Looking to buy but am I ready financially?

Tom_Brine

Here is my situation. This November I will be 29. I have an aspiration to buy a two bedroom flat to get me onto the property ladder.

At the end of this year I will have saved 22K towards a house deposit.

Currently I have....

£12,800 in Santanders First Home Saver at 5%. Paying in £300/month
£5640 in a Santander ISA at 3.3%
£1920 in a Santander E-Saver at 3.2% Paying in £250/month

I have been doing this for almost 3 years now and really want to buy. The mad thing is if I did buy my income would increase via renting out the second room. My current take home pay is £1318/month

What do people think, am I mad, do I have to sit it out another three years to get to £50,000. Any advice would be appreciated.

Cheers

DannyboyMidlands

I don't know.

If the flat is gonna cost you £50k then you are fine.

If the flat is gonna cost you £500k then you will need to save some more.

In my opinion you should buy a 3 bed house and not a 2 bed flat.

Tom_Brine

Oopps sorry. I live in Exeter 2 Bed Flats around here range from £110000 to £150000. I would be aiming around the £120000-£130000 for a first buy.

MillyMolly01

I would have to agree with the other poster in that you should, if possible, be looking to buy a house instead of a flat. I know this may stretch your budget a little bit more, but if current trends continue then you could stand to lose money if you were to proceed with the purchase of a flat - houses do tend to retain value better. Additionally, if you were to go ahead and purchase a flat do not forget to factor in any ground rental and service charges as these can substantially bump up monthly outgoings (usual rate is about £90 - £100 per month, sometimes much, much more).

I'm not at all familiar with Exeter but I'm guessing you'd need at least £150K to purchase a 2 bed house in a decent area. You say you'll have savings of £22K in a year for a deposit... Have you factored in stamp duty, legal fees, arrangement fees, basic furniture etc? In your case these could add up to about £5K, leaving just £17K for a deposit. A £17K deposit on a £150K house would generate a LTV of 89% - your monthly mortgage repayments would be in the region of £700 which is more than half of your take home pay.

I'd continue to save and wait a bit longer. Sorry.

deedee71

There is a thread on here about a lender that takes into account the renting out the spare room income - I can't remember who it is though, sorry. Maybe worth a search, it was in the last month or so.

ETA:- Found it https://forums.moneysavingexpert.com/discussion/comment/54913413#Comment_54913413

It's Bath Building Society - http://new.bathbuildingsociety.co.uk/?page_id=537

Tom_Brine

Milly Molly.

I will have 22K at the end of this year (3 months time) not in a year.
Saving £550 a month and with rent and bills of £480 (Sharing a 2 bed flat with a friend) means £1030 a month I pretty much dont see!

It leaves my account a few days after it has been paid in. So I think a mortgage of £700 is easily doable, it would leave me with £330 for bills and the added extra of however much I charged for renting a room. I could start saving for another house almost straight away. Or overpay the mortgage.

I do see the ideas people have said about buying a house, a three bedroom would mean I could still rent one room and have a spare and I understand it would hold its value better.

What Im trying to say is because of my monthly budget (IE £1030 a month outgoings just for rent, bills and savings) I do not see £700 or even £800 a month mortgage as being a problem, especially if I recieve rent for a room I let out. But I may be being unrealistic (Even though the facts of my situation and budgeting are very real) I am just tired of paying for someone elses mortgage when I know I could manage to pay my own.

dodger1

Tom_Brine wrote: »

Oopps sorry. I live in Exeter 2 Bed Flats around here range from £110000 to £150000. I would be aiming around the £120000-£130000 for a first buy.

£120,000 minus £22,000 deposit equals mortgage of £98,000 on a gross salary of around £18,000 ? Generally building societies lend between three and four times your gross salary, but other things are taken in to account.

If I'm correct about your salary I doubt you would get a mortgage that high at the moment. Suggest you see a broker and see what they say, at least you'd know if you need a bigger deposit based on your salary and then could carry on saving if necessary. Well done for saving so much already by the way.

Gonzo33

Go and see an independent mortgage adviser or call one (someone like London and Country have been recommended on here a few times). They will probably be able to go through the affordability calculations and tell you where you are coming out with regard to lending.

Owning a home is not just mortgage and bills, it is also maintenance and improvement.

I would still also try the house option, in the long run much better option I would think.

Tom_Brine

Thanks Dodger. Gross Salary is £21,121 at the moment so net is £15,816 (man thats so depressing to look at:()

I was thinking of speaking to a broker to ascertain what exactly I was looking at but thought I would throw myself around on some forums first:)

Fire_Fox

So you could borrow around £65K, in which case you don't have enough money to buy a two bedroom flat. You need the other £45K as a deposit plus survey, legal fees, three months mortgage payments and service charges in savings in case you get made redundant or fall ill and cannot work. Letting a room is not guaranteed income and some lenders are twitchy about it. Mortgage payments are not all your outgoings, you will have service charges, buildings insurance, ground rent, internal maintenance (plumbing, electrics, white goods).

Have you considered a second job, matched betting, moving to a smaller rented property for a year, not running a car? Have you completed a Statement of Affairs and do you know where every last tenner of your wages goes each month?

tight_is_right

I'm in a similar position and have been giving the same question quite a bit of thought recently.

Firstly, make sure you're happy to stay in Exeter for a while. If you think there is any chance you'll want to move somewhere within the next 2-3 years then the cost of buying and selling will really hurt you.

Have a play around with some amortisation calculators so you can see the interest/capital breakdown of your mortgage payments with a range of loan sizes and interest rates. Make a spreadsheet of your current arrangement and another assuming you owned your own place. Treat rent like the interest on your mortgage, and savings like the capital part. Add in bills and conservative rental income for the ownership side, add interest on savings for your current arrangement. You should be able to juggle these numbers around to see how your total assets change each month/year.

If there isn't much in it after 2-3 years then you're almost certainly better off 'financially' staying as you are and saving up more. If you're not happy with your current arrangement or you expect prices to suddenly rise then you would have more to gain by buying somewhere.

Finally if you do decide to persue it, and this is especially true if you're going for flats, make sure you buy somewhere that will sell easily and has a good long lease.