Advice for FTB. Initial offer rejected!

Knub

Hi,


My partner and I are FTB looking for advice with a purchase of a house. We have been looking for a while found the area we want to be, and viewed 20+ houses so far. We have found a place we really like. Here is the basic information:


- Put on the market this year towards end of March for £195k-£210k.


- Dropped in price approximately mid-May to £175k-£195k.


- We have a mortgage in principle of £157,250 with a lender, total house value at £185k (However £185k is a big stretch and our "worse case scenario" in terms of repayments. Realistic scenario is offers of £180k max).


- We have a 15% deposit.


- We are currently saving between £1-1.5k a month into that savings account.


- Our mortgage adviser worked out that if we had a mortgage on property value £180k our monthly repayments would be approximately £970 inclusive of insurances, etc. This is 40% of our monthly earnings. We are aware this is over the recommended 1/3 of our income but we have no other debts/commitments).


- Initially we were looking at £175 max to avoid stamp duty and get better monthly repayments.


- We REALLY love this house and has stood out a mile above the others so far.


- We made an offer on Saturday 11th July for £175. It has taken a while and the vendors have been viewing property based on the fact they have received an offer (their first offer possibly?) and the Estate Agent has come back today with a decline.


- According to the EA the vendors were originally looking for £185k ideally to move on.


- Our mortgage adviser this evening has said that things appear to be moving and there is interest with both parties to "get on with things" - we want their house, they have possibly found one they want to move to.


- We are thinking of putting in an offer of £178.5k now as that would effectively be £180k minus stamp duty which was our initial concerns with going above £175k.




What would you do regarding putting in the next offer? Should we wait a little while, baring in mind we don't want the vendors to go cold but we don't want to appear desperate and willing to move higher. Or should we get straight back to them?


Do you think given the above circumstances we are over shooting our repayments at 40% of our income?


Any other expert advice regarding the situation as first time buyers would be extremely appreciated!!


Thanks!

Cissi

Well, if you've decided that £180k is your max and that you can afford this, then I think you're doing exactly the right thing by increasing your offer to £178.5k but make sure you let them know that this is your FINAL offer. It sounds like they're hoping and expecting to be able to go ahead with you as their buyer, so they're probably just trying to see exactly how much more they can squeeze out of you. By increasing your offer by a relatively small amount you're showing that you're at your limit. From what you write, I think they'll accept.

As for your other (more important!) question of whether you can actually afford this, that's impossible for anyone else to answer. 40% of your income is pretty high if you consider that interest rates are at an all-time low and certain to rise in the future - what will you do then? How secure are your jobs? What's the likelihood of either of you getting considerable pay rises in the next few years? What about if one of you wanted/needed to stop working for a while, say if you have children?

When you say "repayments" how much is actually interest and how much is capital repayment? Ideally you'd want to repay a decent amount of capital every month while rates are so low - this would also give you some room for manouevre when rates go up later on. I personally wouldn't want an interest only mortgage at the moment, especially not one that came to 40% of earnings.

Knub

Hi Cissi thanks for the comments. Essentially it's such a tough thing to do, play mind games and mess about when all you want to do is offer on the property and everyone is happy with the deal. I don't trust middlemen regardless either so talking with the EA doesn't help.

I am speaking with another advisor tomorrow and am going to be asking about the possible future interest rate rises and how it would impact us. We can afford upto the 180k at the moments with repayments but in 4-5 years we don't know what will happen.

Our jobs are secure and there is only a chance of us getitng paid more at the end of the day, I'm always looking at increasing my qualifications (IT Professional) and my GF works for a Uni so it's effectivley like a civil job. The only way is up I think.

As I said we are in a good position financially and I dont think we are looking at kids in the IMMEDIATE future, it will happen but not right away.

We will be taking a repayment mortgage and not interest but I'm not too sure of the specifics at the moment as we only have something agreed in principle. Things change when the actual application is made, but I think its 5.75%. Can't be sure without checking though!

Thanks for your words. Its such a minefield and is making me think all the time, do I offer now, do I wait, do I increase slowly or do I just go in at my max and tell them that is the absolute most...ahh buying houses...

petebeale

Hi there.

Why not let the vendors stew for a few days - then come back with the same offer of £175k - but say you will pay their agents fees.

That was you arent paying the stamp.

Pete

amalis

Hi,
i totally understand your feelings! we are not in the same situation. My head is just exploding from all the questions and thoughts about what would be the right decision

Dinah93

What are your commuting costs? What sort of property is it? A modern house will be a LOT cheaper to heat than a victorian one with high ceilings and poor insultation for example. 40% would be too tight for me, I want to enjoy life not just own a house. Have you sat down and added up the realistic (not best case) costs of council tax, building and contents and life insurances, gas, electric, water, food, phone line, broadband, tv licence, sky if you want it, plus the mortgage costs and worked out what that will leave you. Take from that the costs for any holidays you take in a year, mobile phones, pet costs, professional memberships, petrol costs, car maintenance, servicing, tax, mots, insurance etc, subscriptions, gym membership, and see what figure is left in front of you to cover all spending and emergencies. For me long term that number would need to be at least £450 a month in order that if something happened that needed fixing, needed a new washing machine etc, I would not be having to borrow to afford it, and I could still have a couple of meals out per month.

beccad

I would go back with the same offer, but some sort of sweetener such as paying their agents fees, or a certain amount written down for 'fixtures and fittings' (I think you're allowed to do this!) so you can avoid stamp duty and you just pay that amount up front rather than increasing the potential mortgage further.

Knub

Dinah93 wrote: »

What are your commuting costs? What sort of property is it? A modern house will be a LOT cheaper to heat than a victorian one with high ceilings and poor insultation for example. 40% would be too tight for me, I want to enjoy life not just own a house. Have you sat down and added up the realistic (not best case) costs of council tax, building and contents and life insurances, gas, electric, water, food, phone line, broadband, tv licence, sky if you want it, plus the mortgage costs and worked out what that will leave you. Take from that the costs for any holidays you take in a year, mobile phones, pet costs, professional memberships, petrol costs, car maintenance, servicing, tax, mots, insurance etc, subscriptions, gym membership, and see what figure is left in front of you to cover all spending and emergencies. For me long term that number would need to be at least £450 a month in order that if something happened that needed fixing, needed a new washing machine etc, I would not be having to borrow to afford it, and I could still have a couple of meals out per month.

It's a modern house (60's/70's) with central heating, double glazing. All well maintained, livable and reasonably decorated.

We have run a MSE Budget calculator and filled in everything that is on there. This includes most things I think you have put on this list as it is quite a handy little tool. We know the coucil tax and based the utilities on what we spend at the moment living at home with parents (the full bill). We have no pets and aren't members of gyms and the like. We own a car and a motorbike which have been covered in the budgeting tool again (insurance, tax, petrol).


Essentially we would have to really watch our money and we have never been big spenders in terms of lavish items. The calculater comes in approximatley around £480.

We didn't fill in too many things relating to entertainment/treats/holidays but again, this is something that we don't expect to be spending too much on at least for a few years!!

It's a very handy document and has helped us gain a fairly understanding of what we will have left over after all bills, essentials, etc.

Even if that total is not 100% accurate, it's pretty accurate for all our "big spending".

We don't have children (first thing is getting married, called me old fashioned) and in general I'd like to think we are fairly switched on. We also have the support of both our families if anything ever hit the fan.

I think that answers it. I'm fairly confident about costs, the unforseen you can never know until it happens I suppose and that's life!

Thanks for the post though, you certainly rattled off a lot of outgoings which I think the budget calculator has helped us appreciate too!

I'm going to go in and make the offer tomorrow of £178.5k which is a £180 minus the stamp duty we will have to pay as I'm not keen on increasing our mortgage if at all possible.

After that depending on what happens the final stage wil be to go and speak to the owners directly and really get a feel if we can work something out (not skipping around the EA, just a face to face talk) - I feel a last ditch personal touch might be better before we have to give up on this property due to affordability.

brit1234

I would hold off at least a week. We have house price figures coming out this thursday, it would make your original offer stronger if they show the crash has resumed. They should start showing drops this month or next month up to Christmas.

Knub

I assume the figures are out today then? From what I have read it seems as though things will continue to drop.

This could be a good bargaining chip with the Estate Agent, where are these figures located and who publishes them?

Can you explain a bit further?