First time buyer needs some basic but very important advice please

sensibly_insane

We have started to look around for buying a property as first time buyers. After doing the calculations, it turns out that after paying the mortgage (fixed for 2 years at 4.59% with 10% deposit) and other usual expenses we won't be left with much to save and it would be a stretch - at least in the near future.

Now as the interest rates can increase in the future as these are rock bottom at the moment, we could be in serious trouble but I am not sure what is a typical realistic high figure for the interest rates.

When I think about going for the purchase, I feel quite nervous about being borderline regarding finances, always managed to keep my expenses well within our resources. But then, I ask myself when would be the best time to buy the property as salary rises for us seem to be frozen or at snail pace at best and the property prices in our region (South east England) seem to be always on rise.

Some people might say that owning a property is not a must. While you are in work, you can afford renting a property but how would you manage to keep paying always increasing rents with the scarce retirement income once you get retired.

Is there anything in this situation on which I can count on and take a plunge or what should be our strategy.

I have received really wonderful advice in the past and I hope this time won't be an exception. I would highly appreciate any responses

Let_Us_See

Unfortunately, the scenario you set is typical for many FTBs purchasing at high LTV. It can be nerve wracking and financially challenging, but at the end of the day only you can decide your priorities and if the sacrifices - both financial and emotional - are worth it.

[Deleted User]

Perhaps look at smaller cheaper properties, or save longer for a deposit to reduce the amount that you would need to borrow.

The best way of working out if/how much you can afford would be to work backwards in your Statement of affairs (http://www.stoozing.com/msoc/soacalc.php). Put in all the expenses that you would have if you bought a particular property at a particular price - calculate all your monthly income and outgoings (Ctax, Mortgage, insurances, travel/car expenses, food and other groceries, discrectionary spends, clothes, hobbies, tc, internet, phone, gas, electric, maintenance, emergency fund etc etc...) and see if and what you have left at the end of the month, then work it out again if the interest rate on your mortgage was to increase by a few % - see if you can still afford it. If not then stay where you are and continue to save to increase your mortgage deposit, thus reducing how much you'd need to borrow.

HTH

D9

GMS

Have you considered a longer term fix? Likely to cost a bot more but gives you longer term payment security.

Alternatively look at cheaper properties.

sensibly_insane

Thanks for your replies, highly appreciate this.
*Domino9* I have calculated the expenses etc exactly as you suggested.

What could be a typical value for a percentage increase in the mortgage interest while considering the future SOA.

sensibly_insane

GMS wrote: »

Have you considered a longer term fix? Likely to cost a bot more but gives you longer term payment security.

Alternatively look at cheaper properties.

GMS that's a really wonderful advice. What I see from online comparison is that there is no difference in 2 years and 5 years fix though. I am not sure if the situation might be different with the mortgage brokers. I have also just used moneysupermarket for the a quick comparison for 30 year mortgage and it does make a considerable difference. I know it says in your signature that you are a mortgage broker, would it be fair to ask you for further advice regarding this.

Is it usually possible to sign up for an interest only initially and switch to a captial repayment after a while?

GMS

sensibly_insane wrote: »

GMS that's a really wonderful advice. What I see from online comparison is that there is no difference in 2 years and 5 years fix though. I am not sure if the situation might be different with the mortgage brokers. I have also just used moneysupermarket for the a quick comparison for 30 year mortgage and it does make a considerable difference. I know it says in your signature that you are a mortgage broker, would it be fair to ask you for further advice regarding this.

Specific advice wouldn't be possible without a fact find giving full details of your circumstances.

Generic help is fine. What is it you would like to know?

sensibly_insane

GMS wrote: »

Specific advice wouldn't be possible without a fact find giving full details of your circumstances.

Generic help is fine. What is it you would like to know?

Thanks again

Is it usually possible to sign up for an interest only deal initially and switch to a captial repayment after a while? My thought is to keep the payments at a manageable level in the start and switch to repayment option when it become more viable financially. We are paying a sum in rent which is around 75% of any prospective interest only payment.

TDPIX

IO won't be possible with a 10% deposit in my opinion.

Another thing to consider is to see if you can extend the mortgage term. I.e. pay back over 30 years instead of 25 years. This would bring down your repayments a bit too.

GMS

Interest Only is not an option at 90%. If the reason for considering IO is affordability then you need to question the validity of the purchase.

No point putting yourself into a situation which could end in tears. Do some budgeting. Be realistic with figures and see what you can afford.

Look at the maximum term you can get and work backwards. Longer term means more paid back so consider this.