To buy or not to buy...

AppleMan_2

Good morning everyone,

This has been reposted from the mortgages section.

I have a bit of a complicated question and am hoping that some of you who know more about these things than I do can offer some advice. If this is the wrong place to post this please let me know!

My basic question is whether we should be thinking about buying a house at the moment. At present we are renting a house for ~£600pcm.

I am a postgraduate student with a tax-free income of ~£15000pa. This is guaranteed for another year, after which I shall, God willing, be looking for a proper job. My wife also works but is finishing in December as she is expecting a baby.

We have savings of around £60,000 and would be looking at houses in the region of £170k. Obviously that leaves a large shortfall and I suspect we would have trouble finding a mortgage to cover it!

However, a relative has offered two alternatives. Firstly he is willing to act as a guarantor on any mortgage we might take out. There may be problems here as he is my wife's brother-in-law and therefore not strictly speaking a blood relative. From what I understand this is a requirement of some guarantor mortgages. I am not sure of his income but he says he could quite comfortably cover our repayments.

The other alternative is shared ownership with the same relative. The arrangement he has suggested is we buy half a house each and we pay him rent on his half at half of 90% of the market rate - i.e. if the market rent were £600pcm, we would pay him 0.9 x 0.5 x 600 = £270pcm (I think). Of course we would have to pay back any mortgage at the same time.

With this option, we would need to find half of £170,000, i.e. £85,000. If we blew all our savings on it, that would leave 'only' £25,000 to find. We might possible be able to borrow £10,000 or so from parents, leaving a £15,000 mortgage (or possible other type of loan?) to get.

In some ways we are quite happy to continue renting as at least that way a) we don't have the responsibility of fixing the heating/plumbing/etc if it goes wrong and b) our savings are sitting in the bank earning interest. However renting does feel a bit like we are throwing money away when we could be using the money to repay a mortgage.

The other factor is we could do with a bigger house due to the baby on the way. To rent a bigger house would be around £750pcm which is a relatively large proportion of our £1250pcm income.

Any thoughts?

Thanks,

Peter

ReportInvestor

Hi AM and a belated welcome to the site .

Food for thought from today's Times.

Recent house price surge suggests more than just a "mini-boom"

AppleMan_2

Yes, that is another factor we need to consider. If house prices are going to continue to rise then in one sense it would be good to get on the ladder. However if interest rates are also going to rise then perhaps we'd be better off renting and keeping our savings in the bank....

Thanks for the welcome

Peter

ReportInvestor

Here's a rent v buy calculator from down under that could be useful

I'm not sure of the status of the Oz "quarterly council rates" [paid in the UK by the occupier whether renting or owning] so I've been putting £0 in that box to ensure that the key final sum (difference between buy or rent) isn't messed up.

noyk

wow, how did you manage to get a tax free income? And thats not a bad amount of savings, how did you do that being a student? Sorry for being nosy!

ReportInvestor

Is that any way to treat a new acquaintance?

PoorDave

Generally there's a minimum mortgage lender will lend you as well as a maximum. From memory, it's often about 30k, so your tiny mortgage falls below that.

If your wife works currently, how much does she earn? How "guaranteed" is your income? But then how guaranteed is anyones??!?

I'd suggest you own as much of the house as you can, as then you're less reliant on your (generous) relative!

You say your wife is finishing work to have a baby in December. Given that it's now October, i'd wait until after that, maybe until you get a "proper job" (your words!) to save her the trauma of moving house at this time. Even if you offered on a house today, there's no saying you'd be moved in by December (or actual time of birth) anyway, as you could be involved in a chain.

AppleMan_2

PoorDave wrote:

Generally there's a minimum mortgage lender will lend you as well as a maximum. From memory, it's often about 30k, so your tiny mortgage falls below that.

I hadn't realised that. Thanks. Perhaps we could go for another type of loan, I seem to get enough stuff through the door offering me thousands.

If your wife works currently, how much does she earn?

About £200 a week, I think. It's only part time.

How "guaranteed" is your income?

Well I was thinking of leaving last month and my boss offered me a 25% increase to stay. I think they're pretty keen on me staying here, but as you say...

But then how guaranteed is anyones??!?

I feel more secure in my current 'job' than I think I would in a 'proper' job.

I'd suggest you own as much of the house as you can, as then you're less reliant on your (generous) relative!

Obviously we'd like to, but it depends on mortgate considerations. We don't mind being reliant on our relative, I lodged with him for 3ish years so I know he's trustworthy and reasonable!

You say your wife is finishing work to have a baby in December.

The baby isn't due til end of March 2007, but her contract finishes in December and I don't think she will be getting another temporary job.

Given that it's now October, i'd wait until after that, maybe until you get a "proper job" (your words!) to save her the trauma of moving house at this time. Even if you offered on a house today, there's no saying you'd be moved in by December (or actual time of birth) anyway, as you could be involved in a chain.

Thanks, I think you're probably right - we just have to be patient and manage with our current home. It all depends on what happens to the propety market. Another relative of mine has recently sold his home and moved into rented accomodation, hoping that prices will come down. That seems risky to me in case they go up!

Thanks for your advice,

Peter

AppleMan_2

noyk wrote:

wow, how did you manage to get a tax free income? And thats not a bad amount of savings, how did you do that being a student? Sorry for being nosy!

Most postgraduate students have a tax free income, it's not unusual.

As to the savings, it's simple - marry a thrifty wife!

Peter

AppleMan_2

ReportInvestor wrote:

Here's a rent v buy calculator from down under that could be useful

I'm not sure of the status of the Oz "quarterly council rates" [paid in the UK by the occupier whether renting or owning] so I've been putting £0 in that box to ensure that the key final sum (difference between buy or rent) isn't messed up.

Thanks, that indicates that really it all depends on what happens to property prices. If they go up, we're better off buying now. If they are going to fall, we're better off waiting.

Tricky....

Peter

Guy_Montag

Are you planning to stay at the same place when you graduate?

Most people I know of take 6 months extra to write up, during this time they don't get any money. Those that take on a job, tend to struggle to write up & work.

Have you thought about it from that pov?