Buying a property though is one of the biggest financial decisions people ever have to make. Is it the right decision for you right now – or would you be better off renting?
For nearly everyone the decision will come down to where you want to live, what type of property you want to live in and how much can you afford. Of course, the specific calculation for you of renting vs buying will depend on a number of things, including: prices in your area; the mortgage rate you qualify for and the property you want to live in. But, there are a few simple steps you can take to get an idea of what is right for you:
The first step is to find out how much you can afford to borrow and therefore how much you can afford to buy for. Work out how much savings you have – you typically need at least a 10% of the property’s value to buy with a mortgage although there are a few lenders who will consider a 5% deposit. Many of the first time buyers I speak with are greatly helped by the bank of ‘Mum and Dad’ and typically have a deposit upwards of 25%. Remember there will be costs you will need to pay such as stamp duty which will eat into any sum you have saved (your mortgage broker will be able to explain these to you).
Step two is speak to your mortgage broker to see the sort of rates available for the loan you require. For example based on a property price of £350,000, if you have a 10% deposit Tesco offer a 2 year fixed rate of 2.15% with £995 lenders arrangement fee, that would give capital and interest repayments of £1358.26 per month on a 25 year loan. If you fix for a longer period then rate’s tend to be slightly higher but with rates at an all-time low now could be a good time to lock into these low rates. On the same example a 5 year fixed rate will increase to 2.89% and monthly repayments £1475.81.*
Your mortgage payments will be cheaper if you have a larger deposit. Again based on a purchase price of £350,000 if you are able to raise a deposit of 25% Tesco have a 2 year fixed at 1.24% with £1300 lenders arrangement fee that would give capital and interest repayments of £1018.07 per month on a 25 year loan. If you preferred to fix for 5 years Accord have a rate of 2.04% with £995 lenders arrangement fee and monthly repayments £1117.74.*
Now you are in a position to speak to a local agent like Martyn Gerrard who will guide you on the type of property you can afford either to buy or to rent.
When buying there will be additional ongoing costs you have to cover that you don’t have when renting, including buildings insurance; service charge (if buying a flat); and building up an emergency fund to cover the unexpected like a broken boiler. However, owning a home can provide greater peace of mind. You don’t have to worry about your landlord suddenly selling up and booting you out, which can happen with as little as two months’ notice. As long as you pay your mortgage every month, that house is yours. And when you buy your home, your biggest monthly payment is paying off something that will eventually belong entirely to you.
For further information call: Michael Lawlor on 02083431777 or
*All figures quoted are correct at the time of going to press