How much can I realistically afford to borrow?

nash0819

I'm 41, earning a tad over 53K and looking to buy my first property. I've been saving for a long time and am finally fed up of renting a cheap room. I expect house prices to carry on falling this year, probably by 10% and I'll factor that into any offer I make. What I want to know is how much can I realistically afford to borrow in the current climate?

Am I right in thinking I will be able to get 3.5 times my salary so roughly 185K? Which means I can realistically afford something just under 250K, sticking to a 25% minimum deposit?

With my savings, I can do a 25% deposit and I do have a good credit history. Ideally, given my age, I would go for a 23 year term mortgage so I could still retire at 65 but that's not essential. Importantly, I have no monthly outgoings (no exes or kids to support, no debt, I don't even drive!).

I've looked at five-year fixes since I fear the interest rate will go soaring up in the long term but theose fixers seem very expensive at the moment. A 2-3 year tracker might be much cheaper, in the short term at least, and I could take on a fixed after that if needs be.

A 1.1K a month mortgage would only be 36% of my take-home pay. Rate rises may take another 5-10% on top? I guess another 15-20% goes on council tax, insurance and utility bills, leaving me with - worst case - 33% for food, gadgets, disposable income and investments.Is that a reasonable outlook?

dimbo61

1 If you pay over £250k for a property you then pay 3% stamp duty that over £7.5k to the tax man!
2 Why not have security for the first few years as you are the only wage earner !
3 I like 5 year fixes as this gives you time to clear some of the mortgage( interest rates may be much higher in 2/3 years)
4 You have a good deposit ? 25% of £250k is £62,500
to get the best mortgage rates.
5 have you considered offset mortgages
6 do you still want to be paying a mortgage until your 65th birthday and you retire.
Lots of 4.99% deals fixed for 5 years
I have a 5year fixed offset with YBS and have made big inroads into clearing my mortgage after only 3 1/2 years.

nash0819

dimbo61 wrote: »

1 If you pay over £250k for a property you then pay 3% stamp duty that over £7.5k to the tax man!

Thanks for the advice. 4.99% 5-yr fixed with a good repayment option is worth considering. I would like to overpay and cut down my monthly payments to a mimimum before 65. I quite like working however and don't particularly want to retire early... unless I get a real windfall maybe.

I have been dead set against paying over £250K for a property becayse of the extra tax. However there are a few properties that are priced between £280K and £300K that I may be able to push down to £260K but no lower. Those vendors are probably all being offered £250K and may take £260K. Having a third bedroom would be great and I could use it as a study/guest room and rent out the other room if I need any financial help or if I just like the company! That could help with overpayment.

I must admit I have not considered an offset mortgage since I know nothing about their relative merits to traditional repayment ones. I shall have to do some research.

dimbo61

You worked out that £185k mortgage over 23 years worked out at £1,100 a month YES
If you got a 5 year offset fixed at 4.99 and overpaid/saved into the offset any extra £270 a month you would clear the mortgage in 18 years
If you saved into the offset £500 a month on top of your normal mortgage payment you could have the mortgage paid off in 13 years.
This would mean paying £1100 in mortgage payments and saving £500 a month into the offset ( A BIG ask )
but you would be mortgage free at 55 and not 65.

nash0819

Thanks for the help so far!

I've had a quck look into offsets and I think I'd prefer a normal mortgage with the ability to flexibly overpay a substantial amount per month. I wouldn't want my mortgage to go up if I had to access my savings - I assume this is what happens with offsets.

So, re-calculating if I go for a 250K property and borrow 185K (26% LTV) over 25 years - going for a fixed 5-year deal initially - it's going to be about 1K per month. Any good candidates with flexible repayment options out there?

I can start to overpay a small amount at the beginning - setup costs in new home will prevent me at first, I guess - and hopefully ramp it up as I become more confident of my budget. If I can get the average up to £250 extra per month, how many years could I knock off the mortgage?

I have about 9K in ISA's that I can keep as an emergency fund for mortgage payments should they ever be needed.