Newbie on board, advice sought :-)

Alan2020

Dear MSE experts, new to the forum, but long time lurker

I am a first time buyer, and looking at getting my own property. Living in the SE of England and currently renting a one bedroom flat at £690/month. There are two properties I have my eyes on,

Firstly a one bedroom maisonette with allocated parking for sale, at about £88K and 84 years left on the lease. The ground rent is ~ £1200 PA and service charge is ~£460 including insurance. The flat is five minutes walk from where I work.

Secondly a two bedroom link detached property, ~£150K, with garage, garden and drive for 4 cars. It has been recently refurbished, in a good area but 30 minutes drive to my work and another 30mins back!

I have about £25 to 30K deposit and earn about 32K PA. What would MSE advice me on this dilemma I face. I am single by the way and about 31years old if it helps :rotfl:

Thanks a lot for your help,
Alan

iamana1ias

I doubt you earn enough to get a mortgage on the 2nd property.

princeofpounds

One technique you might wish to understand is that of capitalising ongoing opportunity costs.

Easiest to explain by way of example. If your ground rent is £1200pa, then that prevents you from servicing a mortgage of 1200/0.05 = £24000.

Of course, you need to add on the effect of the service charge, but deduct the incremental transport costs you would incur from your other opportunity.

I use 0.05% as that is a fixed rate mortgage for 5 or 10 years roughly speaking, which is the market's best guess of future interest rates over the likely time period of the 'investment'. It would be a mistake to use the actual interest rate right now of any mortgage.

That will help you understand the financial side of things, as for personal that's up to you!

Alan2020

Thanks iamana1ias, how much do you reckon I will realistically get? I checked online and with an independent and they were saying 4 to 5 times my pay, are they being unrealistic? Thanks again.

Richard_Webster

The ground rent is ~ £1200 PA

There might be ground rents that high somewhere - but it smells of shared ownership - are you sure that's right and it isn't only a percentage share?

princeofpounds

I doubt you earn enough to get a mortgage on the 2nd property.

150-30=120

120/32 ~ 4x income.

I think that would be doable personally, although you won't get the best deal.

Do realise that any falls in the value of a property will be deducted from your equity first so it's not always a bright idea to stretch yourself.

Alan2020

princeofpounds wrote: »

One technique you might wish to understand is that of capitalising ongoing opportunity costs.

That will help you understand the financial side of things, as for personal that's up to you!

Thanks Princeofpounds, I seem to get what you mean, my worry was the 84 year lease after popping my values into the LEASE calculator it brings a whooping £17K to renew it excluding fees etc, so I thought £20K, now this will mean I need to save up £20K in under 4 years, which seems a lot to save up while paying mortgage. :eek:

Also I hear the horror stories of what happens to service charges.

lee636

I once thought of living close to where i work but have you considered that its so close that maybe you feel like your never away from 'work'?

Alan2020

Richard_Webster wrote: »

There might be ground rents that high somewhere - but it smells of shared ownership - are you sure that's right and it isn't only a percentage share?

I saw the HIP of the property and this was heartbreaking, this is paid to a private company. Can you please clarify what you mean by shared ownership please :A

princeofpounds

There might be ground rents that high somewhere

You are right to ask the question, but there are plenty of ground rents this high in London. New developments tend to be high too, as foolish buyers never consider them in the capital cost of the property, nice earner for the developer to sell on to a freehold investment company. Like Simarc!!! (cue thunder and lightning!).

Alan2020

princeofpounds wrote: »

You are right to ask the question, but there are plenty of ground rents this high in London. New developments tend to be high too, as foolish buyers never consider them in the capital cost of the property, nice earner for the developer to sell on to a freehold investment company. Like Simarc!!! (cue thunder and lightning!).

Thanks, the property is 50mins by train to London Victoria, so not prime estate It was built in 1995 I think, does it mean that it has high ground rent due to the fact it is young(ish)?