Options to buy a house.

AdrianC

seanym007 wrote: »

We have no savings, my wife is in the final stages of a 6 year IVA and I've got around £20k personal debt. We are both in full time employment, and combined we earn around £61k a year.

£5k/mo before tax. Call it £3.5-4k/mo after tax? £800/mo rent. Umm, what's happening with the rest of it...?

I'm sure we can afford to buy a house and pay the mortgage.

I'm sure you should be able to - but you're going to need to get your debt cleared and a deposit saved up. What are prices like where you are? 3.5x salary would give you £210k mortgage, and a 5% deposit would be about £11k. Add in the various costs of moving, legal costs, SDLT etc, and you really want to have about £15-20k saved up. So that's £40k you've got to get in place between now and then, and that's ignoring your wife's IVA and the likely effect on your credit record and mortgage application.

GwylimT

Post your budget and people will be able to assist you much better, as after all someone who budgets properly has savings and they aren't £20k in debt. Or you could fill in an SOA.

You will not be able to get a mortgage, but before you even think of that you really need a hardship fund incase someone gets made redundant, signed off sick etc.

Why are you renting a three bed house when you only need a one bedroom or studio property? You could have saved thousands just by doing that.

seanym007

The wages we earn now has only been for the last year. I work in IT and my wife is a nurse. When we got together 7 years ago we were on around £28k combined. There was a period of time when she wasn't working, and what I earned wasn't enough to cover both of us, and I earned too much for her to get any support, so had to use the credit card. Despite being very frugal, that 7 months cost us around £4k. Plus there's our wedding and honeymoon, which yes we could of done a lot lot cheaper, however it's a once in a lifetime occasion. I do often think if we made the right decision, but that's all hearsay, it's done now..

Our monthly outgoings are around £3k per month, that includes £800 to repay debts, two cars, the rent, council tax, water, electricity and gas, broadband, sky and of course food. I also pay maintenance for my daughter from a previous relationship. Thankfully I've got a private agreement with my partner but it's still £200 a month. We don't go out much, or holidays or eat out. I've been through our bills and regularly switch to get the best deal.

And yes, two cars, but due our job locations and working patterns it's the most ideal. In fairness tho, we could possibly manage with 1, which is something I'm considering..

As for savings, I'm sticking to reducing debt rather than saving.. It'll probably take another 4/5 years to clear then would be another 4/5 to save the 20k needed, so id be buying our first house at 43.. Depressing or what! Hence why my employer sharesave scheme seems to be my best way to get a house before I'm 40.

We have a 3 bedroom house, since I need 1 bedroom for my daughter who stays on week-ends, and my wife and I are planning a baby of our own.. But again there probably are cheaper options.

I feel stuck in a constant cycle, where I've don't earn enough to get rid of the debt quicker or buy a house, but earn too much to qualify for any government backed schemes..

But enough feeling sorry for myself!

Thanks again.

GwylimT

You clearly weren't frugal in those months, it doesn't cost £4k to feed one extra person.

Do you own the cars or are they on finance? Saying you could probably manage on one means you can, but you would prefer two.

Can you not get a sofa bed for you two/ your daughter to sleep on, at the bare minmum you can downsize to a two bed.

You do not need Sky TV.

Do an SOA it will be really helpful.

AdrianC

seanym007 wrote: »

Our monthly outgoings are around £3k per month, that includes £800 to repay debts, two cars, the rent, council tax, water, electricity and gas, broadband, sky and of course food. I also pay maintenance for my daughter from a previous relationship. Thankfully I've got a private agreement with my partner but it's still £200 a month. We don't go out much, or holidays or eat out. I've been through our bills and regularly switch to get the best deal.

You'll find the DFW board, worthwhile, I think, with their budgeting advice.

But quick back-of-envelope says your maths don't add up. £61k gives you about £3.5k-4k/mo. You say that you're spending £3k/mo, including £800 to the debt, but it'll take 4-5yrs to repay the £20k. If you're putting £800/mo into it, you'll repay it in a bit over two years, with a wet-finger-in-air 7.5% interest. If you find out where that missing £500 has gone, and put THAT into it, too, you'll repay it in under a year and a half. If it's a grand that's gone AWOL from your calculations, then you'll repay it in under a year.

If the interest rate is a lot higher than that, then look to get that sorted.

Bin the Sky, for a start. Freesat/freeview, possibly with a low-cost netflix or lovefilm if you really really can't live with just FTA TV.

And yes, two cars, but due our job locations and working patterns it's the most ideal. In fairness tho, we could possibly manage with 1, which is something I'm considering..

Newish cars on finance? If so, then two older cars, owned outright, may well make good sense.

As for savings, I'm sticking to reducing debt rather than saving.

It's all the same thing. At the moment, you have negative savings. You put money into your pot, it fills the hole in the bottom before it starts to come up past the zero mark. Stop thinking about different pots - one labelled "debt", one labelled "savings" - and think about the overall figure. You are paying more interest on your debt than you will earn in savings (and that saving interest is taxed anyway), so why put money into a savings pot before getting rid of the debt pot? All that does is cost you money.

Hence why my employer sharesave scheme seems to be my best way to get a house before I'm 40.

Unless this is a spectacularly generous sharesave scheme, with a mahoosive employer contribution otherwise unavailable, all you'd be doing is diverting money away from your highest priority - clearing your debt.

bouicca21

You definitely need to go over to the debt free wannabe board. Not sure how much your petrol and car insurance costs but I think you should be doing a lot better than just paying off £800 to the debt. You need a detailed budget to be sure just where the money is going - seems like quite a bit of leakage to me. And why pay for sky if you are trying to save?

seanym007

I didn't want to mention I pay for sky since I know that's something people would suggest to get rid of, and rightly so. The reason I have it is pretty basic. I'm a formula 1 fan, and the only way I can watch all the races is with sky package I've got. It annoys me, but there you go..

Yes the interest on a couple of my debts is pretty high, 8.5, 16.9 and 27. I pay as much as I can on the debts I owe, but I do try and maintain a little quality of life. That said, yes there are always savings to be made.. Just not ready to go the extra mile I guess you all are suggesting.

Both cars are on finance and not included in the £20k debt. Yes it's more preference than have to..

In a couple years time I should get £8k out of my current scheme, and the same again the year after. It's all linked to the performance of the business, which at the moment is stable with growth, but I realise that could all change..

I guess I was hoping there was some way of having my cake and eat it, but as I assumed there isn't..

I appreciate all the advice, but picking holes in my maths or questioning my reasoning is something I hadn't bargained for..

I have a spreadsheet with all my outgoings clearly outlined.. I'm comfortable with where the cash is going.. We should be a lot more comfortable than we are, but going backwards to a smaller house, less cars, is something I'm not ready to do yet. Maybe in a couple years when in the same position I might change my mind.

I really would love to own my own house instead of paying the mortgage of somebody else's, but it's not worth giving up life experience for..

Thanks again, your advice is appreciated, and has given me a lot to think about.

Annisele

seanym007 wrote: »

Yes the interest on a couple of my debts is pretty high, 8.5, 16.9 and 27.

Ouch! When you make overpayments, do you make them equally across all the debts, or just to the highest interest one?

Unless there's some really good reason not to (like early repayment charges), you should be making minimum repayments on all debts except the highest interest one, and getting rid of that one asap.

I really would love to own my own house instead of paying the mortgage of somebody else's, but it's not worth giving up life experience for...

Ultimately, you're spending too much to be able to afford a house in the foreseeable future. I can entirely understand why that might be (I'm renting too), but in your OP you said you were "desperate" to buy a house. If you really are desperate, you need to be making some serious sacrifices. If you're not, I think life is easier if you're honest with yourself about that.

It's OK to prioritise spending now over owning a house later, but not if you're then surprised that you've got to retirement age and you're still renting. On that note - are you contributing to any sort of pension or retirement plan?

Jhoney_2

All very good advice above - I can only suggest you take it.

The reality is that the cars need to go. If it's really essential for work, buy one cheap car, share or find ways to use the train! The finance will not be favourable and presumably there is petrol/upkeep to consider.

If your goal is to own your own home, you will have to pull out all the stops and make it happen or accept that your life/style choices do not facilitate it right now.

The thing to remember is that family life is expensive and it will not get any easier as a parent of 2+ or a home-owner, so now is the time to be really firm with yourselves about your priorities.

You yourself acknowledge that you are fortunate with the private arrangement for your current maintenance - what if that changes? what when there are more mouths( You mentioned children in the plural?) to feed, clothe etc?

All the best, but you need to rein it all in now, and until you do a SOA to see what must be reduced, it's a pipe dream or a horror story waiting to happen.

AdrianC

seanym007 wrote: »

I didn't want to mention I pay for sky since I know that's something people would suggest to get rid of, and rightly so. The reason I have it is pretty basic. I'm a formula 1 fan, and the only way I can watch all the races is with sky package I've got. It annoys me, but there you go..

A quick google suggests £47/mo for the sports package. £564/year for 19 races. Thirty quid per race. Or you could listen to it live on the radio then watch highlights later for free.

Yes the interest on a couple of my debts is pretty high, 8.5, 16.9 and 27.

CONSOLIDATE! Get the highest rates sorted NOW.

I pay as much as I can on the debts I owe, but I do try and maintain a little quality of life.

I don't want to be harsh here, but "maintain a little quality of life" is what got you into debt in the first place, and is what's keeping you there now and for the foreseeable future.

In a couple years time I should get £8k out of my current scheme, and the same again the year after. It's all linked to the performance of the business, which at the moment is stable with growth, but I realise that could all change.

I hope you're getting some pretty damn special growth on those shares, because unless you are, then you'd be far better off getting out of that scheme and paying off your 27% interest rate debt with the money. I make it about 32% return needed, after tax, but that ignores any employer contribution.

If that £8k is all at 27%, then you're paying nearly two and a half grand a year in interest on it.

picking holes in my maths or questioning my reasoning is something I hadn't bargained for.

It would be irresponsible not to, imho. On your numbers, and even before cutting back severely on this "quality of life", you could EASILY have your debt paid off anything up to three years earlier than you seem to believe.

I guess I was hoping there was some way of having my cake and eat it, but as I assumed there isn't.

Did you really need to ask...?