5% deposit - a bad idea?

[goldenparsnip]

Me and DH are young professionals who are starting out in high paying careers. We can get a specialist 5% deposit mortgage for around 4.9% two year fix.

We are pretty fed up of not having a permanent “home” after being students for so long. We haven’t had long to save up so we could get a 5% deposit mortgage and skip renting for another one-two years.

My parents got their first house with a 100% mortgage and that worked very well - but prices inflated a lot, and I don’t see that happening here (who knows).

Would you do it?

I did and it worked out well but that almost 20 years ago. The main things to consider are firstly, affordability. Can you afford the repayments if the interest rate rises after your fix? Secondly, your earning potential. I bought mine when I was fairly certain I would have future salary increases. What are your plans? Career progression, career break for DC?
Thirdly, how long do you plan to stay in the property? Will it do for now or is it a long term prospect?
Forth (sorry, this is a long list!) area. What is the area like? Is it going to improve, is there a good state primary, secondary in the catchment area? Those are things I have found to make a massive difference to house prices.
My personal approach has been to always stretch myself for my mortgage. Not for everyone, but has worked out well for me.

I got a 5% deposit in 2016.

Couldn't have got on the ladder otherwise.

I think the risk is if prices fall and you have negative equity, which tbh is only a risk if you find you HAVE to move and can't ride it out.

Yes I would, I wouldnt be throwing money away on rent.

Yes I would.

What ever happens to house prices (and remember in the long term houses always increase in value) you are still paying down part of your house purchase every single month.

Go for it would be my advice

If you can afford it then go for it.

You need to be happy with the house in the medium term as if prices fall a little you won't have a deposit anymore to be able to move.

Make sure you can afford the expenses of buying and moving and understand the stamp duty situation. This is what I found on stamp duty.

If you are in a high paying industry early in your career you should rather focus on moving into a low tax jurisdiction (Dubai, Singapore and HK). Current government will fleece you until your last penny.

If your house price drops £12k in a year then your still better off than renting.

Id try and avoid a flat if you can, the growth on those has been below market average, and they can be harder to sell.

Yes, I would.

As long as you aren't planning to leave the area in the next couple of years.

I would do it, just be aware that you could find yourself in negative equity early on so need to go for a property you can ride that out with

A few questions:
How old are you?
How recession proof is your sector?
Are you planning to buy a long term home?
Are you planning to have children? If so, consider childcare and other expenses.
How would you cope if interest rates rise a lot?
How do you feel about the possibility of negative equity?

We did it in 2023 on a 2yr fix. Mortgage company desktop valuation is house has gone up 5k in value and we’re now at 92% ltv. EA value it as having gone up 25k, so maybe 10-15k more? Even if we’re in negative equity the mortgage is less than rent would be so we’re on to a winner. I’d recommend go for it, but buy a place that future proofs you if you can, so think kid(s), house if you can stretch, spare room to let out if things get tough, that sort of jazz!