FTB conundrum

2ndAccount

Hi, longtime poster under a different alias, it’s my turn to ask questions about areas I’m not so familiar with!

Me and my partner will shortly be looking to buy our first home together, currently renting, tenancy ends May ‘18.

Ideally we’re looking to move from rented to our own home, but if delays happen when purchasing we can move into her Parents temporarily, they have a rather large property so we wouldn’t be on their toes.

My conundrum is how hard to push ourselves now.

Mini SOA below;

Applicant 1,
Main income £40,000 annually
Second income (bar work 1 evening a week) £2,500 annually
Credit Card debt £7,500 all on interest free, dropping at circa £900 p/m
One child from a previous relationship who I don’t see or pay maintenance for.
No savings
Car owned outright

Applicant 2,
Main income £24,000 annually
No second income
No debt
Car lease, 15 months remaining @ £245 p/m
Savings, circa £25,000 (including £10k gift from granddad), rising at circa £500 per month


So, looking on various banks and other calculators we could potentially borrow circa £300k if we were willing to stretch ourselves.

This, plus the current savings leaves us with a circa 92% LTV. Interest rates seem to be about 4% based on this, if we can find the extra (which I think we could at a push) we could get to 90% LTV at which point the rate drops to less than 2.5%.

Given our status as FTB I’m hoping to maximise the SDLT saving and buy at the top of our budget, my OH wants to be more cautious and buy circa £260k range, however I’d see that as a stepping stone for just a couple of years meaning we’d need to move, find SDLT, and upsize, just as we’re trying for a family...

Am I reckless to want/aim for that bigger house now?

justme111

What does your partner say about having to move in a couple of years again if went for a cheaper house? That is the main concern , not what we say here bcause you would need to agree it with a partner and for that you ould need to know where they are coming from.
how present rent payments relate to future mortgage ones ?
have you actually looked at houses already that you coud afford for 26O and 3OO? after al you would buy an individual hiuse with an individua price, not an abstract price bracket and there is a good chance yu my agree on an individual house no matter what price bracket it falls into.

The_Palmist

How long have you had credit card debt and why have you not nanaged to save anything given your decent income.

You need to consider the above and factor in future affordability before going for that expensive house.

I would also question your perception of your budget and suggest you get a second opinion from a close friend or relative.

FTBuyerGlasgow

Just my opinion but it sounds like you will be stretching yourself at the £300k mark, just to benefit from the SDLT. Not sure if you've compared your estimated monthly mortgage versus your current rent - is it comparable?

Speaking from experience we bought with a 5% deposit, almost slipped right away when the Conveyancing Fees were twice what we expected (the fee proposal was deliberately vague), and our first mortgage payment was almost double what we thought it would be (it depends on when the funds are released - we exchanged at the beginning of the month so had a full month of interest on top of the usual interest).

Looking back I should have saved more for the deposit, but prices were on the way up so who knows maybe the waiting game wouldn't have paid off.

Prospective mortgage companies will be worried by your credit card debt, they'll factor in your monthly payments to these and reduce what they'll offer you accordingly (same with your OH's car payment). Do you think you would still be able to get £300k?

A condition of our mortgage was to pay off the credit card debt before exchange (mines was only £1k or so). This may or may not be checked by your mortgage company and/or conveyance solicitor.

The most obvious answer to me is to save/save/save - move in with the parents if need be, break into the 10% deposit bracket, pay off as much of the debt and leave aside a good £5k to cover all your costs.

Will you get back the deposit you paid for the rental property? That could be a nice little windfall to help boost the above.

Good luck.

gary83

Working two jobs at £42500 a year would make me wonder why you had no savings and how you'd cope with an unexpected bill like the roof leaking or boiler breaking.

The other thing that jumped out at me is you're currently not paying any child maintenance/support and are using this in your maths to stretch yourself pretty much to your maximum? Hypothetically what would happen in the future if you took out the larger mortgage but then down the line your ex came chasing after you to shoulder some of the financial responsibility of the child?

2ndAccount

Thanks all for the comments, some good food for thought.
I’ve responded to each post below:

The_Palmist wrote: »

How long have you had credit card debt and why have you not nanaged to save anything given your decent income.
I’ve only recently (from Oct) been on £40k, previously it was £35k.
I’ve got my c/c + loan + overdraft debt down from nearly £20k to where it is in a year. Overdraft gone and removed, loan cleared and 3 cards down to two diminishing (and both on interest free).

You need to consider the above and factor in future affordability before going for that expensive house.
Affordability; we collectively take home over £4100 each month after tax. I reckon £1100 on a mortgage is our tops.

I would also question your perception of your budget and suggest you get a second opinion from a close friend or relative.

We are visiting an IFA on Wednesday.

FTBuyerGlasgow wrote: »

Just my opinion but it sounds like you will be stretching yourself at the £300k mark, just to benefit from the SDLT. Not sure if you've compared your estimated monthly mortgage versus your current rent - is it comparable? Our current rent is only £750, we aren’t stretched through by any means.

Speaking from experience we bought with a 5% deposit, almost slipped right away when the Conveyancing Fees were twice what we expected (the fee proposal was deliberately vague), and our first mortgage payment was almost double what we thought it would be (it depends on when the funds are released - we exchanged at the beginning of the month so had a full month of interest on top of the usual interest).

Looking back I should have saved more for the deposit, but prices were on the way up so who knows maybe the waiting game wouldn't have paid off.

Prospective mortgage companies will be worried by your credit card debt, they'll factor in your monthly payments to these and reduce what they'll offer you accordingly (same with your OH's car payment). Do you think you would still be able to get £300k? These indications are based on full disclosure.

A condition of our mortgage was to pay off the credit card debt before exchange (mines was only £1k or so). This may or may not be checked by your mortgage company and/or conveyance solicitor.

The most obvious answer to me is to save/save/save - move in with the parents if need be, break into the 10% deposit bracket, pay off as much of the debt and leave aside a good £5k to cover all your costs.

Will you get back the deposit you paid for the rental property? That could be a nice little windfall to help boost the above. Yes, that’ll be another £1k.

Good luck.

gary83 wrote: »

Working two jobs at £42500 a year would make me wonder why you had no savings and how you'd cope with an unexpected bill like the roof leaking or boiler breaking. Because I’m furiously paying down my debt!

The other thing that jumped out at me is you're currently not paying any child maintenance/support and are using this in your maths to stretch yourself pretty much to your maximum? Hypothetically what would happen in the future if you took out the larger mortgage but then down the line your ex came chasing after you to shoulder some of the financial responsibility of the child?

fair point.

exiled_red

Are you sure that you would be able to borrow £300k? That's 4.5 times your joint salary. I'm not an expert on this but I didn't think most lenders would offer such a large multiple of both salaries. My wife and I got a mortgage about 6 months ago and our salaries are not too different from yours (a touch lower) and we were told my a broker something around £200k-£220k was probably the most we would get from most lenders (It didn't matter to us as we were only looking to borrow ~£160k). Some would offer more but the terms probably wouldn't be that favourable. I would speak to a mortgage broker to get a better idea of what you are looking at.

I would be cautious about borrowing the most I could, you need to consider the affordability, a bigger house will cost more to run than you are paying at the moment, you also don't want to stretch yourself from the outset, what happens if the interest rate goes up? On a 300k loan over 25 years a 1% raise in interest rates would see your monthly repayments go up by about £150

glasgowdan

I'd never borrow the max I could get. It's a hard/stressful way to live.

Beaker99

You're pretty much identical to us in terms of income/debt, but we have slightly less savings, and am about to exchange contracts (hopefully next week) on a 300k house. Mortgage all approved without a glitch via a broker. We've had to really 'live out of the freezer' for a couple of months on a super saving drive, but it's also changed how we live, stripped out every monthly outgoing that isn't essential to make sure we maximise what we have, but also show the mortgage company we aren't flippant. (We also made sure over the past 6 months that we have never gone into overdraft and all debt is overpaid.

The only debt that the mortgage company has asked to repay 'immediately before or immediately after' were a few bits and bobs, like for example I had £100 on a Next account, and £200 on another credit card.

We have also gone for a very expensive 95% 5yr fixed. Meaning that we should get through the worst of brexit, and house prices will hopefully recover, based on a typical 7-8 year cycle. (I live in a commuter town which has dropped significantly in the past year)

Basically, we decided to go for it. Spent too long on the sidelines renting and now our older years mean the mortgage terms will start to drop (from 25yrs) if we hold off any longer. In for penny, in for a pound.

MeltingSugs

I’m a risk averse accountant. We have borrowed 260k and earn similar to you, it’s our second home and we put down 15%. Our mortgage is more than £1100 a month. This was borrowing higher than I initially wanted, and I have just secured a new job meaning an £8k pay rise in March. I’d be wary of borrowing your top end unless you’re going on a 5 year + fixed term. The fact one of you has a lot saved and the other does not suggests differing lifestyles, you say you and paid off debt, but you still seem to have accrued an awful lot of it - just make sure you have done the sums and can afford house maintenance, bills, mortgage and still have a rainy day fund. Don’t forget life insurance and hopefully you have pensions on the go too.

ViolaLass

You think after a couple of years you would need a house that is just 15% more expensive? What is that 15% giving you?

(We'll buy again this year, I hope, and the increase in value will be well over 100%)