Looking for advice on buying or renting

senshi

Hi

Looking for some advice/sanity checking on our facts and figures. . We're looking at buying our first house, having rented for a number of years. We're a couple in our late 20s, with two small children so we're looking at 3 bed places close to decent schools. We have access to a reasonable deposit; setting aside some money for fees we have 15k, with parents willing to loan around 25k on top at a low interest rate borrowed against their house (currently around 1%). We currently pay rent at just over £800 a month, and my salary is 35k a year- after tax/student loan I take home just over £2000 a month. My wife is hoping to be able to give up work at least for the next few years until the kids are in school.

We are thinking of buying in the 150-160k range, which would get us something fairly modest in an OK area where we live. There would be scope to get a slightly cheaper property (maybe as low as 120-130 for a 3 bed), but it would mean living in an area we'd be less happy with). We'd be putting down a 25% deposit, which would allow us to access 5 year fixed interest rates at around 3.1%. By the end of this period we would hope that my wife would be able to return to work in some capacity to mitigate against interest rate rises. On a 30 year term this would mean repayments of about £500 a month on the mortgage for the next 5 years, plus around £100 a month on the deposit. Hopefully we would be able to overpay a bit to bring the term down during this period.

I'm feeling quite torn, as the fear of the (in my opinion inevitable) interest rate rises really gives me pause on whether to take out a mortgage of this size. On the other hand, our other options are to move into an area we're unhappy with, or to continue to pay considerable rent (at least £700 a month for a 3 bed) and gain no equity in a property over the coming years.

Are we crazy to be considering a mortgage of this size, including borrowing a fair chunk of the deposit?

Yorkie1

You, and your parents, will need to declare that the money from them is a loan. This will impact on what the lender considers is affordable for you and, thus, what it is prepared to lend to you as a mortgage.

Have you actually spoken to an independent mortgage broker to see whether the figures add up in principle?

senshi

Yorkie1 wrote: »

You, and your parents, will need to declare that the money from them is a loan. This will impact on what the lender considers is affordable for you and, thus, what it is prepared to lend to you as a mortgage.

Have you actually spoken to an independent mortgage broker to see whether the figures add up in principle?

Hi, thanks for the reply. Yes, we actually have an agreement in principle, which is where the 3.1% interest figure came from. The issue isn't whether we can get the mortgage, it's more as to whether it's a sensible level of debt to be taking on.

senshi

Running the numbers just now, If we for example bought at 160k then that's an income multiple of just over 4.5 from my salary of 35k. Of course, we have some deposit so this comes down to borrowing an income multiple of about 4 (regardless of the split of that borrowing between the mortgage/parents). Historically this seems to be about the average? (not that this means it is necessarily the best idea!)

[Deleted User]

senshi wrote: »

Running the numbers just now, If we for example bought at 160k then that's an income multiple of just over 4.5 from my salary of 35k. Of course, we have some deposit so this comes down to borrowing an income multiple of about 4 (regardless of the split of that borrowing between the mortgage/parents). Historically this seems to be about the average? (not that this means it is necessarily the best idea!)

Completely in my humble opinion - but I'd have thought now would have been a good time to buy as I can't foresee another major crash as the bubble doesn't exist. I suppose a tripple dip recession could mean prices decrease gradually but I wouldn't have thought in drastic terms. With this in mind possibly prices in the long term are due to rise albeit gradually.

So with the low BoE rate, a decent deposit and a chance to snap up some cheaper priced properties I'd have thought now was a fairely decent time to buy.

senshi

I'm trying not to second guess the direction of the market- frankly who knows. The issue for me comes down to this; I need a roof over the head of me and my family. So, the simple question is buy or continue to rent?

We don't want to move in the foreseeable future, as the eldest will start school soon, so I think we'd like the security of owning the house (we've had a landlord take a house back at short notice before, it's not a nice thing). I just don't want to put us in a situation where the mortgage becomes a millstone around our necks, and of course were interest rates to get to the 10%+ range then things would get extremely tough. It's very very hard to know how much safety room to work into the calculations!

[Deleted User]

senshi wrote: »

I'm trying not to second guess the direction of the market- frankly who knows. The issue for me comes down to this; I need a roof over the head of me and my family. So, the simple question is buy or continue to rent?

I just don't want to put us in a situation where the mortgage becomes a millstone around our necks, and of course were interest rates to get to the 10%+ range then things would get extremely tough. It's very very hard to know how much safety room to work into the calculations!

To some extent a little guess work and understanding of the current economic climate can help with trying to figure out what's a good idea and what's not - a bit more of a calculated risk.

Seems like a good time to buy to me and with a decent deposit at your despobable why not take advantage of the cheap rates...

Maybe try factoring in an increase of 2-3% in interest rates and see if it's still affordable?

senshi

Deleted_User wrote: »

Maybe try factoring in an increase of 2-3% in interest rates and see if it's still affordable?

If rates hit the 6-7% range then we would certainly have to tighten our belts a bit, but we certainly wouldn't be in danger of losing the house. Once you get up towards the 10% area things look quite a bit scarier. But I suppose at that point we would definitely be looking at my wife going to work, which would make a big difference.

Mr_Moo_2

A 5 year fix gives you certainty for that period. Any further and you're crystall ball gazing as to what might happen, sounds to me like you've done the sums. And deffo go for the right location if you want to be there for a while....

OuterNet

Doesn't sound crazy to me, you seem to have worked your figures out fairly cautiously. The repayment on the deposit and the mortgage are less than you are paying now, and you have a plan B in case interest rates increase. Also it sounds like a property your family will be able to stay in for a long time. Are you fairly confident about your job security? That's the only variable you haven't mentioned. Good Luck, hope it all goes well for you!

Ciderarmy1987

senshi wrote: »

Hi, thanks for the reply. Yes, we actually have an agreement in principle, which is where the 3.1% interest figure came from. The issue isn't whether we can get the mortgage, it's more as to whether it's a sensible level of debt to be taking on.

Does the lender know that the money from your parents is a loan and not actually a gift, this can make a huge difference and is something that doesn't usually get picked up/asked about are AIP stage but will definately come up when you put in a full application