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The gulf of 'affordability'

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  • kingstreet
    kingstreet Posts: 39,335 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    A £115k mortgage at 5% over 25 years costs £672 per month. In addition, when you buy a leasehold property, you may have to pay ground rent and service charges. These can be very little, or an awful lot. I'd budget for £100 per month as a minimum. It's easy to find out what they will be. Ask the developer.

    Be careful of the valuations on newbuild flats and the maximum loan to value accepted by the lender.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • Davewils
    Davewils Posts: 134 Forumite
    Cheers KingStreet. I guess you are quoting capital+interest mortgages. I was thinking an interest only mortgage for 5 years would be the best way to start as I would hope that inside that time i will be finding a Mrs and 'settling down'. At which point a capital+interest mortgage either on this place or another, with our combined earnings going into the pot, would be the ideal solution.

    And even if im still single 5 years down the line, i should be in a far better financial situation (5 years of extra work, pay rises, new job etc) to be able to afford more of a mortgage myself.

    What do you think?
  • kingstreet
    kingstreet Posts: 39,335 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 26 December 2011 at 5:56PM
    Your chances of getting interest-only/no repayment vehicle are slim with your loan to value. Normally, lenders insist on a repayment vehicle unless your loan to value is less than 75%.

    You need to conduct proper research including;-

    - lenders offering shared equity products
    - how to repay the equity loan at the end of the interest-free period
    - leasehold terms and charges
    - historic interest rates and mortgage costs
    - newbuild valuations and post-purchase pricing
    - what happens if you need more space in a similar housing market

    before you commit to spending anything on fees to progress such a purchase.

    Your own independent or whole market broker should be first call. A broker linked to the builder may be more inclined to keep them sweet by giving you "what you want" rather than what's right for you.

    Going back to your earlier point - your choice to pay such a level of rent is voluntary and can be ended reasonably quickly in an AST. Housing benefit, or Local Housing Allowance, as it's now known is easy to obtain should you lose your job.

    Taking on a commitment to a mortgage means a certain amount of risk on interest rate movements and considerably more effort/difficulty to obtain mortgage interest relief in the case of job loss.

    A landlord finds it much easier to get possession of his property and may therefore make fewer checks on your ability to pay your rent than should a lender when it comes to a mortgage.

    Therefore wider safeguard margins are used by mortgage lenders.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • Davewils
    Davewils Posts: 134 Forumite
    But this is the bizarre thing! In the last two years i have paid between £575 and £800 a month in rent (not including bills) at the places i've lived at. I've never missed a single payment. I have financial records to prove this. But according to these "3-4 times your income" calculations, i should be struggling to pay £400 a month!

    I would be looking for a 75% mortgage max. possibly 70% if i increase my deposit. The 'loans' as part of the FirstBuy scheme are repaid when you sell the property. ( the housing authority and the builder take their 10%'s of the value. They are obviously banking on the fact that the property value will increase and they'll make some money, but they still can only take 10% if the value drops).

    These 'loans' are interest free for 5 years. After this you pay 1.75% "rising annually by the increase (if any) in the RPI plus 1%." However you can make repay these loans however you wish at any time.
  • But according to these "3-4 times your income" calculations, i should be struggling to pay £400 a month!

    As I pointed out above, the 3-4 times income calculation is designed to enable people to pay the mortgage at 'normal' rates of interest, not the suppressed rates we currently see.

    At 2% interest rates, a 4x income mortgage will take up 8% of your gross income.

    But at 8% interest rates a 4x income mortgage will take up 32% of your gross income (Probably over half your net income) on interest alone!

    Again, thinking of affordability in terms of static interest rates is a fool's game. But it's one that the general public never seems to get past (and neither did much of the banking sector prior to the crisis).
  • Davewils
    Davewils Posts: 134 Forumite
    Grrr, tis a good point. Damn you. :)

    So the new question is:

    Who on earth can buy a 1-2 bedroom place in Bristol for 80k?!
  • jc808
    jc808 Posts: 1,756 Forumite
    Davewils wrote: »
    Grrr, tis a good point. Damn you. :)

    So the new question is:

    Who on earth can buy a 1-2 bedroom place in Bristol for 80k?!

    Can you not move out a bit? Thats what I had to do to afford 'in' London (and by 'in' London, ie commuting distance) I meant 10 miles into Kent...
  • brit1234
    brit1234 Posts: 5,385 Forumite
    Davewils from your previous threads you seem to be heavily linked to credit cards and credit issues. If you are really considering first buy with an interest only mortgage I have to ask is home ownership really for you.

    You cant get the right salary multiple and you are reliant on low interest rates. You do realise that libor is going up and likely to be a record high when the euro goes t,tts up. That would put you in deep trouble.
    :exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.

    Save our Savers
  • Who on earth can buy a 1-2 bedroom place in Bristol for 80k?!

    If you can provide sufficient security on a mortgage then the lenders get much more relaxed about affordability because they do not strictly have to rely on your ability to repay; if push comes to shove they take the security and sell it to cover the mortgage.

    So the people who find this easy are either people who are well-off enough to provide a big deposit, or are people who already own property and secure a mortgage against that (i.e. BTL types with some equity).

    The already-rich tend to do best when financing is cheap in cost but restricted in availability. And that's why the already-haves are dominating the current market.
  • Davewils
    Davewils Posts: 134 Forumite
    If i move out, then i'll just end up paying more in petrol.

    At the moment, the place i'm interested in is cycling distance from work. So my fuel costs would be 0. However if i move out into the countryside a bit, not only would i have to commute into work = petrol. I would also have to drive to see any of my friends, and get taxi's if i wanted to go out. So it really would be a false economy.
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