FTB Advice Please - Would Mean a lot.

zippygeorgeandben

Hi everyone,

I was just looking for some basic figures as to the amount of money my partner and I could borrow to buy a property. If you can help or give me any advice then that would be great.

The figures are as follows

Joint earnings (we are 28 & 29 years old) are £48,500 and we want to buy a 2 bedroomed house (or flat) in East London, possibly then going into Essex but it seems that most 2 bed houses we like are in the £235,000 category. We both have extremely good credit scores (circa 950 on experian) and we have at least £25,000 as a deposit.

What is the multiple for couples nowadays? If we needed £210,000 would a lender lend us 4.5 times our salary?
We currently rent and pay £780 pm but it does seem like dead money.
Obviously this is something that need serious consideration and we would need to have an agreement in principle before looking at properties.
Our Tenancy is not up until next year so if anyone can also advise on how the think the housing market will go , please let me know.
There is also the Olympics to think about (no I'm not entering the 100m hurdles!) but property prices around Stratford are astronimical and i'm sure the ripple effect will start in Plaistow, Upton Park pretty soon.

Many thanks for listening and I'm looking forward to your replies.

Ben

toonfish

there are several lenders that would offer you 4.5x salary and beyond. Obviously it's going to cost a lot more than your rent so you should establish affordability as a key factor and work to this.

herbiesjp

This is not out of the realms of possibility.

Do you have any other financial commitments that you currently pay i.e. loans, credit cards etc - that you would still have at the time of the mortgage?

I've had a lot of mortgages in that area - mostly BTLs at the moment, so at present there seems to be a healthy demand. We'll have to see if the rates rises imposed by BoE as well as the current credit crunch will start to impact on house prices.

One of the major lenders announced the other day that they envisaged house growth at 5% for the year - but some areas are reportedly starting to feel the pinch. Bearing that in mind, a lot of analysts now think rates could be on a downward trend, seeing the the Fed reserve decreased their rates by 0.5%

zippygeorgeandben

Thanks for the replies toonfish and herbiesjp. I'm a good boy and do not have any credit card debt. What I do put on CC's I pay off the following month in full. The only outstanding loan i have is a graduate personal loan (GPL) which is £2500. I pay £120 per month on this but I can always pay this off early, I have checked with my bank.
Encouraging replies from both of you so I am taking it on board and other advice which hopefully will come along.
Ben

Lavendyr

Just to give you an idea:

£210k over 25 years at 6% would mean a repayment mortgage of £1369 per month, or an interest-only mortgage of £1050 per month (plus you need to work out some sort of capital repayment vehicle with an interest-only mortgage). You would be paying more in interest alone per month than you're currently spending on rent - and interest is no less "dead money" than rent is.

You say you currently pay £780 rent per month (about the same as me and my OH) and earn £48.5k per annum (just under the earnings of me and OH) - you could be saving at least £780 per month again towards a bigger deposit, meaning less dead money on interest when you do buy. We manage to save £1000 between us some months. So don't think of renting as dead money - think of it as an opportunity to save big chunks of money away towards an even bigger deposit - meaning less interest to pay later on.

Remember that you will need to pay a few grand for solicitor fees, searches, stamp duty etc out of that £25k as well.

As for when's the right time - it totally depends on what your area is like and how houses seem to be selling there - I'd suggest you get a hold of your local property pages and get onto Rightmove and keep an eye on properties in your range - see how quickly they sell, what they sell for, etc.

zippygeorgeandben

Lavendyr,
Many thanks for the advice (I have actually 'thanked' you as well!)
The tenancy is not up until the end of July so we have a few months to wait. Would some banks do a 30 year mortgage as opposed to 25 to reduce the monthly costs?
Also, I thought Stamp Duty only applied to houses of £250K and upwards (or is that incorrect?)
Regarding Salaries, one issue is that I earn the majority of that £48K (33K to be precise) so whereas I can afford to pay my half (£390pm) easily, I think suggesting to my partner to increase their payment from £390pm to circa £750 pm might be a stumbling block...
As for the deposit figure, I got that through the following:
1) I currently have £5,500 in my ISA
2) My mum passed away in May and I have been told I will get 'at least' £20,000
3) A very good friend of mine will lend me money (because he knows how good I am at paying back) upto 10K.
Obviously I would prefer not to use option three, but it is there if I need/want it.

I also wondered about us getting a Personal Loan together but before you know it, you have more outgoings than you realise. What I like about renting is that if anything blows up or stops working, it isn't your responsibility to sort it.

Thanks

Ben

Conrad

Lenders are tightening criteria and increasing rates so prices may well fall now.

Lavendyr

zippygeorgeandben wrote: »

Lavendyr,
Many thanks for the advice (I have actually 'thanked' you as well!)

You're very welcome - my partner and I are in a very similar situation to you so I will also be reading other replies to this thread with interest.

zippygeorgeandben wrote: »

Would some banks do a 30 year mortgage as opposed to 25 to reduce the monthly costs?

I expect so but doing so will only increase the total payment in terms of the interest payable - thereby increasing the "dead money".

zippygeorgeandben wrote: »

Also, I thought Stamp Duty only applied to houses of £250K and upwards (or is that incorrect?)

That is incorrect I'm afraid. On houses up to £125k there is no stamp duty. Between £125k and £250k stamp duty of 1% is payable. Between £250k and £500k stamp duty of 3% is payable. Above that stamp duty of 4% is payable. Have a lookie here:

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_10010529?cids=Google_PPC&cre=Money

zippygeorgeandben wrote: »

Regarding Salaries, one issue is that I earn the majority of that £48K (33K to be precise) so whereas I can afford to pay my half (£390pm) easily, I think suggesting to my partner to increase their payment from £390pm to circa £750 pm might be a stumbling block...

If that is the case and you will be paying off more of the house, may I suggest that if and when you do buy you look at buying as "tenants in common" rather than "joint tenants" in order to better reflect the equity share. It's fairly incidental but I thought it might be worth mentioning.

zippygeorgeandben wrote: »

I also wondered about us getting a Personal Loan together but before you know it, you have more outgoings than you realise. What I like about renting is that if anything blows up or stops working, it isn't your responsibility to sort it.

Absolutely, I agree. There is always the downside that you may have to move at relatively short notice (my OH and I are just moving out of a rental after only 5 months in the house due to the landlord's change of plans) but it is far less expensive than owning a property and it is certainly more flexible should your own plans change.

zippygeorgeandben

Hey Lavendyr,

I've thanked you, again!
If I take your points one by one...

Stamp duty of a £235,000 house would be £2,350. Yikes...

Tenants in common sounds sensible. You never know what is going to happen in the future so if me and OH part separate ways (god forbid!) and the house was subsequently sold, I would receive the greater of the value. I make sure I know where every penny goes in my life so I would want the correct terms being drawn up.
I'm actually, for the first time I think, comtemplating moving to a better area and renting for another couple of years whilst I sit here typing. We could probably get a decent house (I really want a decent sized kitchen, I don't like the one at the moment, not enough room for cooking/baking!) so we could move to a house/flat for roughly 1100/1200pm.
I get paid £2003.00 pm and after all my outgoings (Council Tax, rent, loans etc) I am left with circa £1000 a month. Perhaps I should stay put and try and put away £350 a month for a year and before you know it, I would have £4000 extra.
Cheers for listening,
Ben

gemma.zhang

hm.. rent of 1100/1200 pm, if you take 210k at 6% interest rate, as mentioned by Lavendry - 1369 pounds/month, out of which 1k is for interest only, and 400 is repayment..

The rent is equivalent as the interest only mortgage, in this case, I will vote for buying.. As you better off using 'RENT' as your interest paid to the bank, and have a chance of paying the capital to OWN your house, rather than throwing that 1k into the water.

Well, really personal opinion.. Good luck with whatever your decision is.

Lavendyr

Hmm, there I have to agree with Gemma.zhang. The problem is if you start spending more on rent, you are obviously saving less and therefore putting the money towards a mortgage does become a more sensible option. Of course, the equivalent in rent can buy you a nicer place to live than that same amount into a mortgage, so it's up to you as to whether you'd rather have a nicer quality of life for a year or whether you'd rather save even more towards a deposit - or whether you choose to buy, pay out a higher amount per month to your mortgage but at least know you're getting a house out of it.

It's a really difficult time to decide on the "to buy or to rent" question as the market is so uncertain. If it does keep going up, our plan to rent and save for a really big deposit could still come back to bite us. However, if mortgage lenders are starting to lend less, then buyers will be able to spend less on houses, therefore prices really must come down at some point - at least, you'd hope! Being able to save quite substantially, we do find it preferable to rent until the market straightens itself out (I don't mean "crash" - just "stabilise"). The other thing to point out is the obvious - mortgage lenders are starting to lend less as a result of the credit crunch. It may be difficult to obtain 4.5x your salary in the first place (though just checking on A&L mortgage calculator, they say they would lend you up to £216k so that's not bad news).