House purchase - budgeting - is this stretching too far?

mike5678

Hi all,

I have sold my flat (STC) and now me and my girlfriend are looking at houses to buy together. I've put our figures and calculations below, just wondering whether we should be looking at something cheaper or if you guys think it is acceptable?

After the sale of my flat and our combined savings we will have about £98,000 capital.

We think that we have set our max limit to £320,000, so that we can put down a 25% deposit of £80,000, leaving £9,600 for stamp duty, leaving about £9,000 left in the pot.

This would require a mortgage of £240,000, which is 4 times our combined basic salary. We are both 28 and no children yet, both in full time work.

As I pay 11% of my wage into pension, my basic take home is about £2,150, but with overtime usually £2,500ish, sometimes more.

Her basic take home is about £1,350, but with commission usually £1,500ish, sometimes more.

I've calculated repayments on this mortgage at 3.5% over 30 years which is just under £1,100 per month.

Below are other outgoings that I have calculated;

Mortgage - 1100
Council tax - 180
Gas/electric - 130
Water - 40
Tv licence - 12
Sky/Internet/phone - 100
House insurance - 80
Food - 200
Petrol - 150

Total - 1992 per month.

Our mobile phones are only £10 per month each and my train fare is paid for by my employer.

Now as our joint minimum income is £3,500 and usually £4,000 it seems like this is affordable as I have already included food and petrol in this budget. Our car insurances are about £300 each per year.

We are pretty frugal. I have managed to get my equity and savings with no help from parents, as well as having cleared my student loan and building up my pension pot. We have no debts outstanding.

My only worry is if we were to have a child in a few years time, how this would affect our finances?

Would you take this on or look for something cheaper? Any thoughts appreciated.

thelem

It looks very affordable to me at the moment, but obviously kids make a big difference. Have you discussed plans for children with your partner? Would you be looking for a potential family home (e.g. garden, good schools), or just somewhere that is suitable for your and your partner (e.g. good for commuting / leisure)? If you did have kids, would you both continue earning what you do now? Lots of people take maternaty leave intending to go straight back to work, but then change their mind and choose to be a housewife until their youngest is at school. Put together some scenarios about what you would spend if you had a child or two.

Regarding what you should purchase now, I think there are four basic options:
1) Forget about kids and spend the money on yourself.
2) Buy an expensive house for you now, and move to another expensive house as your family grows (possibly when your eldest is looking to start school). That means two lots of moving costs, but you get to live in the right house for you at the right time.
3) Buy an expensive family house now. Cheaper than option 2, but will it give you the house you want?
4) Buy a cheap house now, and invest the money you save. That might mean buying an investment product, or maybe just getting a shorter mortgage. Hopefully what you save on bills and mortgage interest will more than offset the extra moving fees.

You've also got to take into account what the housing market will do. If it goes up, will you be able to upside? If it goes down will you be stuck with negative equity?

Good luck if you can find an answer in there somewhere!

phill99

I would suggest your insurance is too high and your food cost maybe too low. Remember a bigger house will need more cleaning materials tic.

Tancred

mike5678 wrote: »

Hi all,

I have sold my flat (STC) and now me and my girlfriend are looking at houses to buy together. I've put our figures and calculations below, just wondering whether we should be looking at something cheaper or if you guys think it is acceptable?

After the sale of my flat and our combined savings we will have about £98,000 capital.

We think that we have set our max limit to £320,000, so that we can put down a 25% deposit of £80,000, leaving £9,600 for stamp duty, leaving about £9,000 left in the pot.

This would require a mortgage of £240,000, which is 4 times our combined basic salary. We are both 28 and no children yet, both in full time work.

As I pay 11% of my wage into pension, my basic take home is about £2,150, but with overtime usually £2,500ish, sometimes more.

Her basic take home is about £1,350, but with commission usually £1,500ish, sometimes more.

I've calculated repayments on this mortgage at 3.5% over 30 years which is just under £1,100 per month.

Below are other outgoings that I have calculated;

Mortgage - 1100
Council tax - 180
Gas/electric - 130
Water - 40
Tv licence - 12
Sky/Internet/phone - 100
House insurance - 80
Food - 200
Petrol - 150

Total - 1992 per month.

Our mobile phones are only £10 per month each and my train fare is paid for by my employer.

Now as our joint minimum income is £3,500 and usually £4,000 it seems like this is affordable as I have already included food and petrol in this budget. Our car insurances are about £300 each per year.

We are pretty frugal. I have managed to get my equity and savings with no help from parents, as well as having cleared my student loan and building up my pension pot. We have no debts outstanding.

My only worry is if we were to have a child in a few years time, how this would affect our finances?

Would you take this on or look for something cheaper? Any thoughts appreciated.

Interesting. Personally, I think you are taking some big risks - my advice would be to stick to no more than 3X joint income as interest rates are currently rock bottom and can only go up in the future. Also, are you really going to put all your savings into the purchase? I would feel very uncomfortable without an emergency fund of at least four months worth of net salary (ideally six). Do you consider yourself in a redundancy proof occupation?
As for having a child, that would complicate matters because your wife's career would need a break of some years, unless you are wiling to pay for childcare, which is not at all cheap. Putting so much money into a house means less money for other things - you need to reflect carefully on this.

You are very young and have time on your side, so that's the positive. At 28 I could only dream of having as much deposit as you - it took me another ten years before being able to afford to buy.

mike5678

Hi, yes my job is very redundancy proof and with £9,000 left over I would have four times my net monthly salary still in savings.

We are looking to buy a house that will be a family home so we are looking in areas with decent schools and 3+ bedrooms.

My personal opinion is that interest rates will stay where they are for at least 2 more years, maybe 3 or 4, followed by a gradual increase.

getmore4less

Do a proper budget you have loads of stuff missing.
start with a SOA
http://www.stoozing.com/msoc/soacalc.php

look at the last 12month income and see where it all went as a guide.

Project out 5 years for bigger items, especialy car maintanence/replacements.

Wyndham

Tancred wrote: »

As for having a child, that would complicate matters because your wife's career would need a break of some years, unless you are wiling to pay for childcare, which is not at all cheap. Putting so much money into a house means less money for other things - you need to reflect carefully on this.

Or your career may need a break for childcare - while I admit it's more common for the woman to take the time off (and obviously for the birth it's rather mandatory!) the long term childcare decisions are often made as a couple, and different couples make different decisions.

Tancred - they let women work now you know. Even let us have the vote....

ValHaller

mike5678 wrote: »

As I pay 11% of my wage into pension, my basic take home is about £2,150, but with overtime usually £2,500ish, sometimes more.

Never include overtime in a budget against credit (a mortgage is a form of credit). Overtime if you have it is great - but only spend the overtime you have accumulated.