Mortgage Newbie - Help Please..?

Lady_of_D

Hi, I'm a 22 year old single girl.

I've been in full-time employment since I was 18, have been in the same job 2 years. It's not a great job, but I enjoy it and I'm working my way up the ranks of the company - My latest P60 shows I earnt £11,000 last year. Not great by any means.

I'm currently living in a 2 bedroom flat (£500 PCM, Band D council tax), but have been living in similarly priced, rented accomodation for the last 4 years.

I've been wondering about mortgages lately as I feel all my hard earned cash is just going into a black hole of rent that I'll never see anything of!

I'd like to BUY a 2 bedroom flat on a mortgage and rent the other room to help pay for the mortgage. I have about £10,000 saved at the moment. And I am looking at flats around the £80,000 mark (there's actually a gorgeous 3 bedroom flat in the area I'm looking for a fixed price of £80,000).

I'm just looking for some advice, I literally have NO clue about mortgages and what they mean! Are there any websites that could help me understand a bit better? How much would I roughly be looking at per month for payments and do they take lodgers rent payments for the other bedroom into account?

I'm feeling a bit overwhelmed!


Thanks,


Kirsty

G_M

Lady_of_D wrote: »

....... Are there any websites that could help me understand a bit better? How much would I roughly be looking at per month for payments and do they take lodgers rent payments for the other bedroom into account?


Kirsty

There's a calculator here to play with.

No, lodger's rent is far too unreliable for a lender to take it into account. Nice permenant-contract-related salary please! Try here for how much you can borrow....

BitterAndTwisted

You've manged to save almost a year's salary on an income of only £11k? Congratulations!

What sort of price are two-bed flats going for in the area you're interested in buying? Please don't forget that if you buy a flat you will have to pay quarterly service-charges in advance and those sums can be substantial. And rising year-on-year

tyler80

I can't really offer much advice but is a 2 bed flat that you're paying 500 pound a month on really a Band D property for council tax??

geoffky

well done for saving so much on such a small salary....keep it up..

and keep coming back asking questions so the sharks out there can not rip you off.

InkZ

Your first problem will be how much you can borrow. If you go to a few of the lenders websites you will find a link something along the lines of 'how much can I borrow'.

As a guide expect around 4-4.5x your salary. If you could find a 4.5x salary mortgage then you could in theory borrow 49500. Add your deposit on to this and you are looking at purchasing ability of £59500. This would be with an 83.2% mortgage. (you are borrowing 85% of the property, your deposit is the other 15%).

If you google 'mortgage calculator' then put in a mortgage of 49500 and the rate of the mortgage you are looking at you will get the monthly payments.

On a 4.25% mortgage you would be looking at monthly repayments of £325.83.

I've just picked some rough figures out of the air as an example and you are best seeing a mortgage adviser, but it should give you some idea of what you can potentially get. I don't think you'll stretch to 80k, but if you can save another 10k, you might be able to negotiate 10k off the properties you are looking at and reach 70k

satchmeister

No such thing as 'fixed price' or 'offers over', never trust estate agents or their financial advice. No property is 'gorgeous', it is just a pile of bricks which is over priced and you will end up working to pay for over the next 25 years ... now you can start looking for property. Good luck. I assume you know about houseprices.co.uk and property bee.

Lady_of_D

tyler80 wrote: »

I can't really offer much advice but is a 2 bed flat that you're paying 500 pound a month on really a Band D property for council tax??

Indeed it is, it's in the City Centre, I have a good deal on this flat which is why I'm happy to stay here for the time being, especially as I can save on travel by walking to work.

And thanks for your kind words about my saving, I've been on here for about 4 years and I'm always lurking, been saving for about the same amount of time and I'm quite proud

Thanks for your help

PS - I think someone asked, 2 bedroom flats in the area I'm looking at are around £75-£80k. I'm also willing to buy a flat in need of renovation if I can get it significantly cheaper as I have 3 brothers...one is a joiner and one is an electrician :P

thor

Don't forgot that interest rates are likely to increase in the future so take that into account when calculating how much you can afford to borrow. The banks have been increasing their margins during the rescessionary period so the quicker you can pay a mortgage off the better!

cathh70

When I was a similar age to you about 20 years ago, I was earning £10/11k a year, and pushed myself to buy a property. I borrowed almost the maximum I could which was £30500. I had £3.5k as a deposit.

Looking back it was scary. My mortgage monthly (repayment) varied between £180 and £240 per month, and it was close to the wire sometimes. I think I came out with under £700 a month after tax. I realise taxes have changed over the years though so your take home is probably more than that.

£500 a month would freak me out as it is a huge proportion of your salary, but if you have been used to living like that then fair enough.

As other posters have said, it is unlikely that you could borrow as much as £70k on an £11k salary. Keep on saving, and push for a promotion, and you'll be there in no time.

princeofpounds

It might be a fixed price thing if the OP is scottish, otherwise it's just a marketing ploy.

Anyway OP, realistically your wages are not sufficient to buy a property yet. Your deposit is good, (and if you could get it to £16k would be even better) but the earnings multiple of almost 7x is far too high. Currently 4x is more achievable and over long periods of history it has been more like 3.5x on average (although houses have been cheaper on average too).

You must also be very very aware of the difference between fixed and variable rate deals. Don't look only at the first month's payment under variable rates, as rates can and do change (hence the name)! If a variable mortgage were to cost you 3% now with interest rates like 0.5% then remember that the long run 'average' on interest rates is more like 5-7% . So would you be able to cope paying 8.5%?

A useful trick is to, even if taking a variable deal, make sure you could afford the fixed rate deal too. Because the fixed rate deal represent's the market's best guess at the 'average' variable rate across the life of the fixed term. That's a simplification but not a bad sense check.

Also don't be fooled by 'special offer' discount mortgages with a low initial rate.

Beware of negative equity. This is why your deposit is important. If you were to buy with a thin deposit and prices fall then your mortgage could be larger than the value of the house. This is a not a problem if you never move, but if you need to move for work, or to a new house (perhaps with a partner) then your bank can practically block you by stopping you renting it out or selling it.

Banks can also use it to squeeze money out of you. When your initial deal ends they can force you onto higher 'standard' rates in many cases. Your payments go up but no-one else will lend to you as your equity is too low, so you are stuck in the deal.

Finally, rent is not 'dead money'. What do you think mortgage interest it? You are effectively renting the money from the bank.

So well done for considering it all, but don't fret about it. You are still very young, with choices to make about career and partners and so on. A mortgage can be as much a millstone around your neck as a boon. Houses are expensive relative to earnings in a historical context and the average first time buyer now is nearer 40 than 30. I'm not saying that to dissuade you from buying but to reassure you that it's not necessary to be your primary focus.