Genuine question - how does anyone afford to buy a house?!

s_w

Hi there -

My wife and I are both in decently-paid jobs, have a decent amount of savings, and are prepared to move to a cheaper part of the country - and yet buying a house still seems way, way out of our reach. How on earth does anyone afford this?

Between us, my wife and I currently earn around £60K a year in London, and we pay £955 a month to rent our flat. With our first child due in February and our jobs enabling us to work from home, we've decided to move to the Midlands, due to cheaper house prices (because we'd really like to buy somewhere) and cheap childcare options (since we have a lot of family in the area who are willing to help out). Due to leaving London and my wife going part-time, our annual incomings will drop to around £44K. Our savings pot for a deposit is around £23K, so we've been looking at putting a 15% deposit on a house costing around £150K. With the present low interest rates, that all seems fine and dandy - yet we've been advised to base our calculations instead on the average interest rate from over the last 25 years, to try and predict how our 25-year mortgage would fluctuate. It seems the average mortgage interest rate over the last 25 years was around 8.5%, which would make our monthly repayments even more expensive than what we're now paying for our flat in London (which, of course, we're paying for with two full-time London salaries, and with no children to support). The nature of our jobs is such that promotions/career progressions aren't a realistic prospect, so we can't rely on any significant increases in our incomings. Are we being overly cautious, basing our calculations on this higher rate of interest? If not, how on earth does anyone afford this?!

Any advice welcomed - thanks for reading!

ILW

In the event of rate going to 8%, your interest payments would be around £850 per month. Only you can decide if you think that is affordable.

Running_Horse

We afford it by going without all kinds of things others apparently take for granted. It's up to you what you choose to spend your money on. I can remember double digit interest rates, and interest rates rising twice in one day. It may be unlikely that will happen again, but there was a time when you would have been considered insane if you predicted BOE rates would be 0.5% for years. That's the thing about unexpected events; no one ever expects them.

motherofstudents

I don't mean to be rude but honestly your income is a lot more than many people have. Just do the figures. Work out a budget on a spreadsheet, or there is good one on this site which changes everything to monthly amounts so you can see exactly what you have going out and coming in. If you have anything left at the end save it or pay more off your mortgage. Try the ultimate mortgage calculator on here which will tell you how much interest you can save by doing that and how many years you will pay off the mortgage in.

Idiophreak

s_w wrote: »

Hi there -

My wife and I are both in decently-paid jobs, have a decent amount of savings, and are prepared to move to a cheaper part of the country - and yet buying a house still seems way, way out of our reach. How on earth does anyone afford this?

Between us, my wife and I currently earn around £60K a year in London, and we pay £955 a month to rent our flat. With our first child due in February and our jobs enabling us to work from home, we've decided to move to the Midlands, due to cheaper house prices (because we'd really like to buy somewhere) and cheap childcare options (since we have a lot of family in the area who are willing to help out). Due to leaving London and my wife going part-time, our annual incomings will drop to around £44K. Our savings pot for a deposit is around £23K, so we've been looking at putting a 15% deposit on a house costing around £150K. With the present low interest rates, that all seems fine and dandy - yet we've been advised to base our calculations instead on the average interest rate from over the last 25 years, to try and predict how our 25-year mortgage would fluctuate. It seems the average mortgage interest rate over the last 25 years was around 8.5%, which would make our monthly repayments even more expensive than what we're now paying for our flat in London (which, of course, we're paying for with two full-time London salaries, and with no children to support). The nature of our jobs is such that promotions/career progressions aren't a realistic prospect, so we can't rely on any significant increases in our incomings. Are we being overly cautious, basing our calculations on this higher rate of interest? If not, how on earth does anyone afford this?!

Any advice welcomed - thanks for reading!

If interest rates hit anything like 8.5% now, there would be absolute chaos - most of the homes in Britain would need to be repossessed - so I wouldn't worry about them going that high, but certainly consider affordability with more moderate rises.

The trick to getting on the ladder, I'm going for, is to minimise mortgage payments as much as possible while you save a deposit...

We've taken a shared equity deal with a builder, which means our mortgage is 25% smaller for 10 years. We've pushed the term out to 35 years...The results is a monthly saving around 50%, something like that - the rest of which we're saving. Next time we move, we'll have a much larger deposit to put down - and thus we can upscale without increasing the mortgage. Hopefully at some pint after that, we switch to an offset mortgage and slash the term back down again...It's not ideal, but it's enabling us to buy a nice place in a good area....

DannyboyMidlands

With a combined salary of £60k you need to be saving a bigger deposit than 15%. You should easily be able to squirrel away £20k per year. If not, I want to know why not?

Personally I'd wait till next year when you have £37.5k (25%) deposit and some extra for contingency then buy the house on a cheap lifetime tracker (cica 2.5%) that allows unlimited over payments. Make sure you can survive a rate of 5% but pay the mortgage down as fast as possible to reduce your exposure to even higher rates.

Turnbull2000

I would bet my life on rates not hitting 8% this decade. They'll barely rise above 3% if anything. So if you have the deposit and the equity, you'll eventually benefit from some of the lowest mortgage rates in history.

tyllwyd

But remember that you have to take into account the effect of salary rises and inflation if you are looking 25 years ahead. If we'd stayed in our first house that we stretched ourselves to buy at £60K fifteen years ago, our mortgage payments would be pretty small in comparison to everything else by now.

ViolaLass

OP, you could go for a long term fixed rate e.g. 10 years at 5% (not a specific example). Then you would have security for a fair amount of time (although that could cause problems if you want to move before the fixed rate is up).

You could also consider spending less than £150k. We're in the West Midlands and our first house will probably cost £85k (not boasting, just pointing out that there are options).

Loopgames

What's the buy to let market like at the moment in the area you are looking to move to?

Is there an option to delay moving there and purchase a buy to let - lease to the council for a few years then increase your monthly income? Or is this a taboo thought for people on here to even suggest such a thing.

Theoretically you could look into it at least and see whether you can do this to hedge your decrease in future income when you move.

Idiophreak

DannyboyMidlands wrote: »

With a combined salary of £60k you need to be saving a bigger deposit than 15%. You should easily be able to squirrel away £20k per year. If not, I want to know why not?

Personally I'd wait till next year when you have £37.5k (25%) deposit and some extra for contingency then buy the house on a cheap lifetime tracker (cica 2.5%) that allows unlimited over payments. Make sure you can survive a rate of 5% but pay the mortgage down as fast as possible to reduce your exposure to even higher rates.

DannyboyMidlands wrote: »

You should easily be able to squirrel away £20k per year. If not, I want to know why not?

You mean they should be able to save around 1700 out of the 3500 (ish) they'd earn each month?
So given that OP's stated they pay 950 in rent, you're allowing them 850 for coucil tax, utilities, food, fuel/travel, social, holidays etc, tv, phone...I can't speak for OP, but in my own budget that stuff adds up to around £1200/month, easy...

It may *just* be possible for OP to save 20k in *a* year, but to do it *per* year would result in a fairly lousy quality of life...