Discuss If Gary Taking Out A 100% Mortgage Is A Financially Sustainable Approach To Buying His First Home (10 Marks) Flashcards
First paragraph (summarise)
Definition - achieving a balance between income and expenditure to avoid getting into unaffordable debt whilst ideally being able to save for longer term aspirations.
A 100 mortgage could be a financially sustainable approach for Gary to buying his first home as he would not need to put down a deposit. This means he could keep £15k in the bank as savings to cover any unexpected costs etc. moreover, he could put a bit of his savings in a higher interest account to earn a return which would price a boost to his income. Therefore, keeping his savings would make his financial plan more flexible and sustainable.
First paragraph
Financial sustainability means achieving a balance between income and expenditure to avoid getting into unaffordable debt whilst ideally being able to save for longer term aspirations. A 100% mortgage could be a financially sustainable approach for Gary to buying his first home because he would not need to put down a deposit. This means he could keep £15,000 in the bank as savings to cover any unexpected costs etc. moreover, he could put a chunk of his savings in a higher interest account to earn a return which would provide a small boost to his income. Therefore, keeping his savings would make his financial plan for flexible and sustainable.
Second paragraph (summarise)
However, Gary would have no equity in his home to begin with which increase the risk of negative equity. Meaning that if the market price fell then the value of his home could be less than the mortgage, making it difficult to move. Then again, house prices are not likely to fall any time soon.
Second paragraph
However, Gary would have no equity in his home to begin with which increase the risk of negative equity. Meaning that if market prices fell then the value of his home could be less than the outstanding mortgage, making it very difficult to move. Then again, house prices are not likely to fall any time soon so the risk could be low.
Third paragraph (bullet points)
A 100% mortgage would help him to get into the property ladder with the benefit of mortgage repayments being lower then his rent.
Example - he is currently paying £1950 in rent but could secure monthly payments with skipton of £1641. Gary could put the difference £309 towards monthly savings target £500. Therefore, Gary would quickly build up a lump sum to help him pay for longer term aspirations etc
Third paragraph (summarise)
A 100% mortgage would help Gary get onto the property ladder with the benefit of mortgage repayments being lower than his rent. For example, he is currently paying £1950 in rent but could secure monthly repayments with Skipton of £1641. Gary could put the difference of £308 towards his monthly savings target of £500. Therefore, Gary would quickly build up a lump sum to help him pay for longer term aspirations etc.
Third paragraph
A 100% mortgage would help Gary get onto the property ladder with the benefit of mortgage repayments being significantly lower than his rent. For example, he is currently paying £1950 in rent but could secure monthly repayments with Skipton of £1642. Gary could put the difference of £309 towards his monthly savings target of £500 which would make it much easier to achieve. Therefore, Gary would quickly build up a decent lump sum to help him pay for longer term aspirations etc.
forth paragraph (bullet points)
On the other hand, the interest rates paid on both 100% mortgages in the table are higher in comparison to putting down a mortgage. The Yorkshire building society charges 5.24% compared to 5.40% and 5.65%. Meaning that the total interest paid would be higher on the 100% mortgages over the full term.
Conclusion (summary)
In conclusion, taking out a 100% mortgage is a reasonably sustainable approach to buying Gary’s first home as he gets to keep his savings. Even tho he has enough to put down a deposit, the interest rates on the 100% deals are competitive, also the fact that he would save on upfront fees. However, this depends on Gary’s attitude to risk as he might feel vulnerable spending most of his savings in one go. For example he might need to pay for immediate improvements to the property,
fifth paragraph
In conclusion, taking out a 100% mortgage seems like a reasonably sustainable buying Gary’s first home mainly because he gets to keep his savings. Even though he has enough to put down a deposit, the interest rates on the 100% deals are relatively competitive, as well as the fact that he would save on upfront fees. However, this depends on Gary’s attitude to risk as he might feel vulnerable spending most of his savings in one go. For example, he might need to pay for immediate improvements to the property.
