of your two choices and stay in London, I’d ring fence the savings and rent.

@JacksonvilleJaguars thank you for your input
@BalthazarsAThirstyBitch if we move out of London the help to buy equity goes down to 20% gov loan instead of 40%. We would still be eligible but it puts our repayments up to £2000 a month and with me going on SMP and DP then spending approx £500 a month on travel to central London for work, it is too much of a financial strain on him.

I am very worried about house prices crashing as you are right, nobody knows! It is a huge risk and that’s another of my concerns about buying I didn’t put in there.

Have you looked at shared ownership as a third option(www.sharetobuy.com)?
Check resales too, as they are often a bit cheaper than a brand new new-build.
The outer London boroughs might help your budget stretch a bit further; we're in Zone 6, 30 minutes to Liverpool Street, and you can get a shared ownership 2 bedroom flat for a monthly cost of about £1000 pcm.

Thank you @AwkwardPaws27
I have looked into shared ownership and not 100% sure I like what I see. There’s also a few threads on here that have put me off. But I might need to research it properly a bit more to fully understand the pros and cons.

Mortgage plus equity rent and service charge £1,600+ a month (not inc bills)
This seems very high - I thought HTB equity loans were interest free for the first 5 years, although am happy to be corrected!
Have you checked mortgage rates with a broker to see the best deals - our mortgage is £980 a month and we owe £270k+.

@AwkwardPaws27 I too was under this impression however on the HTB London website you can download their affordability calculator (it’s literally an excel spreadsheet) and type in all your figures and it is coming up with an equity rent so not sure how that works?

Upon research I found out the minimum help to buy mortgage rate is 4.8% which is not dissimilar from a bad credit interest rate! Hence why it really bumps the repayments up.

Affordable housing huh

Barclays have a much lower rate : www.barclays.co.uk/mortgages/help-to-buy/london/
Definitely worth speaking with a broker to get the best rate, especially considering your DP has some history - they'll know which lenders are more likely to accept you.

The equity loan is supposed to be interest free for 5 years so definitely check that - it would be a big help to you while your baby is small and you have reduced hours / nursery fees.
Congratulations on your pregnancy too!

Thank you for this @AwkwardPaws27

Another issue we face is DP’s bad credit (a CCJ which he only got 18 months ago and multiple defaults from a couple of years ago) so I doubt we would get such favourable rates from the likes of a high street bank, more likely we’d have to borrow from a specialist lender!

E4n the 4.8% is just the figure they use for affordability calculations... you may well get a mortgage at 2% but the calculation will still be done as if the rate was 4.8%

Also even if house prices stand still for the next 5 years, that 2 bed new build wont be worth anywhere near the inflated price help to buy makes you pay

If you could find a long term rental... say 3 years then I would go for that