Ftb

sichiu

I've now been working over a yr in my first job and I'm looking to buy a place for myself. I'm currently earning £23k a year. I'm a very good saver so I'm wondering if I should go for an offset mortgage. I'm looking at properties around £120-125k but I'm not entirely sure if this is affordable to me if I pay a 5% deposit towards this (10% at most).

The properties I'm looking at are mainly apartments so I'd need to pay maintenance too and I've also now idea how much monthly utility bills cost. I have a pay review in Feb and I'm expecting a £3k rise so I could take this into consideration. I'm looking to pay no more than £650 a month for a mortgage.

Can someone tell me if this is possible?

Lavendyr

If you are looking to pay no more than £650 per momnth, you can only realistically afford an interest-only mortgage. Say you managed a 10% deposit on a flat for £120k - you'd need a mortgage of £108k. On an interest rate of 6% (and your offer may be higher or lower than this, depends on what your broker can get you) this would cost you £704.04 per month as a repayment or £540 on interest-only. That's not counting solicitor fees, searches and other initial costs of buying (e.g. furnishing the flat).

Personally I would not recommend an interest-only mortgage without making sure you also start-up a repayment vehicle as you will need to be able to put together the capital to actually pay for the end-value of the house, and on interest-only you are not building up any equity in the house at all.

As for bills, you need to consider council tax, water, gas, electricity and your service charge. Just to give you an idea, this is what ours work out as in a small 2-bed house:

Council tax: £120 per month over 12 months
Water: £30 per month (unmetered)
Electricity: £10 per month
Gas: £15 per month averaged over 12 months
Phone: £13 per month including calls
Internet: £15 per month
TV licence: £11 per month

Total monthly bills: £214 (plus your service charge)

Those are just some thoughts to hopefully help you make your decision. I'm sure other more knowledgeable folk will be along soon to give further advice, but I hope that helps. One more thing I'd comment is to make sure that you go to see a whole of market mortgage broker and find out how much you could borrow, as lenders are raising interest rates and decreasing the amount they are willing to lend, and you can only find out what you can really get by going to see an unbiased broker.

Good luck whatever you decide

herbiesjp

You do not state if you have any other debts/credit cards/loans etc ro if you have a good gredit history

Howver based on 23k income and 95% loan of £120k means you are looking at 5 times your income - this will limit the lenders availbale but it could be done.

However as Lavendyr rightly points out in the post above, it will not fit within your £650pm budget unless you are looking at interest only - so you need to be certainh about what you are looking to do with the property.

Being a graduate, or classed as a professional by some lenders, will mean having access to higher income mutiples.

Borrowing 95% will mean most lenders charging a Higher Lending Charge - so be sure to compare with lenders that do not charge that fee.

I would not think that an offset would be a good option for you, as you would be paying a higher interest rate for the benefit, and only a sufficiently high offset savings balance will counter balance the higher rate. How much could you offset?

PasturesNew

You've been working a year, which isn't long.
Most FTBs are in their 30s.
You'd be over stretching yourself when you should be enjoying a bit of life.
House prices aren't rocketing upwards any more, so there's no rush.

Save another £10,000 in the next year and see where you're at then.
You can create this £10,000 by saving £900/month - which is what having a flat would cost you, so if you can't do that for a year count yourself lucky you didn't buy as you'd have been in the poo.

sichiu

I currently have no other loan or debts other than my student loan.

I have considered holding off a bit longer because it will mean that I won't be able to go on several holidays a year anymore. The other thing is I should probably hold off until I have a partner as it's just easier with one. It's just because I'm 25 next year and thought I should start getting on the property market and moving out. As renting is dead money that's certainly not an option.

Also.... I have no idea if repayment or interest only is the more common of the 2 and which would best suit me personally.

dwsjarcmcd

Another consideration is the type of flat your thinking of buying. If it's a new build then be very careful as there is an oversupply of these, so a PP of £120k could see you making a loss for several years. I'm not one of the 'doom & gloom' merchants about house price, with the exception of new build flats.
That does, however, present an opportunity as you could go to the developer and offer, say £100k, if they say no, then walk away.
If it's not a new build, but a few years old, theses comment still tend to apply, IMHO.

Lavendyr

sichiu wrote:

As renting is dead money that's certainly not an option.

Think about that and ask yourself if it's really true. Because in today's market, in so many areas, it's just not the case any more. And remember, interest is dead money too! The more you borrow in the first place, the more interest you will have to pay back, and that is not gaining you anything - you are just paying for the privilege of borrowing the money in the first place. Let me give you an example.

My OH and I bring in a joint income of £50k gross, with no debts aside from my own student loan. In the area in which we live, FTB houses cost around £200k. We have at least a 10% deposit on a house that value and probably more. Still, to borrow £180k, or 3.5 times our joint salary, we would be looking at a repayment mortgage of approximately £1200 per month, or an interest-only mortgage of £900 per month.

The thing to work out is, by renting and saving regularly out of your income, can you save enough money that you will be able to reduce the amount you would borrow enough that you save money overall? (if that makes sense!) OH and I are spending £750 a month on rent. But we are jointly saving more than that again per month. Putting those savings towards a mortgage will ultimately save us more, because we will have to borrow less. The cost of renting is lower than the ultimate cost of interest if we were to buy now, with our current deposit, rather than, say, a year or two from now with a substantially increased deposit.

However, this approach relies on you actually saving rather than spending money on lots of holidays!!

Of course, it depends greatly on what local rental costs are like - if they are as high or higher than the cost of buying, then you obviously may as well buy (although remember you are still talking about borrowing a very large sum relative to your salary and could only afford interest-only which is more or less as "dead money" as renting if you don't sort out a way of repaying the capital).

And if you're prepared to houseshare, as many people do at this age, you will be able to live for much less and save much more. It sounds like you've not lived away from home before (aside from uni I presume) so if this is the case, I would advocate housesharing as a good learning curve and a good way to start being away from home while still being able to save a decent amount of money.

Give it some thought, just don't write off renting as "dead money" without working out exactly how it compares to the interest on a mortgage, and whether renting and saving now would ultimately save you more than borrowing money now.

sichiu

Thanks Lavendyr, that's some good advice there. You have got it spot on about only living away from home at Uni. I'm not desperate to move out, just considered getting on the property market. As a result I'll probably end up staying at home, as I can save even more money although I have considered a relatives house when it becomes available and possibly share with a friend or 2 but at the moment I think staying home is probably the best move for the time being especially as over time my salary will increase and I'll have saved an even bigger deposit.

Lavendyr

It really depends on what you want as well - personally I was not able to live at home after I graduated because my job is so far away from where my parents live, so I moved straight from uni into a houseshare, and it worked out well because I had my independence while also not paying as much as if I was buying or renting a house alone - also on my starting salary of £18k I could not afford even to rent on my own, really, let alone buy. It was a good learning curve as well, as my uni housed us throughout the degree course so I'd never had to deal with bills etc myself.

I'm not saying that what my OH and I are doing is necessarily right for you, just think it over. Personally I do agree that it should be best for you to try and save a bit more of a deposit, and wait until your salary increases before looking at buying - not to mention the current market instability, it may be worth just watching house prices for a few months before even considering buying, just to see what happens.

Best of luck, whatever you do