FTB in London - this is driving me crazy.

adamL

Hi - I've come on to this forum for a little bit of help.

Firstly, we are FTB's, late twenties, earning around £80k (myself 50k, wife £30k). Over the past year we have saved £30k (i.e. 25k deposit and £5k fees). There is no parental help etc. available.

My wife cannot be part of the mortgage for various reasons. I have received a mortgage in principle for around £225k. Adding on the deposit means our maximum budget is £250k. This would be on approx 5% interest, fixed 2 years, £1300pcm.

We have been looking at 1 bed flats in areas such as Kingston. We haven't got many requirements except for not living in certain areas in particular, anywhere near an ex-LA building. The area in general must be nice.

We would like to live here for 3 years or so before we would most certainly require something bigger. Most likely, my wife's earnings will drop rapidly towards zero for a few years before picking up again. My earnings are pretty stabilised around the £50-£55k mark for the next 5 years.

The issue I have got is that today I can afford a £250k flat as the interest rates are so low, but should interest rates rise over the next 2 years to more normal levels my payments could easily reach £2000pcm (after the fixed period ends). This would seriously hurt against my take home earnings of £2500pcm. I would love to consider something cheaper but unless I want to live above a kebab shop or on the 15th floor of an ex-LA building I just don't know which way to go. It's not like our salaries are low, as far as I am aware they are above average yet we can only afford the pieces of dirt on the floor that everyone else rejects.



I just don't understand how anyone normal can afford these prices anymore - or even the rental prices. I live in a naff area, with high levels of crime, a town center I don't even want to walk through and a flat that has mold and warmth issues. All this for £700pcm. And to add insult, how is this government 5% deposit scheme supposed to help. It's not the deposit I have issues with, its the actual cost of the house. What kind of salary do I need to take advantage of their £600k home?!!?!?!? I certainly don't think I would be a FTB, or at least one that needs help.



If there's anyone out there that can advise on something I would much appreciate it!! This whole dilemma is driving me crazy as all I want is a home (not an investment).

On the positive note, I must never forget that I was one of the lucky last ones not to get screwed over with student loans too. Thankfully ONLY! another £15k to repay for a masters.

Conrad

" I would love to consider something cheaper but unless I want to live above a kebab shop or on the 15th floor of an ex-LA building I just don't know which way to go"



Well I couldn't afford London when I was a FTB so I bought in the sticks and commuted a long distance.

Turned out well though as the demand for rural property near good junior schools has been robust.

Maybe buy a cheaper place with 15% down and a 5 year fixed rate?


Buying a home is always a compromise.

I can think of plenty areas in Surrey and Kent (i'e sarf of river) where you'd find a decent home under £210k. You'll have to commute though.

Conrad

85% on a price of £210k would be fixed 5 yrs at £7/800 pm over 35 years.

Why would you want to live in London, for me it's truly hellish on so many levels and who cares if there's lots of restaurants and theatres, so much more to life. Yesterday I walked across hills with my youngest son in the bracing wind with bright sunshine, money cant buy that.

HAMISH_MCTAVISH

adamL wrote: »

Firstly, we are FTB's, late twenties, earning around £80k (myself 50k, wife £30k).

So far so good.

80K income gives you net take home pay of £2997 + £1935.

Give or take right around £5K per month.

.

This would be on approx 5% interest, fixed 2 years, £1300pcm.

Rate seems high, but fair enough.

That's a reasonable percentage of your joint net pay.

Most likely, my wife's earnings will drop rapidly towards zero for a few years before picking up again.

Your solution is to save up extra income now, which you should easily be able to do given your salaries and low mortgage payment as a percentage of net income, in order to tide you over the drop.

The issue I have got is that today I can afford a £250k flat as the interest rates are so low, but should interest rates rise over the next 2 years to more normal levels my payments could easily reach £2000pcm (after the fixed period ends).

Eh?

You lost me.

5% interest payments aren't "so low".

And what sort of interest rate are you thinking of that your payments would be 2K a month? That is assuredly not "normal".

This would seriously hurt against my take home earnings of £2500pcm.

Your take home earnings should be 2997. Have you checked your tax code?

It's not like our salaries are low, as far as I am aware they are above average yet we can only afford the pieces of dirt on the floor that everyone else rejects.

That's a competitive market for you.

There is a shortage of housing.

The market is rationing that shortage through price.

The other option would be lotteries, or waiting lists, but price seems fairer to me. Let people buy based on their ability to pay.

I just don't understand how anyone normal can afford these prices anymore - or even the rental prices. I live in a naff area, with high levels of crime, a town center I don't even want to walk through and a flat that has mold and warmth issues. All this for £700pcm. And to add insult, how is this government 5% deposit scheme supposed to help. It's not the deposit I have issues with, its the actual cost of the house. What kind of salary do I need to take advantage of their £600k home?!!?!?!? I certainly don't think I would be a FTB, or at least one that needs help.

The 5% deposit scheme is nothing other than historically normal, prudent and sensible lending returning to the market.

It restores functionality to a dysfunctional market. Which is exactly the job of government and regulators to do.

Having a broken lending market with severe mortgage rationing for the last few years has dramatically worsened the housing shortage, ensuring the next boom will be bigger than it otherwise would have been.

ukcarper

You could move to somewhere like this http://www.rightmove.co.uk/property-for-sale/property-28497588.html


and reduce your mortgage to £145k which should save you about £400 a month on mortgage. A monthly season ticket to Surbiton would cost about £250 and the train journey is about 30 mins.

Loughton_Monkey

There are oodles of properties available for £250K within commuting distance to London.

You will read on here many views that imply that house prices are simply beyond any degree of affordability for FTB but that view is hugely distorted and doesn't reflect the reality that First Time Buyers have always had to live in something akin to a pigsty for their first purchase. It gets you on the ladder. It keeps your investment lining your own pocket rather than that of the landlord. And it means from day 1 your mortgage value is 'locked in' and can merrily inflate away over the years.

I cannot reconcile your figures. If your mortgage for £225K costs £1,300, then that is initially interest of £937.50 [i.e. 5%]. Now just imagine 'complete doomesday' in which base rate goes up from 0.5% right up to an unbelievable/extreme 4% in only a year. This would turn your 5% into something like 8.5% [although I would predict less]. This would add another £656 to your mortgage, making less than £2,000 overall.

You seem well placed, having an above average salary, plus a "buffer" of wife's income that is not being 'used' to boost your lending.

My only other advice is that generally speaking, a 'cr*ap' house in a "good" area is generally a better investment than a 'better' house in a poor area. I know you have to live in it, but usually not for long if you plan to upsize.

Loughton_Monkey

You can even buy in Loughton:

http://www.rightmove.co.uk/property-for-sale/property-40518913.html

Central Line straight to City.

CLAPTON

Loughton_Monkey wrote: »

You can even buy in Loughton:

http://www.rightmove.co.uk/property-for-sale/property-40518913.html

Central Line straight to City.

yes but think about the neighbours

adamL

Thanks for all the replies so far. I've got some hefty student loan repayments coming out of my paycheck so that's why there is a drop in monthly net pay.

As a FTB with only a 10% deposit, the lowest rates that seem to be on offer are between 4.5 and 5.5% dropping/increasing to things like 3.99% + BoE base rate after the fixed period. So the question is, at times of higher BoE base rates, where the banks themselves charging as much interest as 3.99%?

ukcarper

adamL wrote: »

Thanks for all the replies so far. I've got some hefty student loan repayments coming out of my paycheck so that's why there is a drop in monthly net pay.

As a FTB with only a 10% deposit, the lowest rates that seem to be on offer are between 4.5 and 5.5% dropping/increasing to things like 3.99% + BoE base rate after the fixed period. So the question is, at times of higher BoE base rates, where the banks themselves charging as much interest as 3.99%?

The answer is no but what they will do if bank rates go up is any ones guess.

ukcarper

CLAPTON wrote: »

yes but think about the neighbours

I'm sure that is not in the same part of town as our illustrious poster