First time house purchase and finances. Am I being sensible?

Dimension_

Hi all,

Been a long term lurker here and recently registered.

I am buying my first home and wanted to get some views on if I am being sensible.

I am 34 years old, work in finance earning 80k plus 10% bonus. My monthly net income is currently £4,300. It could be closer to £4,600 if I opt out of my pension, which I am considering for the first year or two of home ownership.

The semi detached houses I am looking at in London (zone 6) are £650-675k and I am looking to borrow £420k as a single applicant (max I can get based on my broker). So an LTV of c.62%. The monthly mortgage repayment is about £1,300 over a 35 year term.

The cash i put down as a deposit of c.255k will be pretty much my entire life savings.

What do you think - am i too stretched financially and too ambitious? Is it normal to feel this anxious about putting all my savings into a property purchase?

I would appreciate any and all views.

Thanks in advance



A little context and further information
- I want to buy a house that I can settle in with my future unknown partner as I feel if I don’t buy now, I may never be able to buy a family home. Hence buying a property that is arguably a little large for just me.
- Also means I can have a lodger if I do need to generate additional income. Something I would be reluctant to do with a smaller house or flat.
- I am pretty good with all sorts of building work and have friends in the trade to help improve/extend my purchase once I have saved enough money. This helps create a bit of a buffer if the market does fall when I come to remortgage and makes me feel a bit better if the economy does get really bad.
- I don’t think I will sell this house unless my circumstances significantly change
- I don’t live a lavish lifestyle and tend to be quite sensible. I have no debts of any kind.
- outside of the pandemic my monthly travel cost to work is about £300 a month
- I have budgeted for house bills and council tax an additional £350-400 a month on average.
- I would opt for the maximum mortgage term I could get so that I have a cash flow buffer should I lose my job/take a pay cut. I would make overpayments and treat the term like a 20-25 year mortgage.
- Fortunately, my job is pretty secure and don’t expect to be made redundant
- I would aim to save a £10k pot in the first 6 months of purchase to create an emergency fund which makes me feel a little better.

If you have read this far, thank you!

pinkteapot

You need to work out your full monthly budget - list out mortgage plus all the other bills and realistic outgoings (non-essential spending).

You should be fine. You'll have £3,000 per month after paying your mortgage - more than enough for bills, food, commute, etc. It really depends on what kind of lifestyle you live now and whether you currently spend all your income without spending £1300 on mortgage/rent. If so, you'll have to make cutbacks. 

Obviously the biggest risk with a hefty monthly mortgage commitment is how you'll manage if you lose your job. Try to leave yourself a savings buffer after you buy, if you can - an emergency fund that could cover a period of unemployment. You can get insurance to cover loss of income but, to be honest, I've always found it expensive and have never bothered. I'd rather put the money aside instead. 

You'll have a good amount of equity in the house so you're very unlikely to ever be in negative equity, so in the very worst case you could always sell up if life went particularly wrong. 

moneysavinghero

Seems to be very comftably affordable (assuming you don't have a very expensive lifestyle). Keep paying into your pension, no need to drop that. Yes you will be spending most of your life savings, but you will probably have enough income to start replenishing that back up to a reasonable level fairly quickly.

Out of personal interest, where does £300 travel cost per month come from - do you have a chauffeur or something?

Dimension_

pinkteapot said:

You need to work out your full monthly budget - list out mortgage plus all the other bills and realistic outgoings (non-essential spending).

You should be fine. You'll have £3,000 per month after paying your mortgage - more than enough for bills, food, commute, etc. It really depends on what kind of lifestyle you live now and whether you currently spend all your income without spending £1300 on mortgage/rent. If so, you'll have to make cutbacks. 

Obviously the biggest risk with a hefty monthly mortgage commitment is how you'll manage if you lose your job. Try to leave yourself a savings buffer after you buy, if you can - an emergency fund that could cover a period of unemployment. You can get insurance to cover loss of income but, to be honest, I've always found it expensive and have never bothered. I'd rather put the money aside instead. 

You'll have a good amount of equity in the house so you're very unlikely to ever be in negative equity, so in the very worst case you could always sell up if life went particularly wrong. 

Thank you for your views. I guess the emotions i have are pretty normal about ploughing all of my money into a house. Just don't want to be making a terrible mistake by over stretching. 

Added to the decision making mess is the thought of buying something less pricy - maybe 500-550k - and investing my surplus cash. 

FTB_Help

I would not opt out of pension, free money from the company so don't opt out.

1.3k in mortgage payment is very doable for you if you're sure your job is secure.

Buying now for a potential forever home to raise a family may be a little problematic as you never know what'll happen, your partner might not like the area or you both might decide you prefer to raise kids somewhere else etc, so may be have a think about what area you want to buy in, as you're looking to buy a potential forever home would it be better to wait till you meet someone and then make the decisions together?

You could invest your money in another home somewhere in the popular areas in London where you'll have no problems in selling such as Clapham/ Tooting where flats/ houses over there seem to sell like hot cakes (zones 1/2).

Moneywise i think you're doing great, 1.3k in mortgage repayment is relativly low compared to your take home pay.

AdrianC

You are earning nearly four and a half grand per month after tax.
Your mortgage will be less than a third of that.
You will be left with only three grand per month after paying your mortgage.

D'you know what? I can think of a heck of a lot of households who would be delighted to have even a tenth of that as income after housing costs...

Dimension_

moneysavinghero said:

Seems to be very comftably affordable (assuming you don't have a very expensive lifestyle). Keep paying into your pension, no need to drop that. Yes you will be spending most of your life savings, but you will probably have enough income to start replenishing that back up to a reasonable level fairly quickly.

Out of personal interest, where does £300 travel cost per month come from - do you have a chauffeur or something?

I don't have an expensive lifestyle, maybe a holiday twice a year and i hardly eat out or go mad drinking on nights out in town.

i don't think my savings will build up as quickly if i have c.1700-1800 on bills and mortgage each month, which is a little concerning. I thought about stoping the pension contribution as it will help save an emergency fund - but maybe you are both right, i should keep it going. 

haha no chauffeur - i wish! That is mostly my train travel to central London from my parents place in zone 6. The cost is actually less than £300 but my budget forecast includes a bit of a buffer. 

Dimension_

FTB_Help said:

I would not opt out of pension, free money from the company so don't opt out.

1.3k in mortgage payment is very doable for you if you're sure your job is secure.

Buying now for a potential forever home to raise a family may be a little problematic as you never know what'll happen, your partner might not like the area or you both might decide you prefer to raise kids somewhere else etc, so may be have a think about what area you want to buy in, as you're looking to buy a potential forever home would it be better to wait till you meet someone and then make the decisions together?

You could invest your money in another home somewhere in the popular areas in London where you'll have no problems in selling such as Clapham/ Tooting where flats/ houses over there seem to sell like hot cakes (zones 1/2).

Moneywise i think you're doing great, 1.3k in mortgage repayment is relativly low compared to your take home pay.

Very valid point re partner not liking the area etc. However, part of my concern is also the fact that i am not insulated from house price rises as i am not not he ladder right now. So i could buy something more suitable right now and move again later, but maybe i won't be able to buy the same house which is 675k today when i am older due to affordability, restricted mortgage term etc. Maybe they go up to £800k if BoJo's housing price gravy train continues. 

Also, i feel like the the quality of housing stock in the areas i am looking at increases exponentially for an extra £100k. Whilst i appreciate this is not a small amount, it is something that i could afford and makes the prospect of buying a smaller terrace house for 575k less appealing - if that makes sense.

moneysavinghero

Even if your mortgage / bills was £2000 that would still leave you with £1,300 a month spare. After a year would have £15,600 saved up. In 5 years you would have £78,000.

Was not suggesting that you would get back up to £250k savings quickly - not many people are lucky enough to have £250k savings and a house - but that you would be able to save up a reasonable sized buffer fund fairly quickly.

princeofpounds

Your LTV of 62% means your equity position is strong. If you can rein in your budget or increase your equity a little then you can fall under 60% and that gives you access to the best deals on the market. Having said that, don't stress too much about it - difference between 65% and 60% LTV is much lower than, say, the difference between 85% and 80%.

You are looking at borrowing 5x income (assuming 50% of bonus). That is a fairly high multiple - certainly in years gone by it would have been considered pushing right against the ceiling. However, with the low rates today it's perhaps more normalised than it used to be.

Obviously in terms of current affordability it's fine. However, you don't say what type of mortgage you are looking for. Even if you don't plan to take a long term fix, you should stress-test the affordability against longer-term fixed mortgages, which incorporate the market's best guess at future interest rates over the period of the fix. From a quick browse It looks like that would be ~2.3% and ~£1770pcm, tighter but still quite affordable I think.

Don't spend too much time worrying about a theoretical future partner. You have no idea where they want to live, how they want to live etc. Your anxiety about not being able to afford a family home at a later date is probably far higher than it should be, though I do understand where it comes from after a 30yr low-rate-fuelled property boom (with the odd brief interruption). Also, don't cut yourself off from other people your own age - you have to actually meet them before they agree to settle down with you!

Nothing wrong with buying something slightly bigger than you need, especially if you plan to take lodgers (and in your situation I would - young, no dependents). No need to go nuts though. 

moneysavinghero said:

Out of personal interest, where does £300 travel cost per month come from - do you have a chauffeur or something?

Am guessing you don't do a London commute? Zone 1-6 annual travelcard is £2640. Add in some ubers late night or to places TFL don't reach, you can get to £300 quite quickly. It's not so bad if you're in the TFL zones, but if you are on one of the commuter rail routes it can get super-expensive.

Crashy_Time

How safe is your job?