First time buying -how much can I really afford

Robo83

I am new to this but am hoping I can get some advice for others in the same position....

I am looking to buy a house for the first time, but despite loads of research still feeling dead confused about how much I can actually afford.
We have a deposit of around £50k
Combined income of £65k
Got a mortgage in principal from HSBC but on the phone the guy said we could prob borrow up to £300k.

From looking in 'what mortgage' magazine it looks like we'd start with a repayment of £600 pm if we got a house for £200k. Which is loads less than our rent (£875). I know mortgage rates could rise, and so I've made a spreadsheet going up to 8% and then repayments are around £950 mark so not that much higher than our rent.

My questions that I can't seem to get answers for are:
If we fix for 5 years on a good rate now the payments will be less when we then go back onto the banks normal rate, however nowhere can I find an internet site that can forecast exactly how much it would be. Does anyone know how I can do this maths or find an online calculator for how much it would be? Eg £150k mortgage for 5 years on 2% then reverts to 4%, making payment X per month ?

My second question is, do all banks allow you to go onto a new rate in 5 years, or is there a secret plot now no one tells you about and you end up getting on some mad higher than average rate in 5 years when you come off? (I think we should fix for 5 years as this is when big changes will happen eg babies etc so the certainly is needed).

Lastly my OH is in a good career market and predicts his wage will only go up (unlike mine which is the NHS, plus I would like to go part-time as we plan to have kids). So he thinks it wouldn't be a problem to go up to £220k for a house as he thinks he can afford lots of increases if interest rates rise. This would put us in a nicer area so it means we have less compromise. However a huge thing I keep thinking is that loads of first time buyers round here only go up to around the £200k mark. Why is this, have we got an exceptionally larger deposit than most? Or are they being risk adverse/unsure their jobs will pay more, or are we being shortsighted going so high?

When I say these worries to my OH he says; if things are bad we can just sell up, or that he wants to earn a LOT more money in the future so it's not a problem, or if interest rates wages will go up so he will be earning fine. It just seems such risky talk, or am I being too risk adverse!?

Thanks anyone for reading!

da_rule

For first time buyers you do have a relatively good deposit and good combined income.

If you feel that you can afford more then there is no reason why you shouldn't do it. Especially if you are willing to lock yourself into a 5 year fixed term and you are confident that your circumstances are likely to improve.

In terms of rate predictions, when we got our fixed term we were told that at the end of the fixed term we would be paying X amount per month when it went to variable. That was obviously based on the lenders base rate as it was then. Predicting where interest rates will be in 5 years would be extremely hard if not impossible.

steeeb

There'd be a lot of people in trouble if rates went as high as 8%.

You have a larger than average deposit for FTBs. Going for a better house now would likely be most sensible as long as youre comfortable. Sounds like you would be.

Windofchange

You will get a huge range of responses here from house prices only ever go up, there is no risk to my end of the spectrum that we are heading for financial armageddon. You pay your money, you make your choice.

Your other half's arguments that he will just earn more or just sell the house are very simplistic. Sentiment is the key driver. Everyone has been piling into property the last decade because it has been a one way bet. The government has kept all this bubbling along and we have arrived at the situation where studio apartments in hell holes of London are going for a quarter or a million quid. I cannot see the status quo existing for much longer - emergency interest rates for the best part of a decade, a dozen or so housing props to inflate prices through the stratosphere.

Whether it is worth buying now is your call. No-one has a crystal ball.

cazs

It's good that you're testing your affordability. My personal view is that it's unlikely to hit 8% in the near future. If your heart's set on fixed, fine but otherwise do consider trackers as well. Base rates are at 0.25 at the mo so it's a long way to 8%.

Importantly the loan you want to take out, in terms of the rates, will vary according to the deposit you put down. Once you figure how much you're likely going to be spending on a suitable property it's worth working out your loan to value ratio. If you're near a 'threshold' you may find it worth waiting a little bit, to top up your deposit and be eligible for a more favourable mortgage deal. However, if prices are going up sharply in your area that would cancel that out so it depends whether where you want to buy prices are going up, down or are stagnant.

A little off topic but once you've got your mortgage and are settled in, consider, if circumstances allow, overpaying your mortgage. It makes such a difference and money is wasted in savings accounts at the mo.

Best of luck

TBagpuss

Robo83 wrote: »

My questions that I can't seem to get answers for are:
If we fix for 5 years on a good rate now the payments will be less when we then go back onto the banks normal rate, however nowhere can I find an internet site that can forecast exactly how much it would be. Does anyone know how I can do this maths or find an online calculator for how much it would be? Eg £150k mortgage for 5 years on 2% then reverts to 4%, making payment X per month ?

I don't think there is a single calculator but you can put the numbers into a mortgage repayment calculator like this one (http://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator) which shows you that if you have a 25 year mortgage for £150,000 at a fxed rate of 2%, then at the end of year 5 you will owe £125,600.

You can then re-do the calculation putting in fuigures for a mortgage of £125,600 over 20 years at 4%, which will show you an illustation of the costs and amounts payable.

Obviously, no=one can predict what the interest rates will be after 5 years or more , or what mortgag edeals will be available at that time.

My second question is, do all banks allow you to go onto a new rate in 5 years, or is there a secret plot now no one tells you about and you end up getting on some mad higher than average rate in 5 years when you come off? (I think we should fix for 5 years as this is when big changes will happen eg babies etc so the certainly is needed).

Your fixed rate mortage will say that at the end of the fix you automatically go onto the bank's standard varaiable rate. Again, you can't know what the SVR will be in 5 years, but you can kep an eye on it over the next 5 years so you have a good idea of what you will have to pay. You can see now, what your lender's SVR is compared to the fxed amount they are offering you, to see whether it is unusually high compared with the SVR of other lenders.

If you want to switch to a new fixed rate or tracker at the end of the 5 years then you would have to apply at that time, and whether they letyou swithc would depend on your financial position, income and how you score in their affordability tests at that time. If the value of your house, and your income have both incresed and you have had no defaults or other debt issues then you will probably find it relatively easy to get a new deal. If in 5 years you were in negative equity and living on benefits then you wouldn't.

You seem to have a relatively high deposit and a fairly high income fo the amounts you are looking at borrowing so I personally don't think it would be irresponsible for you to borow £170K rather than £150K, but it is a very personal decision.

As cazs says, it also makes sense to plan to overpay (if your mortagedeal allows you) (or to put notional overpayments aside so you can pay off a chunk of money when the deal ends. Many fixed rate mortgages allow you to overpay by up to 10% a year without penalty.

If you are currently paying £875 a month in rent, and your repayments are likely to be £650 (say) then consider either overpaying £225 (if you are permitted under your mortgage deal) or puting that a,ount aside each month. That way, you build up a cushion against the effect of any interestrise, both in terms of whay you are used to paying / putting aside each month, and in that your debt will reduce so amount of interest payable will go down.

hazyjo

I'm the opposite and have pretty much always maxed out (although will be nearly mortgage fee this year when we move).


Don't forget mortgages tend to be cheaper than rent as you will have to pay for all the maintenance yourselves. Problems will arise from time to time.


As above, nobody can predict what the rates will be in 5 years' time. They've been telling me for a decade or so that they'll rise dramatically, but I've always fixed for 2 years at a time for cheaper rates, plus I have moved a lot!


I have always re-fixed a mortgage straight away. Some have tie-in periods, so just make sure you're free to re-fix/move provider at the end of the term.


Personally I think you're being extremely cautious. Not a bad thing. I'd be buying for way over £300k lol (but then that has given me lots of equity over the years so that at 46 I can be nearly mortgage free).


Yes you have quite a large deposit against what you're thinking of borrowing.


Not here to tell you if you're being risk averse, but I really don't think you'd have much to worry about with those figures! Don't shoot me if I'm wrong


Jx