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

FTB_Help

Dimension_ said:

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.

Just out of interest are you looking to buy around the West of London (Uxbridge area)? 
575k-600k can still buy you a decent 2/3 bed terrace in most parts of London.
Even if you do go for the max range of 675k, 1.3k in mortgage a month is actually really decent for someone on your salary so don't worry about "over stretching" yourself as you'll still have approx 2.5k left AFTER mortgage and bills, which is the equivalent of a take home pay for someone earning around 40k a year so you are not over stretching yourself at all.

At the moment you sound ready to settle down and find your forever home right now, but finding a property you want to live in for the rest of you life is going to take time, maybe take the pressure of finding a forever family home and look for a really nice home that you will enjoy, once you get this out of your head, then you'll feel less stressed that you might be making the wrong decision and won't feel like your over stretching your self.
Have you had a look online on properties between 550k-675k? Other than extra bedroom and larger floor space, what is pushing you to go for the 675k mark? Is it the interior design/ fancy furniture? Do you really need 4/5 bedrooms, will 3/4 be enough? The 675k house might have a large kitchen but does the 550k house have potential to extend into the garden etc, etc

Crashy_Time

Dimension_ said:

@crashy - possibly, but there will also be plenty of people in my industry that will not be made redundant. We don't know, no one does. Organising lodgers and tenants if i faced financial hardship would be worth the "hassle" as you say. I think i am pretty decided on wanting to buy as soon as i find a home that suits. It is more a question of, am i being finically foolish and stretching myself. 

Based on the really useful POVs shared here, i think the way i feel about putting all my cash into a house is completely normal and i should probably continue as planned. 

As a thirty something year old, I'm not sure i want to wait for dip in house prices - they may never fall by a significant amount. And if they did after i buy, i'm hoping i would be okay to weather the storm, particularly if i had a house that i could grow into and i purchased something i was really happy with. 

How do you know? These boards are full of tenant/lodger horror stories. My point is that you don`t need to face financial hardship. London is going into another lockdown as we type, I really don`t get why anyone would be in a hurry to buy into the London property bubble at the moment.

Crashy_Time

Dimension_ said:

@crashy - possibly, but there will also be plenty of people in my industry that will not be made redundant. We don't know, no one does. Organising lodgers and tenants if i faced financial hardship would be worth the "hassle" as you say. I think i am pretty decided on wanting to buy as soon as i find a home that suits. It is more a question of, am i being finically foolish and stretching myself. 

Based on the really useful POVs shared here, i think the way i feel about putting all my cash into a house is completely normal and i should probably continue as planned. 

As a thirty something year old, I'm not sure i want to wait for dip in house prices - they may never fall by a significant amount. And if they did after i buy, i'm hoping i would be okay to weather the storm, particularly if i had a house that i could grow into and i purchased something i was really happy with. 

How much time have you spent living away from home?

lika_86

Have you budgeted for Stamp Duty and fees? You're highlight unlikely to get in before the SDLT holiday ends now. I'd wait until you have an emergency fund in place before you buy, which you should be able to build quickly at home (obviously there will be the time in the conveyancing process but it's good to have a good buffer). In addition you'll likely want around £10k minimum for doing the place up. You're in a privilege position, many people end up paying rent of £1400 in London (i.e. me). 

dimbo61

Please don't stop paying into your pension.
You get tax relief at source and pay less National insurance.
Your employer pays in more than you do so will be very happy if you stop paying into the company pension scheme.
It also offers cheap life assurance.
You can afford a nice property in many parts of London with that deposit and income.
Good luck

Crashy_Time

Dimension_ said:

@crashy - possibly, but there will also be plenty of people in my industry that will not be made redundant. We don't know, no one does. Organising lodgers and tenants if i faced financial hardship would be worth the "hassle" as you say. I think i am pretty decided on wanting to buy as soon as i find a home that suits. It is more a question of, am i being finically foolish and stretching myself. 

Based on the really useful POVs shared here, i think the way i feel about putting all my cash into a house is completely normal and i should probably continue as planned. 

As a thirty something year old, I'm not sure i want to wait for dip in house prices - they may never fall by a significant amount. And if they did after i buy, i'm hoping i would be okay to weather the storm, particularly if i had a house that i could grow into and i purchased something i was really happy with. 

It doesn`t add up for me that you are in your mid 30`s, work in finance, and have over a very short space of time, seemingly been convinced by a handful of posts from strangers on the internet, who lets be honest mostly have a strong VI in property,  that "putting all your cash into a house is completely normal"? At the present time especially I would say that could be verging on a possibly abnormal strategy....

Slithery

Crashy_Time said:

Dimension_ said:

@crashy - possibly, but there will also be plenty of people in my industry that will not be made redundant. We don't know, no one does. Organising lodgers and tenants if i faced financial hardship would be worth the "hassle" as you say. I think i am pretty decided on wanting to buy as soon as i find a home that suits. It is more a question of, am i being finically foolish and stretching myself. 

Based on the really useful POVs shared here, i think the way i feel about putting all my cash into a house is completely normal and i should probably continue as planned. 

As a thirty something year old, I'm not sure i want to wait for dip in house prices - they may never fall by a significant amount. And if they did after i buy, i'm hoping i would be okay to weather the storm, particularly if i had a house that i could grow into and i purchased something i was really happy with. 

It doesn`t add up for me that you are in your mid 30`s, work in finance, and have over a very short space of time, seemingly been convinced by a handful of posts from strangers on the internet, who lets be honest mostly have a strong VI in property,  that "putting all your cash into a house is completely normal"? At the present time especially I would say that could be verging on a possibly abnormal strategy....

Yet the rest of us would say that it's a good idea.

How's the house-hunting going Crashy? Has the 300% crash that you need to break even happened yet?

steampowered

You are not remotely overstretching yourself. At incomes of £80k plus, a mortgage of 5x your salary is EASILY affordable.

Especially given that you are taking a low LTV mortgage (which means a low interest rate). Especially as a single person without children. 

Whatever you do, don't opt out of your pension. You would be foregoing matched employer contributions. As a higher rate tax payer, you would also be foregoing higher rate tax relief.

To put numbers on it - £300 in your bank account is likely worth £720 in your pension. £300 from you; £120 in tax relief; £300 from your employer. Trading £720 to save £300 would be an unbelievably stupid thing to do. 

pinkteapot

I think you started this thread conflating two issues: 
1. Fear you're "over-stretching" yourself - which is about your monthly budget. It's pretty clear your budget is comfortable so there's little reason to worry here. 
2. Fear you'll lose your life savings by putting them into property. 

The two are somewhat connected. If you lose your job or become seriously unwell you could be forced to sell up (because you then become over-stretched), and if the market happens to have crashed then you could lose a chunk of your savings. There's a lot of ifs there and only you can gauge the risk of job issues (no-one knows what the future holds health-wise). Very few people can guess at what the housing market can do. But if you have savings you may be able to ride out any life crisis if the housing market has dropped, and wait for it to rise again.

Another option is to put less of your savings down on a property, buying something smaller/less nice/in a worse area, and put the other chunk of your savings into other investments. Depending on what sort of job you do in finance you might have good knowledge to invest it across a range of investment types. This would have the benefit of diversifying your assets, rather than putting them all in property, but at the cost of living in a house you like a bit less. 

Or, you could plough it all into housing now and build up other investments going forward with your spare income (as it looks like you can put a good amount away each month). We used to overpay our mortgage but we've stopped and put money into stocks and shares ISAs instead. There's risk of course, but so far they've been returning a much higher rate than we're paying on our mortgage (we did suffer the big drop in value when Covid started, but money drip-fed in since March has done well as markets have recovered). We may at some point take a chunk out of there and use it to reduce the mortgage.

Which strategy is "right" financially depends on the unknowables of which investments (property, shares, anything else) perform best going forward. No-one knows. It's just going to be a personal decision based on your attitude to risk I'm afraid.

Personally, I think you're fine with the house. As you say, you have the option to get a lodger in in future to give you further income. You may end up in a long-term relationship, and going from one to two incomes makes a big difference to the household budget, even if your partner is in a low-paying job. 

Dimension_

princeofpounds said:

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.

I will try and remember what I wrote as my response yesterday got removed due being flagged as spam/bot.

I do feel like 5x income in a mortgage is crazy, particularly as my parents had comparatively much smaller mortgage when compared to income and house prices. I think this is a bit of a psychological weight as my parents buying our family home is the only real exposure i have had to the property market - and that was in the 90s! I know this was a completely different market 

Re partner and my anxiety - your comment pretty much sums up how i feel and is part of the driver for buying a larger property. Thanks for the reassurance, this makes me feel a bit better in that i'm not being unreasonable in wanting to buy a larger property