First time buyer and baby on the way - have we got our sums right?

MrChips

Hello all,

My wife and I are first time buyers and after many months of searching have finally found a place we would like to purchase. I’ve tried to forecast costs and affordability but would still be grateful for any opinions which confirm or shatter my assumptions before we complete a transaction and it’s too late!

We’ve been saving for many years and searching (on and off) for about 2 years. My wife is now pregnant which has significantly focussed our searching – and it has finally dawned on us that the perfect house isn’t out there (for our budget) and we will have to make some compromises. Between us we have built up savings of around £250k which should help for a good deposit, although we’d like to keep some of this back to pay for renovation, furniture (we have always rented so have none) etc, plus some savings for a rainy day.

The house we are considering is on the market for £530k and we have had offers of £480k and £490k refused. I am optimistic we would get it for £500k (given stamp duty threshold) and so have budgeted at this cost at this stage. For this cost we would hope to borrow 65% of the value (£325,000) and pay the rest from our savings. I have budgeted for the balance of the transaction (£175,000), stamp duty (£15,000), other transaction costs e.g. mortgage/legal fees (£3,000), so a total of about £193,000 coming from our savings leaving us with £57,000. Have I underestimated these costs, or forgotten anything important?

I quite like the look of First Direct’s tracker at 2.29% p.a. (£99 fee), which would give starting monthly payments of just over £1,400 on a £325k mortgage (assuming 25 year term). Clearly rates are only going to change in one direction but I still think this represents better value than any of the fixed rates out there presently. Has anyone any experience of how fussy FD are – I feel my wife and I both have a good credit record, but I guess everyone says that!

If all my assumptions so far hold, then it remains to establish how affordable the monthly payments will be after we move in. Clearly our current pattern of expenditure will change materially in the near future. Moving from a rented one bedroom flat to a four bedroom house will result in higher utility costs, buildings insurance and council tax (anything else?). Having a baby will result in possibly only one income (at least for a while) and the increased cost of looking after a child (and who knows maybe more in future!). Against this, I would expect to cut back on some luxuries like the number of overseas trips, and going out.

This is the hardest element to predict for me. At the moment I am working on the basis of just relying on my salary, and assuming either that my wife doesn’t work, or that what she does earn is entirely spent on looking after the baby. On this basis I think we could stretch to the mortgage rate going up another 4% - 5% p.a. before things got really difficult. My guess is it will be at least a couple of years before this could happen (if at all) in which time we would have saved enough from the current low rates to finance higher payments for a while.

On this basis I think we can afford the house. But as a first time buyer I would really appreciate some input from those with experience of a house purchase (and new baby arrival!) who could let me know if I have forgotten any material details which would throw my calculations off. The thought of spending half a million pounds on something is quite scary even if most of it isn’t our money.

Thanks for reading this far

Chinkle

Wow that's quite a savings pot you have there. All your figures look sensible and its good to know you have thought about what repayments would be (in the likely event) that interest rates rise.

The only thing you haven't stated is your income - assume you have a pretty decent salary coming in if you can afford a £325K mortgage on one salary alone. But I'm sure you've covered this base.

Of course its scary, it is for most FTB's and you are taking a massive leap from a rented one-bed to a four-bed house. You are lucky you are in a position to make this jump in one move.

GMS

If you are comfortable with a rate of 4 to 5% why not look for a fixed rate initially? At 65% LTV you will probably be in th emarket for a 3 year fixed at between 3 & 4%. At least this would allow you to budget for the fixed term whilst you adjust to the added expenditure of a newborn and a bigger house.
Without knowing full details of your circumstances it is difficult to guess but you may be better sitting down with a 'Whole of Market' broker. You may find a 3 year fixed will cost you around £200 more than the planned tracker, but as rates rise which you think will happen, any savings on the tracker could be quickly wiped out.
Your decision which way you proceed but if a fixed is within budget you should at least consider it.
Good Luck

MrChips

Thanks Chinkle - we are both early to mid thirties so savings have been accumulated over last ten years or so. We don't spend too much and are "money savers" - hence frequent visits to this site

My net take home pay is generally around £3,500 per month at the moment, although this is after some salary sacrifice for holidays/pensions so in an emergency I could boost this a little. My wife's income is more variable as a lot of her salary is based on "profit share" but typically this averages £2,500 per month.

Does this change your opinion at all?

MrChips

Thanks GMS. I have spoken to a W-o-M broker and will again if/when we agree a price. It's just based on rates last time I checked the 2/3/5 year fixes sounded a little high to me. If we can afford for rates to go up a bit, I will probably go for a punt on which will be better value rather than pay a premium for surity. Rates change all the time though so plenty of time yet for my logic to turn 180 degrees!

GMS

Fixed rates are now at decent levels. Definitely worth you having another chat with a broker prior to proceeding. 2 year fixes out there below 3% now but you will need to check if your income alone will be sufficient. Also check arrangement fees as some are horrendous. Any with a percentage of loan should probably be avoided by you.

somethingcorporate

MrChips wrote: »

Thanks Chinkle - we are both early to mid thirties so savings have been accumulated over last ten years or so. We don't spend too much and are "money savers" - hence frequent visits to this site

My net take home pay is generally around £3,500 per month at the moment, although this is after some salary sacrifice for holidays/pensions so in an emergency I could boost this a little. My wife's income is more variable as a lot of her salary is based on "profit share" but typically this averages £2,500 per month.

Does this change your opinion at all?

What is your gross combined income? around £100-110k or so?

About 3 times joint combined gross income is a pretty reasonable starting position if you ask me.

Edit: well done on saving so much, that must have taken a while!

Fiddlestick

Congratulations to the OP and their partner on their prudence, but why take on such a debt to buy a 4 bedroom house?

Is the OP's partner expecting triplets?

Would it not make more sense to purchase a 2 bedroom house for cash and then wait and see what the future holds?

That way you can continue to save the money that you won't be spending on a mortgage.

MrChips

It's a good point Fiddlestick. We don't enjoy the hassle/expense of moving and once the child(ren) have started school that's another reason not to move (must run in the family as my parents have lived in the same place for over 40 years!). Hence we are looking for something that we could live in for at least 10 years, possibly more, circumstances allowing. We feel this is affordable so why not just get it out the way now rather than looking for a short term solution.

If we do end up moving before then, well that's just the way it is.

We have been looking at 3 beds too, which can be extended or have a loft conversion done in future. But to be honest where we have been looking there isn't too much difference in asking price between these and 4 beds.

MGCP

Very interesting post, much of it is almost identical to my position except for the huge deposit! Averaging £25k a year between you since your early to mid 20's definitely puts you in the money saving expert category! Good luck with your purchase and with starting a family together.

MrChips

Just off the phone to First Direct. Unfortunately they refuse to consider my wife's income due to her pregnancy. They will lend a maximum of 4.5 times my basic salary (not gross) which will probably mean my figures no longer stack up

Time to get the spreadsheet out and call the mortgage broker again!