Is a mortgage a good idea or should I forget it

MortgageSeeker2018

Hello,

I have £20k in savings, and my partner and I earn £35k combined. We are looking at buying a property for approximately £175-180k. For this price, we could only afford a very small 2 bed terrace at best. We have been to speak to an independent broker, who showed us a few possible mortgages. We looked mostly at 5yr fixes, which would mean our repayments would be something around £650pm for the first 5 years, then around £811 thereafter. The lenders we looked at would offer around 4.5x our salaries, meaning 4.5 x 35000 = 157500 (let's say £160,000 for arguments' sake. So on a property of value £180,000 we could put down £18k, meaning an LTV of 90%. I have considered the bulding, contents and life insurance, which I estimate to add another £10pm onto the repayments. With the solicitors' fees, the broker fee (£350) and the survey, we could JUST afford to do it, but with nothing left at all.

I have been thinking about what is best to do for a while and it's not easy to find the answer, because I don't want to have a mortgage around my neck which in 5 years strangles my partner and I.

The alternative would be to use my LISA (forget to mention I have this, sorry!) as a pension pot and just keep renting for life, but with spare cash in my back pocket for use at any time.

Can anyone set me on the right road with this?

i feel that some people are so desperate to escape renting that they shoot themselves in the foot by taking on a mortgage that strangles their finances.

ACG

Despite my signature, I try to answer these types of threads in a non biased way.

From a personal perspective, I bought my first house 5 years ago. It was a doer upper. I spent £10k doing it up and made £60k profit give or take. Part of that profit was because of house price increases, part of it was because of the work I did to it.

It gave me £60k plus my original deposit to put down on the "family home" - somewhere we will be forever.

When my mortgage is cleared, I will own the house. The mortgage currently costs around half what it would cost me to rent a similar house in the same area.

Providing I make my Mortgage payments, I will not be evicted. I can decorate until my hearts content without asking permission, if something goes wrong, I choose who comes down to fix and when. Being a bit of a control freak, I HATE having to rely on other people.

So by owning, I have benefit from house price rises, cheaper Mortgage than rental payments and freedom to do what I want in the property.

You say the Mortgage will increase after 5 years, that is pretty likely but it does not necessarily have to go to £800 a month, you can renegotiate the deal with the same lender or a new lender based on the (hopefully) lower loan to value.

For me, owning a home is an absolute no brainer. Even if my current home loses 10% of its value, in fact even 20% of its value, I am still quids in.

Different people, different areas may not be as fortunate as I have been. But it is not just the financial benefits, it is the security it gives me that I appreciate the most.

Nebulous2

Surely there is a middle route?



Try to improve your earnings, add to your deposit and buy when you are in a better position to afford it?



You cannot say what your mortgage rate will be in 5 years. It is likely that you could fix again after the 5 years finishes. Equally you can't tell what your rent will be in 5 years, rents tend to increase as well.



It sounds as though you have worried yourself about making such a big commitment, which is understandable. There is no need to give up altogether though - you have plenty of time.

xxjennyxx

I'd run some quotes for the buildings, contents and life insurance so you know for sure what you would be paying, I doubt you would get all three for anywhere near £10pm unfortunately

MortgageSeeker2018

Well I am 34 and my partner is 36, so we feel that getting onto the property ladder sooner rather than later would be the best idea, if we decide to go down the mortgage route.

I have experience with building work, having completed a 3 year joinery apprenticeship, albeit 13 years ago, but would likely be able to complete many improvements myself, as ACG did.

When I've looked at mortgage comparison tables, the cheapest offers seem to be around £650pm,and then in smaller font it states rising to 811 after the 5yr fix. That said, as mentioned above, we could potentially sell at 5 years or remortgage.

Thanks for for the ideas and advice, any more of the same would be very appreciated. I need as much information as possible...

MortgageSeeker2018

The earning more income thing is something I've looked into for what seems an age, with no success. I still have a bog standard job and have never had any promotion wherever I've worked. Just completed a Psychology degree with the OU last year, got a 2:1, still unable to get a higher paying job. Also not had a pay rise at work in the 2.5 years I've worked there, not for want of asking! The response was a flat no...

ACG

The initial 5 year fixed will be on a rate of maybe 1.5-2% I am guessing.
After that, it will go to the SVR rate which with most lenders is around 4%.

At the end of the deal, assuming the base rate has not jumped 2% in that period (which could happen) then £800 will not be what is out there. If the base rate has jumped by 2% then chances are wages will have gone up also.

Could you extend the term? You are a similar age to me, I put my term to 35 years knowing I would make overpayments. Although I did that as I am self employed and like most self employed people, I have good months where I can overpay and bad months (typically the christmas lull) where I want my repayments as low as possible.

Thrugelmir

MortgageSeeker2018 wrote: »

The alternative would be to use my LISA (forget to mention I have this, sorry!) as a pension pot and just keep renting for life, but with spare cash in my back pocket for use at any time.

Once the property is paid for. Then the payback is no rent. Security for the rest of your lives. If both of you have LISA's then diligent saving would provide a significant boost towards the funding for the purchase.

MortgageSeeker2018

How much should I expect to pay for the insurances I'll need to take out, per month?

getmore4less

Where are you living now what is that costing.

with the buy be a better or worse place than you currently rent?

MortgageSeeker2018

We pay 550pm currently in a 1 bed flat. It is quite a spacious flat and buying a terrace house would mean much smaller rooms, not necessarily a bad thing from a heating perspective...