Existing home owners, your advice please...

lemani

My girlfriend and I have managed to save up a good sum for a deposit on a new home. I'm 30 she is 28 and we are both first time buyers.
However, we are wanting the best advice on our approach?

We are both fortunate that our combined annual salary at the moment is quite substantial.
We have no children although we see this as a possibility in the not too distant future. My girlfriend likes the idea of buying a house up to £250k so that we do not have to pay stamp duty, plus monthly mortgage repayments will be cheaper. However, looking around at properties it is evident that by extending to £300k we can get a really great property, in a more desirable area (I have to admit I can be a bit of a snob), but obviously we would have to pay £8k+ stamp duty which we can afford.

Equally, we can afford the mortgage repayments by stretching ourselves to a £300k property and I mentioned if we were to have children and she had no income, then we could go to an interest only mortgage for a couple of years (if available) as my salary would easily cover the repayments before she returns to work.

I think if we both really loved a house up to £300k we would go for it, but just wanted to ask if there is anyone here with/or has had a similar experience?

This post could come across as a slightly rhetorical question, but I think my girlfriend is concerned that she does not want to overstretch ourselves on mortgage repayments. Money and debt scares her which is understandable. But, we could afford a mortgage for a house worth £350k if we wanted to with a 12% deposit + paying stamp duty.

In your own experience would you have bought a house and stretched yourself a little more by paying stamp duty and having a larger mortgage?

LilacPixie

We sold and bought again in december. We deliberatly did not stretch ourselves. I am quite risk adverse and wanted a property we could comfortably afford on just the 1 salary just in case one of us stopped working for whatever reason. Our mortgage is a fraction over 2x joint but i am on maternity leave until November 2011

Nothing to stop you offering 250k on a 300k house though which may suit you both, you get the area you want and your GF gets a price she personally feels comfortable with.

chalkie99

Work out what it will cost you when interest rates climb, as they undoubtedly will, and consider if you will be stretched then. Especially if you are down to a single salary and have spent a large amount on furnishing your home to your desired standards.

Yorkie1

I am with your girlfriend here. Your plan is based on quite a few assumptions, which you cannot be sure will be viable if and when you need them to be. There is no guarantee you will be able to go to IO as it is increasingly disapproved of by lenders in the absence of a provable repayment scheme (which tends to cancel out savings), and you have no way of knowing how interest rates will rise by the time you have a family.

tamarto

We chose not to stretch ourselves.

We thought about rates rising, circumstances that may change for the worse rather than for the better, in our opinions we didn't want to be forced to move from a house we loved and unsettle our kids because we chose to mortgage ourselves to the max, turns out to be a shrewd decision even if it was against the advice of our 'mortgage advisor'

hazyjo

Toughy. I'd say it depends on how long you're likely to be there too. I've bought a few places before which seemed to be near the top of my budget, but, on good salary increases, etc, became very affordable within say 3 years. But that was with levelling or falling interest rates.

I certainly wouldn't be thinking about an interest only mortgage, for however long. If having kids means you wouldn't afford the mortgage, take the cheaper option. Enjoy your time together as a family. Or overpay as much as you can in the first couple of years, have kids and take a payment break - obviously you'd have to check in advance that this would actually be an option. Are you in jobs that will see good rises over the next 5-10 years?

I've noticed a lot of posts on here lately from people 2 or 3 years down the line after buying then having kids saying they're desperate to move to somewhere bigger. In this market, you really don't want to be moving to something you'll want to move from in 2-4 years if your circumstances are likely to change (as you've said they hopefully will).

I agree with the above - nowt stopping you offering on properties between that £260-300k mark. Some will be thinking they'll have to drop to the £250k threshold level anyway, but will test the market for a while, others will, rightly so, hang on, especially those over £275k. Depends how quickly houses are selling in the area.

I am taking a bit of a gamble, but don't generally advise it. Hubby had a flat (now sold), I have a house (being sold). We aren't quite borrowing up to our max, but we will be getting a larger mortgage than we initially planned. We figure we take advantage of the price drops and buy something we'd never have afforded otherwise. All being well, it will be our 'forever home'. We're older than you though

As said, your main worry is interest rates. I remember when they were in double figures. Scary, scary stuff. We have a couple of contingency plans and would sell if we absolutely had to, but, if kids were part of that gamble, I probably wouldn't consider it. You don't want to combine high risk and a family.

Think very carefully about it. Don't completely max out on the mortgage (I certainly never would), and think about timescales as far as kids, etc are concerned.

One more thing, have you actually lived together? Not sure. If you've not even rented before and have lived with parents, I'd definitely go for the cheaper option. It's always a bit of a shock to the system as to how much these things actually cost!

Good luck.

Jx

GavB79

I would suggest a bigger deposit than 12% if possible that's for sure. Use your £50k as 20% against 250k instead

bumpybecky

Have you worked out what childcare will cost when your girlfriend returns to work? especially if you've got more than one child you might well find out her income is minimal. Now think about what you're going to do if you have twins or a child with additional medical needs which mean your girlfriend can't return to work. Even if it's affordable you might find she doesn't want to return so soon. Two children two years apart and being at home until they start school is 6-7 years of single income.

If it were me I'd go for the cheaper house. Once you've had all the children you're going to have look at moving up if you can afford it.

lemani

Thank you for your input. Just as background our joint income at moment is circa £100k. My girlfriend is self employed and our earnings are 50/50. She works from home full time in an industry that is expanding. Likewise I anticipate my salary to continue to rise as I work in a growth industry too.

I suppose I am looking at a buyers Market and know we can get a lovely house by stretching ourselves short-term. I'm happy to find a place I really like and stay there for 10 years +
I'm do err on the side of risk with money, but not too far, whereas my girlfriend is more cautious when it comes to money. We have lived together for 4 years renting at £750 per month excluding bills whilst at the same time saving with no additional assistance.

Don't know if the info above changes anything, but thank you for taking the time.

sonastin

My advice would be to look at everything and not rule out the higher priced properties on the basis of price alone. In the grand scheme of things, there is a lot more to buying a house than simply what it costs. Each of the features you want in a house should be metaphorically scored and you could weigh the lower priced properties higher when you're comparing. You might find that "perfect" property that your girlfried would be prepared to take the financial risk on and the lower priced properties might just end up being "make do" places that you don't really want. Equally, you might be able to find exactly what you're wanting within a budget that your girlfriend is happy with. And that doesn't even take into account the falling market and low-ball cheeky offers that will help you and your girlfriend to find a compromise.

This bit is more of a rhetorical question because we don't need to know the answers but you and your girlfriend do...

If you aren't planning on getting married, have you had the "what will happen if we split up" talk? The law around shared ownership is very messy and unravelling a jointly-owned property can get expensive quickly if you're only talking to each other through solicitors. Working out the alternatives for different "how much is it worth now" and "how much have we each contributed" scenarios and getting it in righting now while you're still friends can help down the line if you were unfortunate enough for it to all go wrong. If you live happily ever after, it won't necessarily be a wasted exercise because you'll know that you've both got the same attitude to money...

moomaa

If you are thinking of having children at the new house then have a look at schools now, the time goes by in a flash. We now have 3 preschoolers and have recently moved to a bigger house near a good school. I am the the more cautious one in our relationship. However if we had bought at the higher level at the start (as my husband would have) then it would have been cheaper overall as we wouldn't have had to made two moves and had two lots of moving costs.

I wouldn't want to be on an interest only mortgage, even for a short while.

Adapting from two salaries to one is difficult, especially if you both earn the same, we are 3 years in, and we are looking forward to the day I go back to work so we can have some of the things we were used to before. We had a 'trial' of living on one salary for a good year or so before kids and that allowed us to build up our savings.