Advice re paying off debt or getting mortgage

breakingbad

Hi all,

I'm just after some advice...

My wife and I are both teachers and are currently renting (privately), paying £900/mth. We got married 2 years ago, furnished the house from top to bottom and, thus do have some debt. It is all managed, and we are trying to get this reduced as quickly as possible and, as such, are currently paying off £500+/mth each, plus £266/mth on a personal loan.

We were delighted to discover we are expecting our first child and as such we are attempting to make future plans, once of which is to buy our first home.

Our initial plan was to pay off the debt, then save for a mortgage deposit (with some assistance from our parents). However, upon hearing the news of their forthcoming first grandchild, our parents have gifted us £20k as a deposit for a house.

We will looking at 3 bedroom houses in the £180k-£200k price range, so a £160-£180k mortgage. I'm just after some advice on the affordability of a mortgage (the quotes are coming out in the range of £1050/mth for 25yrs).

Here's our combined SOA:

Statement of Affairs and Personal Balance Sheet Monthly Income Details
Monthly income after tax................ 2263.28
Partners monthly income after tax....... 1942.00
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 4205.28
Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... £900
Management charge (leasehold property).. 0
Council tax............................. 156
Electricity............................. 50
Gas..................................... 50
Water rates............................. 27.53
Telephone (land line)................... 41.99
Mobile phone............................ 80
TV Licence.............................. 12.5
Satellite/Cable TV...................... 32
Internet Services....................... 0 (included in "Telephone", above)
Groceries etc. ......................... 200
Clothing................................ 50
Petrol/diesel........................... 100
Car Insurance........................... 90
Medical (prescriptions, dentist etc).... 15
Contents insurance...................... 10
Entertainment........................... 200
Wife's Car Lease........................ 151
My Car Lease............................ 239.99
Total monthly expenses.................. 2406.01
Assets
Cash.................................... 20000
Jewellery............................... 4000
Total Assets............................ 24000
No Secured nor Hire Purchase Debts
Unsecured Debts
Description....................Debt......Monthly...APR
Barclayloan....................8110......266.......13.9
My Credit Card.................4787......120.......0
Wife Credit Card...............3200......80........0
Total unsecured debts..........16097.....466.......-


Monthly Budget Summary
Total monthly income.................... 4,205.28
Expenses (including HP & secured debts). 2,406.01
Available for debt repayments........... 1,799.27
Monthly Unsecured debt repayments....... 466
Amount left after debt repayments....... 1,333.27


Created using the SOA calculator at www.stoozing.com.
Reproduced on Moneysavingexpert with permission, using other browser.

As you can see, whilst currently paying £900/mth rent, and after making the minimum payments on credit cards, we have £1333.27 "left over" per month. As we are looking at a mortgage which is only £100-£150/mth more than our current rent, I believe it will be affordable. I just wanted other peoples' opinions.


Any advice greatly appreciated,


Thanks...

ViolaLass

Will both of you keep working full-time once the baby arrives?

breakingbad

Thanks for your reply.
Yes, my wife intends to go back to work after maternity leave.

ViolaLass

Then you need to factor in the cost of childcare for where you are.

Mrstickle

in that case don't forget to factor in your childcare costs. @900 a month for a nursery place, less for a childminder. I work PT. Even relatively well paid (30k plus) half my salary would've gone on childcare, so it made more sense financially to reduce hours.

Mrstickle

your groceries will also go up. £20 a month for nappies, £40 a month for formula unless your wife breastfeeds etc etc. Don't forget to include all this, plus one off costs like cot, pram etc.

Thrugelmir

Lenders will have full visibility on how the unsecured debt has built up.Management of the debt isn't the issue. It's the likelihood of the debt being repaid that's the concern.

£16k owing on unsecured debt after furnishing a rental property. What's missing from the SOA? As before unsecured debt repayments you still have £1800 per month left over a month. Even with £766 accounted for there's still another £1,000 unaccounted for.

Provision for childcare costs ?

Lenders will also stress test your ability to pay the mortgage if interest rates rise to 6% -7%.

breakingbad

Thank you for all your replies - we are currently researching local childcare costs, and weighing up whether we could afford my wife to drop down to 3 days per week (in which case her pay would drop to £1311).

Thrugelmir - The unsecured debt did mount up, not just due to furnishing the house, but also getting married in 2012. But it is now reducing month on month, we have repaid over £3k in the last three months. I'm not sure what you mean about something missing... the £1799 left over before unsecured debt repayments is accurate. Not sure where you get £766 from?

In the SOA I only included minimum payments - £266 for loan, £200 for cards. However, for the last three months, we have been paying over £550+ each towards the cards, so well over £1000/mth, in an effort to reduce them to less threatening levels.

We won't be buying until much later in 2014 (October, November at the earliest), so still have plenty of time to pay off much of the credit card debts.

breakingbad

also - regarding the gifted deposit. My parents are intending to gift us £10k and her parents are doing the same (all without reservation).

If the money is transferred to us now, and sits in our savings account from now until November, will the mortgage company have any problem with the source of the deposit, or do they only check your last 3 month bank statements?

I mean, it's not a problem as long as it's gifted without reservation - right?

circuit

We had £17k debt and are buying a house for £155k.
8 month old son, £25k deposit.
Debt was originally £34k and we paid it down over 2 years with no late payments.
Our income is similar to yours.

We are now in week 13 of trying to buy a house.

The only way we could get the mortgage was to repay the debt using gifts from parents and have a 15% deposit too. The underwriters scrutinised it right down to the last £78.

We came within a hairs' breadth of being rejected twice, despite the deposit and 5 years' totally clear payment history on every card.

Nationwide might just ask you to repay the debt with the gift and come back in 6 months' time. Either way, I'd get a good broker if I was you.