First time Buyer - Few Questions

dv123

Hi All,

So me and my partner (ages 32 and 29) are looking to buy our first house. It would be a joint mortgage application. Total earnings approx 63k. We went to see an adviser at Harrison Murray recently, and just wanted to get some opinions on what we were told.

1 - It seemed like they were pushing for 30-35 year mortgages. The advice was basically see how you get on for the first 2/3/5 year fixed term on the 30/35 year mortgage and then assess. If we're finding it easy to make the repayments or have been overpaying 10% each month (no fee) then change the mortgage to a year one. They didn't mention any charges involved in changing from a 30/35 year to a 25 year mortgage. Is there any? And is this advice advisable?

2 - When they were just looking at what lenders would offer us (using something called Intrinsic?) Based on a 20k deposit and a 30 year mortgage, Bank of Ireland seemed to provide the best offers. Lowest interest rate and the lowest total to pay within the fixed year period. However a quick Google search shows Bank of Ireland with many bad reviews. Any opinions on this?

3 - Would a 7/8% deposit rule out many lenders? If the LTV was 92% for example? We are getting married in summer thus alot of money being spent there. Based on a 250k house with 20k deposit, how would that fare? The adviser did recommend a 10% deposit as minimum, but wanted to gauge opinion. Our combined monthly earnings would be around 3.7k which would be fine for the repayments. Its just the initial deposit, when combined with wedding costs, we're tad bit struggling on.

Many thanks for reading.

ACG

1) The advisor will have a lot more information and will be best placed to advise you on that. It is not a bad idea, it keeps your contractual amounts low but costs you no more as you would be paying what you would on a shorter term mortgage anyway. But if you are easily swayed, then you may go and buy a new TV/holiday instead of overpaying.

2) Intrinsic is a network, not a sourcing system. But they may use their own system to source products as they are a large enough network to do that.

3) With a 7-8% deposit, you would still be looking at a 95% product as they tend to go in bandings of 95%, 90%, 85%, 75%, 65% and 60% (although there are some exceptions). You would only have access to a minority of products, but if thats your only option then it is not worth worrying about something out of your control.

dv123

Thanks for your advice. We will definitely aim to secure a 10% deposit in that case.

With regards to houses, I've heard contradictions with the type of house to go for. A smaller/cheaper house in a semi-decent area (say between 200-220k) vs a bigger house in a better area (say 250k give or take). Deposit aside, what would be your opinion on this? I understand it's quite subjective, and depends on individual circumstances.

Some of my friends are saying go for the smaller house and then upgrade to a larger in 5/6/7 years for example (lower repayments etc). My parents suggest going for the larger house initially (as in, go for the biggest house that you can just about afford). Decisions decisions!

katherz44

Jumping in to give you my advice as my other half and I were in the same boat.

Being FTB we initially just wanted to get on the property ladder, but we're in our 30's and want to think about having children in the not too far away future.

We decided to go for something larger which is more likely to be our 'forever home' rather than having to move again in a few years time.

It's all down to personal preference, and of course affordability.

Exodi

dv123 wrote: »

With regards to houses, I've heard contradictions with the type of house to go for. A smaller/cheaper house in a semi-decent area (say between 200-220k) vs a bigger house in a better area (say 250k give or take). Deposit aside, what would be your opinion on this? I understand it's quite subjective, and depends on individual circumstances.

I must be missing something because the scenario you describe above is so common (I have people in real life asking me my opinion on it as well) yet it seems so utterly obvious to me?

You're a first time buyer so you don't pay SDLT and you also don't have the associated costs and hassle of selling a house. If you were to buy a house with the intention of moving several years after, you're paying ~£2500 on SLDT (assuming a 250k purchase), ~£5,000 to sell the house and then another ~£2,500 in conveyancing, surveys and removal on your new place. It's just literally throwing £10,000 into a bonfire for little reason.

Then with how amortization works, you pay mostly interest at the start of the mortgage (with mostly principle at the end) so if you did live in a house for 5 years (especially on a 30-35 year mortgage), you'd find you've only paid off pennies on the actual house.

With the above in mind, if house prices drop you could find yourself stuck where you are.

I would always advise on buying a house you intend to live in for a long time, but that's my 2 cents, there may be equally valid arguments for the contrary.

ACG

I have 2 views on this, my first home I could not afford the house I wanted where I wanted. I bought a cheap house, smashed the mortgage down as quickly as I could whilst improving the property to sell for as much as I could. I then sold that property and bought the house I wanted where I wanted.

Whilst living in the old house, we went to Vegas and LA, had a couple of years enjoying life whilst living in a house with a small mortgage, low council tax, smaller bills and so on.

We now live in a bigger house, bigger mortgage, more council tax, higher bills and a sprog. In the long run, I would say financially it would have been better to go and buy the house we have now first (had we been able to) but looking back, we would not have had the holidays or lifestyle we had and I have been to places I will probably not get chance to go to again. The financial benefits would not have been massively more, if you think our costs were maybe £4-5k yet we saved maybe £300-500 a year in costs over 4-5 years, £2-3k difference in my lifetime is not going to make the slightest difference.

There is no right answer, it is whatever works for you.

I would have bought big first if I could, but I am glad I did not looking back.

Exodi

ACG raises a valid point, out of interest what was the difference in value of the two houses (@ACG)? You can express it as a percentage if it's personal.

It can be appreciated that not many people are able to buy a half a million pound house as their first property and would need to climb the ladder but the OP is talking about £210,000 Vs £250,000. Whilst I don't know their exact circumstances, being that they collectively earn £63,000 it may be better in this scenario for them to save for a (short) while and their ideal house a year later (especially as they easily make affordability, it's just their deposit and what's the difference between a £21,000 deposit and a £25,000 deposit in the grand scheme of things with my previous post taken into consideration).

ACG

Fair point.

Our first house 6 years ago was £84k but it was a doer upper and probably worth about £120k had it been in a decent condition. The stamp duty threshold at the time was £125k. We spent £10-15k modernising it and sold it for £155k. I knew the house was a bargain when I bought it, but I did not realise it would do as well as it did in 4-5 years.

When we moved nearly 2 years ago, the house was £270k so we only paid stamp duty on £20k.