Renting, want to buy, FTB, need advice!

Sarahpuggy

Hello there..

I wanted some advice really. Currently me and my boyfriend have a flat in Kingston, Greater London. He earns £28000 and i am going to be starting my first job after uni on 5th June, earning £16000. Currently, we pay £700 a month for a small one bed flat, but with all bills it amounts to near £1000 every month.

Currently, we have no deposit(could probably get hold of £2000 at the moment) as only just getting to a point where we can start saving properly. I have had a look at how much we could borrow and in this area 2 bedroom flats dont really seem to be lower than £150-60k at least.Halifax website says we can borrow up to £180k! My question is, is it better to carry on saving for another couple of years, whilst renting..or try to buy somewhere...

Would a good solution be to get an interest only mortgage say just for a year or two until we have settled into the reality of owning our own home, or is it not worth it and would it be better to go for repayment mortgage? it think the figures were £680 something for interest only and £980 something for Repayment..

What would everyone advise in our situation? We are both in good fields of work and have excellent career prospects and without sounding big headed, im sure our salaries will definately increase every year..

I hope someone can give an opinion here, we are really confused as to what to so. Our parents keep saying rent is dead money etc but i dont think they really understand the market at the moment.

Thanks anyone!

Sarahpuggy

bump....

anyone?

lightspeed

I think that having some sort of deposit would be helpful for 2 reasons:

1) If (big if - the way things are currently looking) house prices were to fall you would potentially be left with negative equity. This is not a major problem if you are thinking about staying put for a long term period, but would not be good if you would be thinking of moving on sooner.

2) It will probably enable you to get a better mortgage deal and avoid further costs such as high lending fees.

In addition to this, you will probably find that moving into a house of this value would inccur moving costs equating to 3 - 4K (solicitors, stamp duty, valuation etc..).

In my opinion interest only mortgages are a good short term option for most FTB's because they provide a liitle bit more freedom in the early years. However, in the long term you need to consider an investment vehicle or plan to switch to repayment to ensure that the loan is eventually paid off.

You are in a difficult situation. I have been saying that we will by our first home as soon as the prices fall. The fact is, they havent, and instead houses that we were looking at 2 years ago are now 10 - 20K more expensive. Therefore, despite wage increases during this time, house prices have far exceeded our salary increases.

If you are sure about this, i would bite the bullet and cut back, save as much as you can over the next 6 - 12 months and then review the situation. If your wage is now going to be an added bonus,there is no reason why you couldnt save up a decent amount during this time.

MortgageMamma

Hi there

Whilst I predominantly agree with the above I have to point the other side of the picture out to you. In truth, nobody but a very highly qualified economist can predict what will happen with house prices/interest rates to 100% accuracy.

House prices still continue to rise albeit a little slower than in recent years, and I expect the introduction of Home Information Packs next summer could well drive property prices down as there may be a rush for sellers to sell due to the costs of a HIP. However this is not set in stone, and the truth is, nobody knows.

What I could advise you on is the state of the market presently, the types of mortgages available to you and which is the most cost effective method of purchasing. Ultimately you will be taking a gamble buying either now or later, so the decision on whether to buy now lies with you. There are some good 100% mortgage deals to be had if you look in the right places, but I would suggest that you investigate your options via a whole of market mortgage broker (whole of market means they have access to every lender in the UK). Don't instruct somebody desperate to sell you a mortgage, you need clear, sound, unbiased advice.

HTH

Lisa

Old_No.7

Hi Sarah, I would save up first, and really go for it after a year or more. That'll also mean you have settled in to working life a bit: buying a place can be stressful and a lot of hassle in the first months of ownership, and so can a job change be. Don't combine 2 stress factors if you can avoid it. As lightspeed says, I would give yourselves a year, see what you can save up in that time, and get a clear idea of what it costs to buy and own a place. You won't just need cash for the fees and stamp duty (£4k as lightspeed says), but also to do some work on it (most places need a bit more than just some paint, especially if you are buying at the bottom end of the market), not to mention money for furniture etc (I assume you rent a furnished place). You can run into many unexpected costs with a house, and it all adds to the stress: give yourself a bit of time and enjoy the freedom that renting gives you. It's not dead money, it's just another option, and a good one in your case, I think.

mayb_2

Hi Sarah

I think you should think seriously about buying - money spent on rent is money lost and if you buy a house now it has a chance of being worth more than you paid for it within a fairly short period of time. If you have a repayment mortgage you are gradually owing less for the property and creating some equity for yourselves. If you rent you still have to pay rates, utility bills and all that other stuff so you are not saving there.

If you have been paying rent for a while and have a good record, lenders are sometimes willing to give you a larger loan based on your proven ability to pay. My son has just graduated and his bank have offered him special rates on a mortgage as he had a student account - so have you asked your bank what they can do for you?

If you stop renting your flat you should get back your deposit money and that may help meet some of the costs - some banks and building societies offer to pay towards the fees if you take out a mortgage with them and many have special deals for first time buyers. A search on the web should help you to make comparisons but it is best to have a good look round before making up your mind who to go with if that is what you decide to do.

Good luck

tomstickland

I'd wait until you're both working and then monitor your finances closely to see what you coudl really afford, and at the same time save some more.

MortgageMamma

Bit of a split opinion here! let us know how you get on Sarah, and make sure you explore all your options mortgage wise before making your decision!

Good luck

MM

Debt_Free_Chick

Sarahpuggy wrote:

Currently, we pay £700 a month for a small one bed flat, but with all bills it amounts to near £1000 every month.

I think you need a more comprehensive budget. If you bought with mortgage repayments of £700, there is no way that your other bills would amount to just £300. You need to add on the following

Council Tax
Buildings Insurance
Contents Insurance
Mortgage Protection
Income Protection (less of a priority ... optional)
Fuel (gas/oil)
Electricity
Telephone
Internet/Broadband
TV License
Water supply/sewerage

Food
Car costs (insurance, maintenance, MOT, road tax, petrol)
Travel - in addition or instead of car

And none of this allows for dental/medical costs, or personal spending ....


There is no way this only costs £300.

Sorry, but you need a realistic budget

zag2me

Get on the ladder I waited 3 years after uni to buy a place. During that time house prices rose over 30% in the area I was buying. It worked out that I was saving £600 a month, and houses where going up by £800 a month in value. After 4 years out of uni and 1 year in my own place i'm just beginning to settle down.

Sarahpuggy

Thankyou everyone for both of your replies.

Debt Free Chick, the £300 budget i was referring to was everything to do with rent and bills, but of course it would be alot more if we owned a place.

We did a very intense budget and worked out we have £1400 between us every month to do what we want with. So we are going to save up for the rest of this year and look to getting on the property ladder after christmas/early 2007. I think this is a sensible option and its not too far away!

Thanks again for all the replies, very helpful