First time mortgage where to begin?

forsya

Hello

My husband and I are hoping to buy this year. We don't have a fixed saved deposit, his parents have kindly offered to help with this but want to know how much we would need approx.

Should we just go to banks and ask how much they would give us? I was a student last year studying my PGCE after 10yrs of work. I am now working full time since September. I am on £22,795 and hubby is on £26,500 plus 14% allowance (£29k). What do they look at? We only pay £650 rent and we don't want huge mortgage payments! How much roughly so you think we could get? We don't have any debts and have a small savings pot.

We live in Kent and are looking at £190 below or above!

Any advice would be appreciated!
Many thanks

Yorkie1

You could put your basic incomes into calculators on lenders' websites to get a broad idea of what the lenders might lend to you.

I would not suggest going to banks at present - you run the risk of getting credit searches on your record unnecessarily, which will impact later.

Do you have credit which you pay off in full each month (credit card, mobile phone, etc)? If not, get this established as it shows you are a good bet with credit.

Are you on the electoral role? If not, get onto it.

You will need to budget for solicitors fees / legal searches, plus mortgage application fees (can be £0-2K), survey (apx £500 often), and, generally, stamp duty if you buy a house over £125K.

The greater the amount of your deposit compared to the value of the property (this is called loan to value - you are aiming for a lower LTV), the better the interest rates. Minimum 10% deposit, usually, for the standard mortgage products.

You can also go onto the mortgages section of the main part of this website and play around with the calculators to see what the interest rates / amount borrowed / length of mortgage variables do.

forsya

Thank you so much for your clear and helpful advice. We do pay our rent and bills regularly each month; rent, phone, car insurance etc. and have paid rent and bills for many years. I did have a overdraft when I was studying as we lived on 1 salary and got married but I paid that off in a few months and we are saving again now.

Makes sense to hold going to lenders at the moment like you say.

We have played with some calculators and they say roughly how much they will lend but not so much monthly repayments - but I will look again for this.

Thanks again.

NinaSwiss

forsya wrote: »

Thank you so much for your clear and helpful advice. We do pay our rent and bills regularly each month; rent, phone, car insurance etc. and have paid rent and bills for many years. I did have a overdraft when I was studying as we lived on 1 salary and got married but I paid that off in a few months and we are saving again now.

Makes sense to hold going to lenders at the moment like you say.

We have played with some calculators and they say roughly how much they will lend but not so much monthly repayments - but I will look again for this.

Thanks again.

You could aim for a 10% deposit. Thats 19k for a 190k property so you'd need a mortgage of £171k. You'll also need about 4-5k for the extra fees involved in purchasing a house

Keying that into the nationwide website, a 171k mortgage over 25 years at 4.69% (current 3yr fixed rate for 90% LTV) means a monthly payment of £969.

Borrowing less (i.e at 85% LTV) could mean better interest rates and therefore lower monthly payments.Unless the money from parents is gifted (i.e you wont be required to pay it back), you are probably best saving up for a year or two.
With a combined income of £49,295 - £52,500 and a £650/pcm rental, you should be able to save up a decent deposit in a year or 2 if you've got no debts and live frugally.

You would need to declare the gift to bank when applying for a mortgage.
If the money is loan and not a gift, I suspect they'd take it into account when determining how much to lend you.
Any student loans, credit, kids etc could also affect how much you can borrow.

forsya

Thank you for your reply, very helpful!

Yeah we want to avoid the high payments over £900 as much as possible, so I guess we should save more. We could pay that but it would be tighter and limit how much we could save. We also want to start a family, I will be 33 next year and we don't want to leave it too long, maybe we should postpone house until after.

OH is likely to go up at level at work and hopefully his salary too and mine will go up in September after my first year of teaching. But saying that the cost of everything else goes up!!! Interesting about saying whether the parental gift or loan, going to be help if reasonable amount, we don't want to take the mick, we want to save as much as we can towards it.

Eeeekk forgot about my student loan from years back. Is it worth me paying this off before saving. I have always read/heard that it' better to save as interest so low.

How much would you say is achievable to save in a year on our salaries? We don't spend much beyond our necessities but I feel we could be more frugal!

Thanks

bigadaj

Might be best to fill out a statement of affairs and post on the debt free board: not that you have debt but peop.e. there will come up with suggestions for savings, and so maximise savings which can go towards the deposit.

Yorkie1

Bills and rent do not count as credit, unless you have a monthly mobile phone account.

If paid monthly, the car insurance would probably count as a credit agreement. You need to establish a good track record with consumer credit agreements, particularly with a low deposit for the property. Do you have sufficient evidence of well managed credit accounts?

NinaSwiss

forsya wrote: »

Thank you for your reply, very helpful!

Yeah we want to avoid the high payments over £900 as much as possible, so I guess we should save more. We could pay that but it would be tighter and limit how much we could save. We also want to start a family, I will be 33 next year and we don't want to leave it too long, maybe we should postpone house until after.

OH is likely to go up at level at work and hopefully his salary too and mine will go up in September after my first year of teaching. But saying that the cost of everything else goes up!!! Interesting about saying whether the parental gift or loan, going to be help if reasonable amount, we don't want to take the mick, we want to save as much as we can towards it.

Eeeekk forgot about my student loan from years back. Is it worth me paying this off before saving. I have always read/heard that it' better to save as interest so low.

How much would you say is achievable to save in a year on our salaries? We don't spend much beyond our necessities but I feel we could be more frugal!

Thanks

In my case, going by a bank calculator, I can borrow about 180k :eek:. With my student loan, I can only borrow up to 162k. It makes no difference as I only intend to borrow £155k or less. As for paying it off, I'll only consider this once house is purchased and have saved enough for an emergency fund.

Babies cost money so you might be better off saving and buying before having one otherwise you could find yourself eating into your house deposit in addition to paying rent. Ofcourse this just my personal opinion.

Keeping the payments as low as possible is definitely a good idea because:

• Your income will be alot less when you are on maternity leave and you'd be more likely to manage with one income on a lower mortgage.
• I dont want to be pessimistic but it's best to get a mortgage that you can afford alone if you do seperate in the future.

There are options that could reduce monthly payment. e.g paying the mortgage over 30 years instead of 25. Using the same interest rate for a 171k mortgage, that becomes a monthly payment of £885. The con is that you end up paying 000s more in overall interest (assuming same interest rate over 30yrs, about 40k more) . You'd still need a reasonable deposit and would also need to consider if you want to be paying a mortgage past retirement.

As bigadaj mentioned the debt free wannabe board is great for ideas on spending less and saving more. You have a year to save till you are 33 so if I were you I would use the year to:

• Spring clean your finance. Work out how much you can save each month after all essential expenses have been made. Reduce essential expenses where possible. Set a goal of how much you intend to save in total, automate regular monthly savings towards the goal, set a final target date and start working towards it.

• Play with bank calculators to understand how better off you could be with an 85% LTV or 80% LTV compared to say 90% and what it translates to in monthly payments. I was previously saving for a 15% but after realising I could get better deals, decided to aim for 20% . The idea is just to get yourself more informed of the different products out there really.

• Check your credit history with the 3 main agencies. If there is anything on your history that could stop you getting a mortgage, this is the time to start fixing/sorting it out.

• Get onto the voting register, if you have no credit, then maybe get a credit card to make a few expenses ech month but make sure it is paid off in full each month (direct debit is best so you dont forget). The idea is to build a positive credit history that lenders could base their decision on.

• Keep reading MSE posts in the 'House Buying, Renting & Selling' and 'Mortgages & Endowments' boards, to get clued up on the buying process and what to expect when you are ready to buy. Also to learn from other's mistakes and reccommendations etc.

• Research the areas that you'd like to buy a property. Use rightmove 'sold prices' to monitor sales. This will give you an idea of what houses/flats are selling for (regardless of their advertised asking prices).. Over time you get better at knowing if a property is underpriced or overpriced and become better informed when making an offer on a property.

On the saving point, I get paid at the end of each month and on the 1st of the following month, about 70% automatically transfers to an account I do not touch. I am then left with the 30% to survive which I know already covers my monthly expenses and occasional socialising. (I rent in a houseshare and live close to work. swapped car for bus pass, and moved to a much cheaper place, buy tesco value and aldi).

Its best to strike some balance between enjoying life and saving. Having saved gradually over the years, it's only recently I turned extremely frugal and thats just because the end goal isnt far (planning to buy by the end of the year now I've got a job that pays enough to do so). Extreme frugality is managebale in the short term so you could strive for a frugal year and think ... after christmas this year you could start house hunting next year for the growing family.. the buying process can take about 3-4 months (once you've found the ideal property) giving you time to save extra.

In a year's time you'll also be alot more savy and informed with the decisions you make about your purchase. Goodluck