Do we need to buy a starter home?

katmcleod

I'll finally qualify this year and start working again, so as a two income family we'll finally be able to put away money for a deposit.

But we'd really rather not buy the cheapest house we can find, do it up, sell it on, buy another, do it up sell it on, over and over to build enough equity to buy the house we really want.

We've seen houses around us, 4beds, between £160-£180k that are perfect. The kind we could live in until we're wrinkly and need to downsize again.

But I don't know if we can start off in a house that big, will be get a big enough mortgage? How big a deposit would we need?

I'm saying conservatively we'd have a household income of £40k once I'm working in June.

I'll probably need to be in solid work in one place for at least a year when we apply for a mortgage. But I've no idea what sort of deposit we'd need? We can get 15% in 3.5years at a push, 5yrs if we take it easy.

But with such a jump from our income to the house price we're looking at are we going to be needing a much bigger deposit?

Are developers buy 80% now schemes worth looking into?

We want somewhere we can live for a very very long time, so remortaging in 10yrs to pay the 20% back shouldn't be a big issue, by then I'll (hopefully) be chartered and be earning plenty.

Completely lost on whether or not this is doable, and don't want to work for 3-5yrs only to find we can't do it. Any advice??

snugglepet20

Are developers buy 80% now schemes worth looking into?

No no no no no no no. No. Big con to make you buy what you can't afford. Save up as much as you can for as long as you can and then see where you are. Plus 160k mortgage is hefty on 40k income and you will struggle to find a lender. I would consider buying a little terrace and staying put for 5 years (if it's just the 2 of you), they are quick to sell and you might make some money.

katmcleod

Sorry should have added that too, we've got two kids as well. So we've got the school catchments area etc to consider which rule out a lot of the cheaper areas.

Yorkie1

There are so many stories about buyers' dealings with developers going 'sour' down the line that I would personally steer clear of them. You'd be committing yourselves to a course of action when you don't know how life will be for you in 10 years time. Having said that, I don't know the detail of how such schemes work so perhaps there are get out clauses.

The other difficulty with new builds is that the developer's valuation / sale price is often higher than the mortgage valuation, leaving you with a shortfall to make up initially.

15% deposit of £180K is £27K. That leaves a mortgage of £152K - which is less than 4x current anticipated salary. If I were you and your partner, I'd consider saving madly to get a decent deposit of 15-20% over the next few years and then get a mortgage which doesn't have the developer complications. If you relax and take your time over the saving, you may just find that the market improves, pricing you out of the type of house you want. If you continue your expenditure along similar lines to the amounts you've spent before going back to work, you may find that the saving adds up more quickly than you thought.

katmcleod

Yorkie1 that's what we'd been thinking as far as savings went.

As well as studying I've had a gap year out on maternity leave, which meant absolutely no income from me, and we managed to get through. We've got a brilliant rent where we are just now and plan to stay put. We reckon if we keep playing poor when we're actually more comfrtable, and putting most of our spare money away we can save a proper deposit.

If we're strict we can get £30k in 3.5yrs, or if we enjoy our money a little more along the way 5yrs. So if the house we want is £180k, and we have a £30k deposit, just over 15%, we'd need to finance the remaining £150k on a household income of at least £40k. By the time we reach that I should have enough work exp for a more senior position and I'm basing our income with me starting on minimum wage.

We could be "lucky" and reach our £30k target and not see anywhere we like and have a much bigger deposit by the time we do.

Any idea what the income multiples are for mortgages just now? I'm finding everything from 2.5x to 4.6x with a good credit score.

As far as get out clauses go, from what I can tell you get the 15% as a loan secured on the house then after 10yrs you have to pay it back, or you give them that percentage back when you sell. But that's just what I can get from the website, I don't know anyone who's actually done it.

It's such a huge decision buying a house, the biggest purchase we'll ever make. And it's just so confusing!

Shimrod

katmcleod wrote: »

Completely lost on whether or not this is doable, and don't want to work for 3-5yrs only to find we can't do it. Any advice??

It's a bit of a tricky one. I bought my house in 1996. While saving for a deposit over the previous 3 years, I went from being able to buy a terraced house to a 4 bed detached with only a modest increase in income (with mortgage @ 3times income). The indications at the moment are that the housing market will remain flat or possibly decline slightly which may work in your favour. Even with a modest increase in the market, the costs of buying & selling may wipe out any gain get from buying an 'inbetween' house.

I'd start off trying to save as much as possible for a house deposit - as yorkie1 says -although only you can decide the balance of what a 'treat' is worth to you now versus getting your dream house a month earlier.