Small Steps Out Of Massive Debt!

enthusiasticsaver

Nice to see how well you are doing and good luck with the driving test.  Bonus on getting a free car too. Great you are almost there with the deposit.  I don't tend to use money software these days and just record spends on clear checkbook so I know where we are with balances of current accounts, credit card, savings and investments. Can you use a spreadsheet to decide how much you can afford to repay each month?

GeorgianaCavendish

astrocytic_kitten said:

How exciting about the driving and the car, things really are falling into place for you! Good luck getting the next 0.35% for the 50% milestone too!

Thank you! I'm so happy with how things are going at the moment and can't wait for next month when I hit the 50%  

GeorgianaCavendish

enthusiasticsaver said:

Nice to see how well you are doing and good luck with the driving test.  Bonus on getting a free car too. Great you are almost there with the deposit.  I don't tend to use money software these days and just record spends on clear checkbook so I know where we are with balances of current accounts, credit card, savings and investments. Can you use a spreadsheet to decide how much you can afford to repay each month?

Thank you very much  

Today I decided to cancel YNAB and sweep the money I had saved so far into my driving lessons pot. I didn't realise that they will give a refund on unused months and I was already 70% sure that I wouldn't renew, so decided to just go for it. 

I've downloaded a couple of budget templates from Excel and spent a lot of time today tweaking them to include post-move household expenses and adding a couple of sheets for mine and MrC's personal expenses. I also did a bunch of quotes/research for mortgages, various insurance policies, utilities and the council tax bands in areas we like and the size of property we are looking at. We've got a really good idea of how much mortgage repayments would be the very top end of our budget and the good news is that it would be affordable even with new expenses like car insurance for me, travel costs to the office and including things like clothes, haircuts, entertainment etc. I really want to make sure that we are not cutting our living budget to the bone in order to justify somewhere more expensive, because I know that is one of the roads to credit card debt.

One of the things I'm not sure about is whether it is worth raiding our emergency funds to add more money to the deposit, or to keep a healthy emergency fund in cash. Having worked so hard to get out of debt, I am really wary of being in a precarious position cash-wise and having to use credit to plug the gaps. MrC thinks we should put more into the deposit, but I think that if we can borrow what we need and can afford the repayments then it isn't worth sinking all our cash into the property to the detriment of an emergency fund. But I'm also aware that perhaps I'm being over-cautious and wanting to keep too much cash available. 

ChasingSunshine

Oh that’s great that you have worked out all the costs and won’t be stretching yourselves even if house ends up being at the upper end of your budget. 

I would agree with you about keeping back money from the deposit. I am like you and a future first time buyer but when it comes up everyone always says how surprise expenses come up when you first move in. Would be a shame after all your hard work to have to use credit to cover work that needs doing shortly after you move in. Don’t forget to have money aside for fees, surveys, stamp duty if needed etc. 
Would MrC be happy with a plan to add a set amount to your regular mortgage repayments so that you build up equity without sacrificing the emergency fund? 

GeorgianaCavendish

ChasingSunshine said:

Oh that’s great that you have worked out all the costs and won’t be stretching yourselves even if house ends up being at the upper end of your budget. 

I would agree with you about keeping back money from the deposit. I am like you and a future first time buyer but when it comes up everyone always says how surprise expenses come up when you first move in. Would be a shame after all your hard work to have to use credit to cover work that needs doing shortly after you move in. Don’t forget to have money aside for fees, surveys, stamp duty if needed etc. 
Would MrC be happy with a plan to add a set amount to your regular mortgage repayments so that you build up equity without sacrificing the emergency fund? 

This is a great idea! I will add this in to our affordability calculations and put it to MrC, it seems like a good compromise in our positions. Thank you so much

GeorgianaCavendish

Refund from YNAB today, plus another small refund that I've been waiting on for a number of weeks. I split it between driving lessons pot and one of my 'fun' pots (I transfer to the nearest £5 to driving lessons, and then any extra goes to a fun pot).

Prolific has been really slow, I had a great few weeks at the beginning of July but nothing for about 10 days. 

I showed MrC my breakdown of stamp duty, legal fees etc, and how much on top of deposit we need to have available. He was shocked at how expensive it was and I think found it demotivating, he said he didn't want to look at it any more because it was making him annoyed. BUT I am regrouping for another chat in a few days because I think it is really important that we get on the same page now so that we can get the ball rolling in the next couple of months.
Even if we put everything into the deposit we still wouldn't get to the next "5% band" where we would have access to a better rate, so I personally don't think it is worth sacrificing our emergency fund. I am cautiously optimistic that even with a bigger mortgage initially, we will "grow into" the property in terms of earnings increasing and other outgoings disappearing or reducing (on my side, driving and my course fees will be over in the next 12 months). Keeping our emergency fund means that we won't have the same risk of incurring potentially expensive credit card debit if we need to fix something.  

enthusiasticsaver

I think it is a mistake to throw everything at the deposit. Keeping cash back for expenses and emergencies is a  good call.  Moving is expensive and there are always unexpected costs and the last thing you want is to incur more debt just at the time of taking on a new mortgage.  I would err on the cautious side and either wait until you have a big enough deposit to get a good deal (lower LTV usually means lower rates) or overpay once you have the mortgage in place especially as you wont get to the next bracket down even with putting everything towards the deposit.  What LTV are you going for? 

Your husband sounds like mine and is a bit ostrich like when it comes to hidden costs of things. 

GeorgianaCavendish

@enthusiasticsaver Financially, we would be in a proceedable position in January 2022 with 88% - 90% LTV (depending on purchase price). We could get to 82% - 85% LTV if we were able to continue to save at the same rate for a further 6 months (so to June 2022) but I'm concerned that (a) it is not sustainable to save at this level for so long as other expenses like commuting will come into play and (b) house prices may rise which would mean that we don't increase our LTV and potentially some of the areas we like would move out of our price range. As we're using LISAs we are capped at 450K purchase price, and we've been looking at houses that are now in the 375 - 425 range which doesn't leave much scope for house price increases.

Even though I completely understand the temptation to wait longer and save more to get a better deal on rates, I think that I would at least prefer to start the process based on the 90% LTV with a view to overpaying the mortgage. Also, maybe house hunting will take so long that we get to 85% LTV before we find somewhere that we like anyway!  But I would feel much more secure if we started the process sooner.  I'm afraid that if we try to do the right thing and wait until we can secure a better rate, we might end up losing out on a property that ticks most of our boxes.

Plus we're looking for somewhere that will be our home for the next 15-20 years, is the initial LTV really going to make THAT much difference in the long term (vs overpaying the mortgage) compared to having to compromise too much on the property/area now and need to move in 5 years and pay another lot of stamp duty etc. 

Apologies for the mind-dump post, I'm trying to get my head around this and I'm really scared of getting it "wrong"  

GeorgianaCavendish

Just to add, when doing my "mock budget" for post-move, I've been using mortgage figures based on borrowing 90% of 450K . I did about 15 quotes with high street lenders and used the highest of these (rounded up to the nearest £100) to get our mock mortgage figure. I had no cause for concern on affordability even at the more expensive end of the spectrum for purchase price, and taking the "worst" deal I could find.

astrocytic_kitten

I think starting with a 90% mortgage is totally fine, especially if you’ll be overpaying right out of the gate. Interest rates are so low right now too. I’d also agree to not throw your EF at the deposit to get to a lower LTV. I mean, it partly depends on the size of your EF, but you want to be left with a decent figure both for emergencies and for random costs that come up. Moving is just so expensive. I’d been renting so many different flats for so many years before I bought I thought I already had everything I needed other than a bed and sofa, but all the little things (I already had an ironing board and hoover but I needed to buy a mop and bucket, for instance) really add up even before you get to anything that needs fixed (I needed a plumber pretty much as soon as I moved in). 

I think your instincts on this are pretty spot on! As far as affordability goes, my view is that mortgage lenders stress test incomes so robustly these days that if you’re offered the mortgage you’ll be able to afford it. Unless you’re taking a very long fixed deal they’ll be making sure you can afford it if interest rates rise a fair bit, not just now.