FTB: should I or shouldn't I??

TonyS_1980

The age old question… should I take the risk and get on to the housing market?

I’m 26, and work in Park Royal area of West London. I earn approx 28k, and with overtime that can be about 32k. That is with over 300hours of overtime a year so do not know expect to keep those hours up. A realistic figure with overtime is 30k. I will probably be on approx 3% pay rise a year in the job I am in. I am a Development (Mechanical) Engineer, so there are limited places to work in this area of London. PLan is to stay in London for the next say 3 years. i have worked in this job 4 1/2 years now. I do have a girlfriend, but she is not in the position to buy with me.

I have 15k of savings at the moment, thanks mainly to a relative giving me some money. I continue to save a minimum of £200 a month. This would be more but I spend approx £150+ a month on my hobby of karting. This would probably have to stop or at least only do occasionally. I could also save more by being a bit more careful with money (i'm not crazy with it but could also be better)

Where I work is right on the A40, so has good road access, and is near a Central and Piccadilly line station. THis is also near Ealing Broadway station and hence main line services, towards Reading area. I start work at 7.30 (could move to 8, but then less overtime) so miss some traffic, but also less trains. I used to commute from Oxford via car but commuting that far is a big no no for me!!!

Realistically house prices near work are over 140k for a 1 bed. I do not really want a studio place. Places I have seen for sale (in papers, internet etc) are around the Hayes, Harrow, areas, and further out.

That would mean a mortgage of around 130k, which is 4 1/3 my over-timed salary, but I guess more like 4 ½ - 5 times my salary, at up to 150k mortgage. I would be living there on my own. This value of 150k mortgage is of course not going to happen, but a 130k mortgage is just about allowed (correct me if I’m wrong anywhere here!!!)

I have done a budget and worked out that I would be spending approx 50% on the mortgage from my wage, plus house bills and insurances on top of that. this would realisitaclly mean i would not be saving much a month, for a rainy day or for another property.

My student loans should stop coming out of my pay slip by the end of the calendar year 2007, which will give me another £130 per month to play with. I have nothing big on my credit card (pay all but £50 off a month), and do not really use my overdraft that much in my bank account (a couple of hundred max, but usually stay in black).

The other option of course is a shared Ownership scheme, but I feel they are an expensive alternative. The costs of the mortgage, rent, service charge all add up and in my view make it as expensive as buying a property outright. I do feel though that they have potential, but I feel not quite for me. Again tell me if I am wrong here!!

I do not know whether to jump on the mortgage/housing band wagon with the savings I have and hope the market will go up. I guess as it is London the prices will continue to go up (unless major hiccup), as there is generally a shortage of houses to buy.

I just want some advice finacially to see if this is a logically way forward. Buy a place now, stop (very limited amount) of my hobby, or stay where i am and save more money (put some of the money into ISASetc, but that needs more thought), and work out if i want to stay in London, stay in my job, stay in the country, etc, etc.

Thank you for any comments, and advice, and kicks up the backside!!!!

fimonkey

Gosh you have a whole heap of permutations there, and I doubt many people on here will be able to point you in the right direction until you're clearer about what you want.

I'm in almost EXACTLy the same position as you (financially and with b/f who isn't in position to buy with me) and have asked much of the same of the lovely kind people on these boards.... I've also found that my main topic of converstaion with any new aquaintances and old friends is "should I buy or wait, what should I buy- leasehold or freehold, should I stretch to mortgage and get something I really want to live in, or manage with something smaller and more comfortable financial wise etc etc etc..." The ONLY thing I've found out from all this is that a) I've become quite boring ;-) b) at the end of the day it's got to be MY decision and the more people I ask the more conflicting advice I get.

HOWEVER I do think there's a lot of value in asking these questions as, if nothing else, they help your mind put all the options into some kind of order!

My personal agenda now is to go away and not think or talk about it for a whole month, and then look again with fresh eyes.

Good luck! Keep us informed as to what you decide to do as I (and others no doubt) are following your stpries very closely.

fi

chant1l

Several solutions present themselves here;
1) buy smaller - the studio you don't fancy
2) buy less desirable - ex council/above a shop/horrible road/horrible flat
3) rent and be in the same position in 5 years with all your mate in 3 bed semis.
4) buy with you mates and risk making them ex-mates.
5)murder your parents and inherit.....?

fimonkey

To Be fair Chant1, from my own situation those options aren't really options.... (Well for sure number 5 isn't, though if you're spending the rest of your life in jail it takes away the 'buy or not to buy' question eh) ;-)

re: 2) location location location! check the area and the plans for the area, the council estate may stay a council estate forever, and you'll pay through the nose for car and home insurance to make up for all the vandalism and burglaries (and no I'm not tainting all council estates with the same brush, I grew up on one however so feel qualified to speak).

3) Could also be 'Rent and then buy when the market crashes/slows down, and then have the 3 bed semi that your mates had re-possessed'

4) Not always an option, need to have mates in exactly the same position as you in terms of commitment, security etc etc

Anyway nothing helpful from me to add. other than good luck

mobile-advice

Location would be important, Harrow would give you access to work + London relatively easily because of the tube access.

I reckon that 140K might buy a two-bed flat around that area. With interest rates set to rise, I'd wager that prices are not going to rise too much, if at all.

A two-bed would also give the possibility of moving your g/f in, and charging her rent/bills. You do not, under any circumstances,want to be dependent on this income, but, say £300/month would cover a large chunk of your mortgage payment.

Mrs_pbradley936

Buy a place with an extra room and rent it out. The money is tax free under the "rent a room" scheme if less that around £85 a week but that goes a long way to meeting your mortgage costs.

Graham_Devon

Look into Shared Ownership more. bought 6 months ago, costs me leass than £400 mortage, rent and service charges combined. (£398 to be exact!).

This is for a 25% share of a property valued at 135k.

Beats renting. Beats paying £800 on the equivalent mortgage. All the money I saved on the mortgage costs goes into savings for the 'real' house, while I make money (hopefully) on this share, allbeit not much.

Other good points are if a crash or lull does happen, I get hit 75% less than if I owned the house and can still save with the increased interest rates putting my savings up. I don't look back.

Theres a few threads on here about it.

fimonkey

Shared ownership not good for all though, mhy bother investing/updating a property if you'll only get 25% of your return and the other party gets 75% of your hard work when you come to sell?

I'm having a rethink about getting onto the ladder given the recent interest rate rise. Perhaps far better to put deposit into high interest account and rent at a lower rate than you'd be paying on your mortgage?

TonyS_1980

I am also thinking more after that interest rate rise. with also the fact that there is alot of talk of more rises in the near future then it is making me less likely to buy.

I do need to think hard about this decision, as well as location, shared ownership, etc, etc.

I know its a swings and roundabouts type decision. Just need to make one (invest some money or buy).

Just thinking, would it be worth putting £3000 in a mini ISA to get some tax free savings on it, and keep it there as a nest egg even if i buy, or is it worth just using it on a deposit??? mmmmm

thanks for all your comments you have made.

F_T_Buyer

Why don't you research the housing market to see if you think it's a bubble or not. If you conclude prices won't rise, why jump when your not ready?

tomstickland

I think you're asking all of the right questions.

I have done a budget and worked out that I would be spending approx 50% on the mortgage from my wage, plus house bills and insurances on top of that. this would realisitaclly mean i would not be saving much a month, for a rainy day or for another property.

Not much fun really.

I'd recommend that you continue to save and continue to kart. It's a balance between future planning and the "live life" factors.

3) rent and be in the same position in 5 years with all your mate in 3 bed semis.

They're not going to be in 3 bed semis in 5 years though, not unless they make major financial efforts.