First time buyer's huge dilemma.

capstain411

Hi,

I work in NHS in West Midlands. I earn around £42k a year. I am single. I am a recently qualified graduate (graduated 2005).

I am renting at the moment and shell out £350 p.m. Recently I viewed a property next to my best mate's place in Birmingham, Kingstanding area. It is a 3 bedroom property in the market for 199950. The latest I heard from my mate is that there has been an offer of 190000( a realistic value in my opinion). Now, the house has been on the market through an agency. My mate being a close friend of the seller, was optimistic that we can deal with the seller directly. They know each other since last 15 years. So I would strongly assume that a offer of 187500 or slightly less would be a very competitive offer.

Now I have some outstanding debts on my credit card (interest free.....through my stoozing stint,interest payable from Jan 2008). Which stands at £5500 today.

I have got saving of around £6000 in ISA. £4800 in Stocks and £1000 pounds in HSBC online saver account.

I manage to save around 1300 pounds every month ( found it tough, but impending mortgage prevents some unnecessary spendings).

Looking at my financial health do you think my first time buy of 187k is over-ambitious dream? Initial preliminary search of mortgage gave me a borrowing limit of 177k.

I have planned for a cushion amount of £3000 (generous gift from my uncle) as my back up, which i have not factored in my savings. I have not factored the additions to savings from my next two months salary as I would anticipate this would go into surveying, solicitor charges and other charges.

Some of you might discuss about impending house price crash. Well I do not want to consider that probability, because of the fact that a) this house is long-term investment for me and b) the house belongs to a builder who lived in it for last 15 yrs and is maintained it to best possible standards and is simply desirable to unmeasurable extent. So strongly assume, this house would not be in the market for too long.

SquatNow

so what... a 5x mortgage????

It's a no brainer... you are NOT in a position to buy this property.

It is HIGHLY unlikely that you would even get a mortgage, and even if you did the terms would be APPALLING.

capstain411

thanks for your reply. Totally appreciate your view.

What do you think the the ideal situation is to buy this kind of property. In terms of deposit and savings.

SquatNow

The ideal situation would be to buy it outright!

To judge affordability use the method that was used by building societies for decades... 3x income and 10% deposit.

So you need £20k cash plus you need to earn £60k a year.

poppy10_2

What is your job? Can you expect your salary to increase over the next few years as you are still a fresh graduate?

It sounds doable to me. Doable, but not wise.

A_Nice_Englishman

Let's do rough some figures.

Your take-home pay would be about £2500 pm
You spend £350 on rent and say another £350 on bills
You save £1300

Amount left £500

You have savings of £11800

Say you put £10,000 down as a deposit and by the time you buy you saved enough to cover the buying costs (survey, solicitor's fees & stamp duty)

A repayment mortgage of £177,000 would cost about £1140 a month at 6% interest

Your bills in a larger place would be a bit higher. Say £500

So, your monthly bdget would be

Income £2500
Expenditure:
Mortgage £1140
Bills £500
Total £1640

Amount left: £860

Looks doable to me if you are prepared to use all your savings (but keep the £3000 cushion) and live on a disposable income of £860 pm (more if go interest-only and worry about repaying later, less if interest rates rise)

SquatNow

Has 11800 saving but 5500 credit card debt.

And 6% interest at that LTV rate and income multiple in the current market is rather optimistic.

He'd be looking at closer to 8% minimum, if he could find a mortgage at all.

PasturesNew

IMHO bills (although you didn't list them) at £500 seems very high.
I'd say £250/month.

Living on a disposable income of £860 pm is easily doable. Many people take this home each month before they've paid for housing/bills.

I'd say that as the mortgage is not significantly different to his savings.
And as a mortgage would free up his rent money to be spending money.
It is a little easier buying than renting on those figures.

A_Nice_Englishman

Didn't spot the credit card debt, sorry. Repayment mortgage at 8% would be £1366 making disposable income £634 (less cc repayments). Or more if PasturesNew is right and I've overstimated the bills. It might be better to do interest-only on the mortgage for a while and throw the difference at the cc. Mortgage would need to be selected with this in mind.

Still sounds doable with a bit of belt-tightening.

One proviso: That the OP's job is secure.

capstain411

Thanks a lot Poppy, Englishman and PasturesNow for instilling some optimism , I agree with the fact that it is possible, but not very practical.Thats the reason why it was a dilemma in the first place.

I work as a clinical pharmacist, 45 hours a week. Salary increment is fairly reasonable,more you study and specialise more you get paid on pro-rata scale.

I can work as a locum (kind of like freelance) on odd weekends and evenings and earn some extra cash.

Initial calculation of my monthly mortgage repayment figure comes to £1248. With borrowing amount of 177k and interest rate of 7.5%.

what percentage of take home ( with tax deducted) salary can be considered as a decent mortgage repayment figure. If I was to pay £1248 per month that would be almost in the region of 50% of net monthly salary.

As far as credit card debts are concerned 20 Sunday shifts as pharmacist at local Asda can wipe off 80% of it.

SquatNow

25-30% is normally considered acceptable.

Also remember that on a £200k house, the council tax could be £150-200pcm on it's own.

In terms of bill you need to factor in stuff like running a car inc tax/insurance/petrol, along with council tax, home insurance, gas, leccy, water, TV licence, telephone, sky , broadband.

Add on top of that if you own rather than rent then if stuff goes wrong you have to fix it rather than the landlord. You could get lucky, but plan to put aside £1-2k a year (£100-150pcm) for general household "breakages".

Living is expensive