Is this madness?

KnightSmile

Hey MSE members,

I'm after your thoughts on my situation and plan.

I currently earn a base salary of 25k (plus 5k overtime not counted) and have a 40k deposit. I live in the south east where property prices are quite high. I am currently single and commute into London for work. I have a few options I'm considering:

A) 140k 1 bed flat (zone 4)- £690 per month
150k 2 bed house (zone 6) - £740 per month
C) 175k 2 bed house (zone 4) - £725 per month


My gut tells me to aim for option c. Is this madness?

I know option a) is the safe and sensible option but I'd like to get a house rather than a flat if possible for several reasons.


If I want a house (option b) then I could get one further away from London (zone 6) but this increases the length of my commute and rail costs are much more per month (£200 each month instead of £100).


The reason why option c could be madness is because its pushing me to the lending limit (I have checked the mortgage offers online) BUT when i look at the actual cost per month option c is not the most expensive and is cheaper per month for the house options.
The calculations are based on a 2 year fixed rate so i know rates can increase but I could get a lodger with a 2 bed house which makes it seem less riskier than option a). I need to save about 3k more to reach 25% deposit for option c. Also there are less properties for sale in zone 4 for 175k but there are some.

Grateful for thoughts on this one because I know people tend to say not to reach their max when buying, however I cannot avoid rail fares and so the more I can spend on my actual property rather than travel costs the better it is.

What option would you choose or avoid?

KS:)

Full calculations:

A) buy a 1 bed flat for 140k in zone 4 - mortgage (25% deposit) £510, train fare £100, service charges £80. Total per month £690

buy a 2 bed house for 150k in zone 6 - mortgage (25% deposit)£540, train fare £200. Total per month £740

C) buy a 2 bed house for 175k (my lending max) in zone 4/5 - mortgage (25% deposit) £625, train fare £100. Total per month £725

Typhoon2000

Normally people don't reccomend buying one beds but it's different in London as its often all people can afford so there a plenty of takers come resale time.
Give that I imagine that you will wanting to move on to a bigger place when your circumstances change, I would go for the cheapest option closer to central London. Shorter commutes are a life save too.

sandsni

Have you factored in all the running costs of owning a house (as well as the mortgage) when calculating your budget? Remember the mortgage payment isn't the end of the story and you still have to live on what's left over from your salary. If you're currently renting you will have a good idea of the cost of utilities, food, council tax etc., but have you allowed for repairs and maintenance of the property you plan to own? Also, realistically, how secure is your current job and salary? Remember the reason overtime isn't counted for mortgages is because it's not a guaranteed income. So, if you're using the bulk of your main salary to pay for the house and then lose your overtime, how will you live?

19lottie82

Can / will you get a lodger?

KnightSmile

Thanks for the responses. I agree that I need to consider other costs.

Would a second bedroom I can rent out makes option b or c more safe than a? Am I being blinkered?

KS:)

somethingcorporate

A 2 bedroom house will also be easier to sell than a 1 bed, and if you fall on hard times the possibility of a lodger is a good idea.

I'd suggest b and c are better than a.

Angelicdevil

Sorry daft question, but if your salary is £25k not inc overtime then surely with standard 4x salary your max lending is c£100k? You'd have to find another £35k to get a property at £175k?

KnightSmile

Hi angelicdevil. I have been looking via moneysupermarket at mortgages based on my circumstances it seems about 10-20 lenders are prepared to lend at x5 salary -a few at competitive rates.

muskoka

I would never buy anything less than a 2 bed if you can afford it. As others have said, 2nd bed is always a bonus for a lodger to help cover bills or storage. And 2 bed easier to sell on when the time comes.

ognum

have you factored all the service charges if you buy a flat?

KnightSmile

Thanks muskoka that was what I was thinking too.

Ognum I factored 80 per month into the option a) the flat. It should be about right?

I still think that although on the face of it option c goes against conventional wisdom because its right at the top of my maximum affordability it's actually the more savvy option because its going to cost me around £700 per month whether I choose a, b or c. The massive benefits of option c is a shorter and cheaper commute and a spare room to rent out if I start to struggle. It just sounds mad when I mention that i want a 175k house when i earn 25k. people focus on this and therefore encourage me to do option a or b.

I'm sensible enough to listen and take it seriously if enough people are saying the same thing, however I think the smart choice is actually option c. I am after a range of opinions to help me out. I have worked very hard to save this 40k and want to make the right decision.