How much can I borrow

adam--j_2

Hello people. I'm new here but thought I'd ask for general opinions on mortgages, based on my current situation.

We have a flat that we owe £189k on the current mortgage. We would really like to move to a house. The original plan about six months ago was to rent out the flat, move in with parents, save like crazy and then sell the flat and buy a house. Everything was going so well until I lost my job a month after moving in with my parents.

The good news is that I've recenly started a new job, paying a fair bit more than I was on before and I love the new job, although we've almost gone through our savings while looking for a job.

So, here are the numbers that matter:

Current salary: £54,500
Wife's income: Child benefit for 2 children (£33.50/week, I think)

Equity in the flat: £26k (I think that is a pretty conservative estimate, as flats in the same road are on the market for around £229-£235k at the moment)

Savings left: £3k

Outstanding credit card debt: £21k

Whle staying at my parents, I think we can comfortably save £2k per month (or pay £2k per month off debts). Our ideal would be to be able to get a property for £300k, but would look at stuff at £250k. Is that realistic?

How do mortgage lenders view outstanding debts? I heard that it might be better to get a long term loan for those as it would reduce the monthly repayments and those lenders doing it on affordability take the mnthly repayment into account. However, chunks of that debts are on lifetime balance transfer rates (at 3.9%) so I'd prefer not to move that unless I have to.

Can anyone recommend a particular lender who might be sympathetic to our situation or are we better to stay with my parents until we have a bigger deposit?

My salary is likely to increase over the next few years as well, but I guess lenders won't take that into account?

Any help / feedback appreciated.

Thanks,

Adam.

Cleaver

adam--j wrote: »

Hello people. I'm new here but thought I'd ask for general opinions on mortgages, based on my current situation.

We have a flat that we owe £189k on the current mortgage. We would really like to move to a house. The original plan about six months ago was to rent out the flat, move in with parents, save like crazy and then sell the flat and buy a house. Everything was going so well until I lost my job a month after moving in with my parents.

The good news is that I've recenly started a new job, paying a fair bit more than I was on before and I love the new job, although we've almost gone through our savings while looking for a job.

So, here are the numbers that matter:

Current salary: £54,500
Wife's income: Child benefit for 2 children (£33.50/week, I think)

Equity in the flat: £26k (I think that is a pretty conservative estimate, as flats in the same road are on the market for around £229-£235k at the moment)

Savings left: £3k

Outstanding credit card debt: £21k

Whle staying at my parents, I think we can comfortably save £2k per month (or pay £2k per month off debts). Our ideal would be to be able to get a property for £300k, but would look at stuff at £250k. Is that realistic?

How do mortgage lenders view outstanding debts? I heard that it might be better to get a long term loan for those as it would reduce the monthly repayments and those lenders doing it on affordability take the mnthly repayment into account. However, chunks of that debts are on lifetime balance transfer rates (at 3.9%) so I'd prefer not to move that unless I have to.

Sorry to be a bit blunt, but...

Your combined income is around £56,000. If you sold your flat tomorrow, including fees, and paid off your credit debt then, using your figures, you'd probably be left with around £5k. This is your total net worth.

To buy a house worth £300,000 you'd probably need a 20% deposit in the current market, which is £60,000. So you'd need to save up around this amount, as buying a house for £300,000 would probably cost you around £12,000 in stamp duty and fees. So if you could save £2k a month, you'd need to save up for around two and a half years.

But even if you saved this deposit then on your current salary you'd need to borrow around 4.2x your earnings to borrow £240,000, which seems unlikely. Most lenders will go to 3.5x joint income as far as I'm aware.

So to be blunt for a second time, I don't think a couple who have pretty much zero net wealth and only earn £56,000 between them should be aiming to buy a house for over quarter of a million pounds. But that's just my opinion.

Sorry to be harsh, but I'd personally aim to rent your own house for a few years and get back on your financial feet. Sell your flat (presuming you can't live in it for some reason), pay off your debts and start again. House prices aren't going anywhere for a while by the looks of things, so what's the rush?

diable

Costs incurred with buying and selling eat away at money, your credit card debt of 21k is way over the top and to be honest do you think you will be able to save 2k a month?

HAMISH_MCTAVISH

adam--j wrote: »

:

Current salary: £54,500
Wife's income: Child benefit for 2 children (£33.50/week, I think)

.

Your choices are as follows:

1. Send the wife out to work.

2. Buy a cheaper house.

3. Wait and save for a very long time.

As has already been mentioned, aiming to buy a 300K house without a significantly higher income and/or a substantial chunk of equity is impractical.

With a household income of just 55K or so, you should be aiming for a mortgage of no more than 200K, ideally more like 175K. And that's pretty much what the banks will lend at the moment on the upper end of the scale, provided deposit and other outgoings/debts are optimum. So you need somewhere between 100K and 125K of equity or savings, and no other debt.

If your wife worked and earned just 25K, your options and outlook becomes significantly better.

paint

HAMISH_MCTAVISH wrote: »

Your choices are as follows:

1. Send the wife out to work..

:rotfl:I hope that was intended to be amusing. I haven't heard anybody speak like that since the 1970s.

dimbo61

I can only add that buying a smaller/cheaper place for under £249,999 would save you alot of costs IE 1% stamp duty ( so £2,500) over £250,000 3% stamp duty so £7,500+.
You need to clear your debts first and if parents are happy to keep the four of you then save,save,save over the next 24 months ( thats 12 to clear debts and 12 to build up £25K deposit)

Cleaver

HAMISH_MCTAVISH wrote: »

Your choices are as follows:

1. Send the wife out to work.

If your wife worked and earned just 25K, your options and outlook becomes significantly better.

They've got two kids, so after nursery fees of £24k a year, they are back to square one.

beecher2

You only have a deposit of 8k once the debt is taken into consideration - this would go on fees so you need to start saving from scratch. £2k a month for 2 years would give you £50k which is probably what you'd need as a deposit.

adam--j_2

Wow. Thanks for all the replies.

Firstly, £2k per month is definitely achieveable while living with my parents, probably more.

Whilst I thought 300k would be a little over budget I really thought. 250k would not be that hard to borrow with a 10% deposit.

Here's my reasoning:

Assume it takes two months to sell the flat.
Sell flat for 215k. Gives 26k.
Add 3k existing savings to 4k saved over two months to get 7k.
Add to equity to give 33k.

I know the debt II have is excessive but I know that within a few years my salary will be significantly higher and so why struggle now when it will be easier then? So the question I really have is what to do with the debt in the meantime. Is it better to have it in my wife's name and apply for the mortgage as just me? What abut a long term loan? I know when we got our first mortgage they were only interested in the cost of the repayments.

Cleaver

adam--j wrote: »

Wow. Thanks for all the replies.

Firstly, £2k per month is definitely achieveable while living with my parents, probably more.

Whilst I thought 300k would be a little over budget I really thought. 250k would not be that hard to borrow with a 10% deposit.

Here's my reasoning:

Assume it takes two months to sell the flat.
Sell flat for 215k. Gives 26k.
Add 3k existing savings to 4k saved over two months to get 7k.
Add to equity to give 33k.

Then pay off your credit card debt, and you're left with £12k. Your fees to sell the flat would be a couple of grand and the remaining £10k would be needed to buy your £250k+ new house (fees and stamp duty). So you don't have any deposit at present. But as you say, if you can save £2k a month then you'll build one quite quickly.

adam--j wrote: »

I know the debt II have is excessive but I know that within a few years my salary will be significantly higher and so why struggle now when it will be easier then?

Banks won't take potential future earnings in to account. They will just take what you earn when you apply for the mortgage.

adam--j wrote: »

So the question I really have is what to do with the debt in the meantime. Is it better to have it in my wife's name and apply for the mortgage as just me? What abut a long term loan? I know when we got our first mortgage they were only interested in the cost of the repayments.

Here's a slightly wacky and off the wall suggestion, but bear with me for just a second and see what you think. How about... you pay off your debt before buying a quarter of a million pound house? I know that all sounds very 1950s, and not very exciting, but it may just be the sensible option.

I've just put your details in to the HSBC mortgage calculator and with a £25,000 deposit, £21,000 credit card debt and your salary information they would be willing to lend you £185,000 (around 3.5x your income). So you could buy a house up to the value of £210,000.

hcb42

You need to pay that debt off, - if you are in the unfortunate position of losing job again, then it is a lot to service every month.

Also, you should aim for a pot of savings of at least 3-6 months salary as well as the saving for deposit.