Everything's changed - what would you do?

LydiaJ

OK so here's the story... I don't want to give too many details because I don't want to give away who I am to anyone who might happen to know me, but the essentials are as follows:

I am a single parent (not by choice) of primary school age children. I am currently renting and I work two part time jobs. Until recently I would have said I had a decent deposit ready for buying (mostly from my family, but a little of my own saving) but not enough income to get the kind of mortgage I would need to buy in the area where I live and work. I've been trying to keep saving and hoping that maybe either prices would come down or I would be able to get more hours and increase my income.

This is all unexpectedly changing. A large chunk of my monthly income (about 40% of it) is about to disappear and be replaced by a really big lump sum. Once the dust has settled, I expect to have an income that is nowhere near enough to afford my current rent without eating into my capital each month. My potential to work more hours won't have changed, so it would be difficult to increase my income much. However, because of the lump sum I should be able to afford to buy an OK-ish house outright, or alternatively the kind of house I would really love to have with about 80% down and 20% mortgage, which I think I could get and could afford.

So, bulls, bears and everyone in between, what would you do in my situation?

ETA: I'm 40, I'm settled in both my jobs for the long term, my kids are settled in the area, and I don't like moving. So when I buy, it's to live in for the foreseeable future. I'm not interested in getting something just for a few years and trading up later.

treliac

LydiaJ wrote: »

This is all unexpectedly changing. A large chunk of my monthly income (about 40% of it) is about to disappear and be replaced by a really big lump sum. Once the dust has settled, I expect to have an income that is nowhere near enough to afford my current rent without eating into my capital each month. My potential to work more hours won't have changed, so it would be difficult to increase my income much. However, because of the lump sum I should be able to afford to buy an OK-ish house outright, or alternatively the kind of house I would really love to have with about 80% down and 20% mortgage, which I think I could get and could afford.

So, bulls, bears and everyone in between, what would you do in my situation?

Ooh Lydia, what a dilemma, but good to have some cool choices.

If it were me, I'd obviously prefer to have no mortgage but would have to weigh up how much I'd like the house I could afford outright versus the one that would require a small mortgage.

Then factor in how much spare cash I'd have with each option and my lifestyle needs and wants. There'd be consideration of things such as catchment areas for the childrens schooling, travel to work costs, distance from close family, etc. as well.

Finally, I'd have a look at a few of the properties in each 'band' and ultimately be led by my feelings about them - where we as a family might be happiest.

Good luck.

nollag2006

Wow ! Interesting dilemma you have there Lydia

You now have a cushion of cash to put down a substantial mortgage on a home for you and your family, with a relatively small mortgage. You should therefore be immune from any short term movement in house prices.

You need to ask yourself if you want to be renting all your life, and if you want to eat into your lump sum to pay someone else's mortgage. It would be nice if you had something to hand on to the next generation in the form of the family home.

Whatever about current volatility, few would disagree that house prices will be substantially higher in 25 years time.

Good luck to you and your family

lostinrates

On first glance I'd tend towards buying the nicer house and keeping it forever. Children are more flexible than we generally portray on this forum I think, but stability is nice too: having a house that is now, and will be ''home'' is a nice option.

BUT...it depends what the figures behind the percentages are what I would do in that situation....on the surface of it a 20% mortgage at 40 seems pretty good...how many years do you envisage taking it over? what sort of percentage of your income?

I'd perhaps have a look at what is about and see how your gut feels. If you can buy something for less it would be prudent and I woudn't take the mortgage option on a house unless my heart and gut said it was love, when you good have security on a house that my head accepted as practical. But if there was house-love involved personally I'd seriously consider it.

Davesnave

I have just lost my post, attempting to edit the preview pane instead of the post:o (it is too early in the morning) but after waffling on for about three paragraphs the answer was, basically, 'I don't know!'

Personally, I believe that in a given area there is always that one-off house which has most of what one wants at a price which makes others look expensive. It may be because there is something odd about it (our present house!) that there are solutions to, or it could be that the vendor needs a very quick sale (again, our current property.) - that sort of thing. In other words, I don't believe that houses divide neatly into 'OK' and 'lovely.'

Until you get out there and view, I don't think you will really know your options, so although renting may start eating into your capital soon, it isn't going to do it so quickly that you need to move fast. Only when you walk into places will you know how you feel about any one of them. You might find, like I did, that one which looked carp on paper, felt a lot better in reality. It still took me 3 days to grasp that, such were my preconceived notions.

You're in a great position to drive a hard bargain, and you might be pleasantly surprised if you make some 'daft' offers in the gloom of January.(the 23rd is the most depressing day of the year, apparently.) Failing that, even Nationwide are predicting falls next year, so what have you got to lose by holding on for a bit if the right place doesn't materialise?

Apologies if you have been viewing places already, or live in one of the SE bubble areas, where prices have been doing their own thing. The latter is something I'm not able to comment on, though I have friends who know about it first hand.

There you are.....more waffle! Trelia said it all first.:rolleyes:

lemonjelly

To me, there are 2 main factors which would affect the decision:

1 how secure is your employment?

2 what is available in your local market?

If your plan is to be there in the long term, you're looking for a home, not an investment.

If it is a home, then I'd be inclined to go for your 2nd option. It is going to be the place where you & your children live & grow. It will be a place for building memories.

Hence I'd be inclined to go for the option of 80%(ish) down with a 20% mortgage.

ruggedtoast

Its impossible to say without knowing the figures involved. A 20% mortgage doesnt sound like a lot to me but if youre income from your remaining p/t job is very low then it may not be worth the punt.

Definitely get out of rented, you may not get another chance.

Cannon_Fodder

What % of your income is the rent?

If around 40%, which is not unheard of, then buying so you have no future rent outgoings (and avoiding a mortgage at the same time) will make up for the loss of income...

So, going for the buy-outright option, could add up.

Especially as the 20% mortgage leaves you open to being repossessed, in the event of future money problems...

Sometimes the nicest house/features/location combination is a bit cheaper than you'd planned for. The option that secures your and your childrens future is worth more than being detached, 200m nearer the school, sash windows, or whatever the extra elements are that make a dream house...

Generali

If it was me, from the limited information given I'd buy outright and hope that future changes in income and available capital enable me to buy the place I really want.

Outright ownership gives you a huge amount of stability and ability to manage risk, especially if you have a spare room you can rent out if you need to.

fc123

I am with the 'buy outright' but, perhaps, something that you can improve later on when kids are bigger or you have some spare £££....like the potential to add an extension or convert loft. Oh dear, I sound like Phil and Kirsty..but you know what I mean?

If the buy outright option is only in not so nice areas, maybe the 20% mortgage but, after reading Max Headrooms blog about his period where he was
unemployed, he was really fortunate not to have a mortage at all....likewise, thirftybabes tales of her change in work circumstances.

dopester

LydiaJ wrote: »

Once the dust has settled, I expect to have an income that is nowhere near enough to afford my current rent without eating into my capital each month.

Could you find alternative rental accommodation in the area which is cheaper? Is there anything suitable you could afford if you didn't have an unexpected lump-sum coming and just had a 40% drop in your income?. Cutting one's coat to suit one's cloth.

Having at least 2 children though does limit what you could downsize to, in order to try and cutback for a 12 month stretch... to await further falls in house prices with a mind to buy a nice place. You might not want to slum it for a bit either, in a cheaper property which isn't as nice as you're used to. Are there any other alternatives Lydia? No close family local to your area who would take you in for 12 months at a lodger-style rent which is good for you all?

You're not the only one going to be with changed income circumstances. I'm still expecting a major rent-price crash with house prices resuming their crash too. This crash seems to have many complex levels, and I'm not claiming to have them all recognised.

The bears who I think are losing their nerve the most are those who are currently renting at around £600-£750 on a house/flat worth say £90,000 to £150,000... and looking to buy a house similar to the one they rent. The more time passes and they pay the same sort of rent and house prices don't seem to fall... the more pressure they feel to buy.

Even if you could buy at 10% or 15% cheaper in 12 months on a £150K home... that is maximum of £22,500... against say £9,000 rent paid out in the same timeframe. So a possible saving of just £13,500 (+ a few other benefits of renting).... against that strong urge to buy and have "security" and all that.

When you're renting at flat or house at £1,000-£1,200pm, which supposedly has a market-value of between £270,000 to £350,000.... there is less pressure to buy at around that same value. Being able to buy the house at 10% or 15% lower in 12 months could be £52.5K saving (or more if some of us bears have it right), against to £14,400 renting.

Also there is an option to cut back a bit easier by moving to another fairly good rental house in a reasonable area at say £900pm.. if your circumstances change but you still are aiming to buy the house which once was valued at £350K.... waiting for it to fall in value.

Higher up in the rental market... people who are currently renting £1,500 - £3,500 pm, or more, have more options to comfortably downsize to a less expensive rental... if they are cautious or circumstances are set to change. If they are renting whilst waiting for values to fall then buy.. 10-15% drop in values of homes they were renting at £1,500 - £3,500... significant amount, so less pressure to buy atm - all imo.