I Rented While Saving for a Property: A Case Study
The property market may be a buyer’s dream at the moment, what with falling property prices and sellers finding it hard to shift properties, but for those that cannot afford a mortgage it is more like a property nightmare.
Jackie was in her twenties and had just come out of a messy divorce, she was looking to buy a one or two bedroom flat after having to sell her marital home as part of the divorce settlement.
She made a small profit from the sale of her and her husband’s home, but they had also fallen into arrears on the last two of their mortgage payments, so this had dented any profit from the sale of the house.
Saving For a DepositAfter Jackie had paid her legal expenses and relocation costs her overall settlement from the marriage was only around £10,000. When her and her husband took out the mortgage they had borrowed more than the value of the property, so unsurprisingly they were left with a pint size profit.
“I wanted to buy my own home so I could feel independent again and put the money from our divorce into a solid asset and one that would grow in value,” says Jackie.
However once she started searching for a home she soon discovered that her £10,000 would not stretch very far in the area in which she wanted to buy. The average price of a one bedroom property in her area was around £130,000 which meant even though she had a deposit it would not be enough money and amount to a 10% deposit.
Seeking Advice“I went to visit my bank to see if they could help me. They were very helpful and said they were able to offer me a mortgage and lend me up to £120,000 because I had a good wage. However the rate they offered me was very high and I would have struggled to pay back my mortgage every month and still have enough to live on and have some kind of social life,” says Jackie.
The adviser in the bank told Jackie that if she was able to save up a few more thousand pounds it could make a huge difference to my monthly repayment rate and overall it would mean much lower payments.
Getting Out the PiggybankThere comes a time when unfortunately the wisest decision is to get out the piggybank and start saving for a deposit. Jackie had never been good at saving but she realised it was something she was going to have to do if she wanted to be able to afford a house or flat.
“I budgeted myself and rented out a small apartment. The apartment was not very big and it was outside of the area I was looking to buy, but this meant that the rent was a lot cheaper and I was able to save a lot more. I just had to keep picturing owning my own home in my head again so I was motivated to save,” she says.
“I found myself turning down nights out with friends and having a lot more nights in so I could save for a flat. I worked out that in two years I would be able to save another £6,000, which meant if property prices did not go up I would easily be able to afford a 90% LTV mortgage, as I would have a 10% deposit."
Lots of potential homebuyers hate the idea of renting as they see it as throwing money down the drain. While this is true in some cases, you need to be savvy about what kind of renting you decide to do or it could work out as a false economy.
Instead of renting the kind of place you would like to buy, rent somewhere that will allow you to save up as much money as possible, so the cheaper the better. Society has programmed us to think that we must have everything now, but sometimes it pays to wait.