FTB: how much should be budget upper limit?

G3ralt

Hello,
 My wife and I are looking to buy our first property after the Covid storm blows over. We are searching in the £550k range but not sure if that's the right budget. We have been told by friends to see in the £350k-400k range as we are in our early thirties and our requirements may change. Any help in deciding whether to aim lower/higher is greatly appreciated.
A bit of background: Both of us are into IT/Software. We have about £120k saved and our total annual income is about £153k. As per lender we could aim higher to about £650k but while that may make business sense for the lender it may not for us!
What may be the right-ish budget in our case? 

MovingForwards

Whatever you feel comfortable with. 

A couple of things for you to weigh up are:

 - could you pay the mortgage on one salary.

- any children planned for the future. 


I went for about 2/3 of what I could borrow as a sole FTB and wanted flexibility eg drop a day at work, change to a lower paid job etc without thinking I'm tied into my salary until retirement.

Soot2006

You have a lovely range to play with.  Go see some houses and buy the one you like most.

When we bought last year, we had a budget up to £500,000 but told the EAs £450,000.  So we viewed loads from 400,000-480,000. Then looked a few for 500,000 but honestly couldn't quite understand why they were valued higher. Ended up spending considerably less than 450,000 for a house that is in a lovely location, much bigger even than the 480,000 range houses we viewed, huge garden, garage, etc ... It is dated (though not old person dated, just large family without money has grown up in it for last 10 years dated). Lovely project.

AdrianC

Where in the country are you?
What does each of those amounts buy you?

You're in your early 30s - any plans for kids? If so, that'll hit your affordability and increase your requirements.

G3ralt

AdrianC said:

Where in the country are you?
What does each of those amounts buy you?

You're in your early 30s - any plans for kids? If so, that'll hit your affordability and increase your requirements.

We work in central London. We can move to any commuter towns. The farthest we have looked at (online) is Colchester but we are open to moving anywhere from Reading/Maidenhead in Berkshire to Redhill/Reigate in Surrey or Rayleigh/Chelmsford/Colchester in Essex. With about 550k budget, Colchester or Rayleigh seem to give a lot more for money - 4 bedroom detached with very good interiors plus separate garage and huge garden, whereas places like Maidenhead or Reigate would probably have 3 bedroom semis with good interior but not much garden.
Yes, a child would increase space requirements and reduce affordability and we'd want to consider that. Would you say in that case we should aim slightly lower?

AdrianC

G3ralt said:

AdrianC said:

Where in the country are you?
What does each of those amounts buy you?

You're in your early 30s - any plans for kids? If so, that'll hit your affordability and increase your requirements.

We work in central London. We can move to any commuter towns. The farthest we have looked at (online) is Colchester but we are open to moving anywhere from Reading/Maidenhead in Berkshire to Redhill/Reigate in Surrey or Rayleigh/Chelmsford/Colchester in Essex. With about 550k budget, Colchester or Rayleigh seem to give a lot more for money - 4 bedroom detached with very good interiors plus separate garage and huge garden, whereas places like Maidenhead or Reigate would probably have 3 bedroom semis with good interior but not much garden.
Yes, a child would increase space requirements and reduce affordability and we'd want to consider that. Would you say in that case we should aim slightly lower?

If no kids - then do you need 4 beds? You could consider a smaller but "higher-end" place.

You both have jobs that are going to take your entire week, including commuting - do you want a huge garden? Or would you prefer somewhere with a smaller (or no) garden, and easy access to countryside or parks?

Ultimately, do you want to be working your nadgers off until you're ready to drop, just to feed a huge mortgage monkey, or would you rather have somewhere more modest, and save/invest more towards an earlier retirement or down-scaling?

A £500k mortgage is two grand a month, even at 1.5%. Do you fancy laying bets on where interest rates will be in a few years? At 3.5%, you're up to £2.5k/mo. At 5%, you're nearly at £3k.

Mutton_Geoff

AdrianC said:

A £500k mortgage is two grand a month, even at 1.5%. Do you fancy laying bets on where interest rates will be in a few years? At 3.5%, you're up to £2.5k/mo. At 5%, you're nearly at £3k.

And £6,400 a month if interest rates went to 15% (which they were when I bought a house in my early 30's). I had to take a 5 year 12% fix to avoid some of the pain but then pay £10k ERP when rates fell below 10% in the following year.

G3ralt

AdrianC said:

G3ralt said:

AdrianC said:

Where in the country are you?
What does each of those amounts buy you?

You're in your early 30s - any plans for kids? If so, that'll hit your affordability and increase your requirements.

We work in central London. We can move to any commuter towns. The farthest we have looked at (online) is Colchester but we are open to moving anywhere from Reading/Maidenhead in Berkshire to Redhill/Reigate in Surrey or Rayleigh/Chelmsford/Colchester in Essex. With about 550k budget, Colchester or Rayleigh seem to give a lot more for money - 4 bedroom detached with very good interiors plus separate garage and huge garden, whereas places like Maidenhead or Reigate would probably have 3 bedroom semis with good interior but not much garden.
Yes, a child would increase space requirements and reduce affordability and we'd want to consider that. Would you say in that case we should aim slightly lower?

If no kids - then do you need 4 beds? You could consider a smaller but "higher-end" place.

You both have jobs that are going to take your entire week, including commuting - do you want a huge garden? Or would you prefer somewhere with a smaller (or no) garden, and easy access to countryside or parks?

Ultimately, do you want to be working your nadgers off until you're ready to drop, just to feed a huge mortgage monkey, or would you rather have somewhere more modest, and save/invest more towards an earlier retirement or down-scaling?

A £500k mortgage is two grand a month, even at 1.5%. Do you fancy laying bets on where interest rates will be in a few years? At 3.5%, you're up to £2.5k/mo. At 5%, you're nearly at £3k.

I sense that you'd aim lower. Point noted. Thanks.

On the mortgage interest though, it doesn't just increase unless the economy is doing well, in which case salaries are likely to increase too. The current BoE rate is an example. So if I am to pay 4k/month in 10 years time hypothetically, I'd imagine my income( and for almost everyone, in general) will have roughly followed the same upwards trend. 

Crashy_Time

G3ralt said:

AdrianC said:

G3ralt said:

AdrianC said:

Where in the country are you?
What does each of those amounts buy you?

You're in your early 30s - any plans for kids? If so, that'll hit your affordability and increase your requirements.

We work in central London. We can move to any commuter towns. The farthest we have looked at (online) is Colchester but we are open to moving anywhere from Reading/Maidenhead in Berkshire to Redhill/Reigate in Surrey or Rayleigh/Chelmsford/Colchester in Essex. With about 550k budget, Colchester or Rayleigh seem to give a lot more for money - 4 bedroom detached with very good interiors plus separate garage and huge garden, whereas places like Maidenhead or Reigate would probably have 3 bedroom semis with good interior but not much garden.
Yes, a child would increase space requirements and reduce affordability and we'd want to consider that. Would you say in that case we should aim slightly lower?

If no kids - then do you need 4 beds? You could consider a smaller but "higher-end" place.

You both have jobs that are going to take your entire week, including commuting - do you want a huge garden? Or would you prefer somewhere with a smaller (or no) garden, and easy access to countryside or parks?

Ultimately, do you want to be working your nadgers off until you're ready to drop, just to feed a huge mortgage monkey, or would you rather have somewhere more modest, and save/invest more towards an earlier retirement or down-scaling?

A £500k mortgage is two grand a month, even at 1.5%. Do you fancy laying bets on where interest rates will be in a few years? At 3.5%, you're up to £2.5k/mo. At 5%, you're nearly at £3k.

I sense that you'd aim lower. Point noted. Thanks.

On the mortgage interest though, it doesn't just increase unless the economy is doing well, in which case salaries are likely to increase too. The current BoE rate is an example. So if I am to pay 4k/month in 10 years time hypothetically, I'd imagine my income( and for almost everyone, in general) will have roughly followed the same upwards trend. 

More likely now would be interest rate increases to defend the currency, or related to a "currency shock" like the break up of the EU, which is a few steps closer due to the pandemic responses and disagreements IMO, most sensible move for you is just to wait a while, the best cushion against lots of things including interest rate rises is to buy your property as cheaply as possible.

Grumpy_chap

You are in a fortunate position. 

Joint income £150k, so mortgage available £450 - £600k (standard 3 times to 4 times multipliers) plus saved deposit £120k.  Total budget in the range £570k - £720k.  Unlike most first time buyers, that puts you in the position of getting your "forever" house straight off - that might mean something larger than you need in the short term but will save lots in the long term if you avoid a move etc.

You did not say whether the salaries are 2 x £75k or some other split, but it is worth doing an assessment on whether only one of you worked, could you afford it.  Assume one salary £75k x 4 = £300k plus deposit £120k = £420k.

I can't advise on what budget you should set, as there are so many variables, not least your comfort with risk / stress in bad times and your personal plans.  The comments above give a guide to the sort of thinking routes to get you top your answer.

G3ralt

Mutton_Geoff said:

AdrianC said:

A £500k mortgage is two grand a month, even at 1.5%. Do you fancy laying bets on where interest rates will be in a few years? At 3.5%, you're up to £2.5k/mo. At 5%, you're nearly at £3k.

And £6,400 a month if interest rates went to 15% (which they were when I bought a house in my early 30's). I had to take a 5 year 12% fix to avoid some of the pain but then pay £10k ERP when rates fell below 10% in the following year.

I guess I could ask the question in a different way -  as an upper limit what percentage of your monthly income would you be comfortable paying mortgage with?