Thursday, 29 December 2011

How to: work out if you're better renting or buying

We talk to people who have tried (and succeded) to get on to the property ladder aided by a decent deposit. How much would you need?

 
Caroline Smith and partner Dan Goodwin, both 27, have been renting together for 18 months, but have now seized the moment to get on the housing ladder, buying a one-bedroom flat in Guildford, Surrey.
They join the ranks of rising numbers of people applying for a mortgage – with more of us on the move now the impact of recession is easing.
"A lot of people think that it's a landmark event, but it just feels like we've entered into a more complex rental agreement," she explains.
"We started off on comparison websites, but we also went to banks' sites and played around with their mortgage calculators.”
Caroline explains that, after seeking help from mortgage advisors, she and Dan, both web analysts, opted for a repayment loan fixed at 5.74%. "We spoke to a loans advisor who said that our deposit fell at about 12%, and she recommended that we try to get 15% so that we could get the rates down a little bit.
"We went with a three-year fix because two years didn't seem very long - but five years seemed a bit like 'whoah!'; a lot could happen in five years. We chose to fix because it was more important to us to have peace of mind; knowing what was going out of our account each month."
But Adam Hassan, from Brighton, also recently stepped onto the housing ladder, has a different experience. "My partner had an inheritance so we had a good deposit. She paid 50% up-front, so that easily allowed us to get the best mortgage rates.
"We got 2.2%, and opted for an interest-only tracker loan. In the current market I don't think the rate is going to go up too high. At this point there's no point trying to fix because lenders put an extra one or two % on it.
"I chose interest-only because although I will make overpayments to repay the loan, if times get tough I can just pay less - the flexibility is  fantastic."
Shop around: Some lenders are more competitive than others and the rates on offer vary dramatically. Look at several lenders' rates, and consider a mortgage advisor if you're struggling to understand the details.
Beware of hidden costs: Look beyond the interest rate and consider any setup and termination costs. For flexibility, check whether features such as payment holidays or overpayments are available.
Moving home is expensive: Remember to budget for essential home improvements, home insurance, for legal fees and the cost of moving itself. The 2010 budget introduced Stamp Duty relief for first-time buyers choosing a property worth up to £250,000 – a welcome relief.
Don't rush: It's easy to feel pressurised when buying a home, but a mortgage is one of the most important financial decisions you can make. It's essential that you understand what you're agreeing to and that you can afford it - now and in the future.

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