Advice for a first time buyer - London - help please!!!

AKM96

Hello,

Myself and my boyfriend (both aged 26) have recently started to seriously save for our first home. Ideally we would like to buy a flat in London as that is where we both work. I would like a two bed flat, with some kind of outdoor space (balcony or garden) so I imagine we would be looking at a price of £400 - 450 000 ish for a flat with these specs at the lowest end of the spectrum. My friend just brought one bed new build for £350 000 so I know this price is do-able. Preferably we would like a new build but can be flexible - as I am sick of living in mouldy old victorian homes that landlords don't look after!

I earn £54 000 / year and he earns £34 000 ish / year, so combined £88 000 ish. We have very stable jobs in the public sector.

I have done some costings on what I alone am managing to save:

By age…	and the end of…	I will have saved…
27	2023	£                  19,687.40
28	2024	£                  31,758.66
29	2025	£                  44,226.46
30	2026	£                  57,103.90
31	2027	£                  70,404.54
32	2028	£                  84,142.36
33	2029	£                  98,331.83
34	2030	£               112,987.88
35	2031	£               128,125.95

I imagine my boyfriend will also be able to contribute £10 000 which the costings above do not include, but as he is a teacher he is less able to commit to putting regular amounts away like I am so I was planning ahead based on my savings alone to make it more realistic (i.e. even if he cant save anything we will still have X amount by 20XX).

So I just wanted to ask really to see when you think the earliest might be that we could buy? Or whether it would be more sensible to wait until we had a bit more for the deposit to reduce the monthly repayments as much as possible.

Do you think this is a realistic dream? Of course we could move out of London and commute, but all our friends are here and we wouldn't get London weighting on our salaries anymore so we would like to stay in the City at least until our late 30s.

At the moment we pay like £800/each every month for rent so I am keen to buy as early as possible because this just feels like we are burning money at the moment and shows we are already more than capable of affording mortgage repayments around a similar amount.

Also there seem to be some schemes for first time buyers in London, but I do not have a great knowledge of what is out there, so it would be super duper helpful if anyone knows of anything out there that makes this all a bit more affordable?

Thank you!

herebeme

Have you looked online for what 400k gets you in London in terms of 2 beds and “outdoor” space? Do you want to live in any of those homes or locations?  In my borough 400k will get you 2 beds and a balcony of sorts towards the top of a council tower block, but for new builds that will only get you a small studio or maybe 1 bed with help to buy or shared ownership. 

You seem to have 40k deposit, correct? And what loans/credit cards/pension outgoings do you have to subtract from your income? - that’s what mortgage providers will be looking at. 

Have you used any of the banks affordability calculators to get a more accurate idea of if a 400k mortgage is doable for your actual circumstances? I would fill one out as if you are looking for buy now https://resources.barclays.co.uk/mortgage-calculators/residential-affordability-customer/

AKM96

herebeme said:

Have you looked online for what 400k gets you in London in terms of 2 beds and “outdoor” space? Do you want to live in any of those homes or locations?  In my borough 400k will get you 2 beds and a balcony of sorts towards the top of a council tower block, but for new builds that will only get you a small studio or maybe 1 bed with help to buy or shared ownership. 

You seem to have 40k deposit, correct? And what loans/credit cards/pension outgoings do you have to subtract from your income? - that’s what mortgage providers will be looking at. 

Have you used any of the banks affordability calculators to get a more accurate idea of if a 400k mortgage is doable for your actual circumstances? I would fill one out as if you are looking for buy now https://resources.barclays.co.uk/mortgage-calculators/residential-affordability-customer/

We dont have any major loans or credit card expenses... Just a student loan which is like £400 / month for both of us and pension is probably also about £500 / month for both of us.

I've done some mortgage calculators and we seem to be able to borrow like £400 000.

Have to be flexible where we live its hard to pin it down at this stage as the prices of housing vary so wildly even within boroughs.

But that is the point that if we needed more money we would need to save longer, we aren't looking to buy right now. I've had a look around and its hard to work out exactly what you can get for your money but it' more about what would be a sensible deposit for what we want and if there are any schemes that an help us.

macman

Have you both taken out a Lifetime ISA? If not, do it now before the tax year ends. £4k each a year invested will give you a £1K bonus, 25%, tax free. Nothing else comes close.
The risk with delaying a purchase is that no-one knows what prices or mortgage rates might be in a year, let alone 5 or 10 years.

AKM96

macman said:

Have you both taken out a Lifetime ISA? If not, do it now before the tax
year ends. £4k each a year invested will give you a £1K bonus, 25%, tax free. Nothing else comes close.
The risk with delaying a purchase is that no-one knows what prices or mortgage rates might be in a year, let alone 5 or 10 years.

yes we both have!

mi-key

Remember as well that you will probably need more than you are budgeting for ! What is £400K now will likely be £450K - £500K at least looking at your timescale if you are waiting 7 or 8 years before you buy. Plus your rent will probably increase during that time... 

lika_86

macman said:

Have you both taken out a Lifetime ISA? If not, do it now before the tax year ends. £4k each a year invested will give you a £1K bonus, 25%, tax free. Nothing else comes close.
The risk with delaying a purchase is that no-one knows what prices or mortgage rates might be in a year, let alone 5 or 10 years.

This isn't always good advice for FTB in London given the price of properties and the price cap on a LISA. The risk is that you end up having to pay the penalty to withdraw.

herebeme

You need to allow for all solicitor, survey,  search fees and moving costs too. And probably twice over in case they throw up something that causes you to pull out and start over so several thousand. Often cheaper places will need at least some redecoration too. 

Basic mortgage calculators will often over estimate what you can borrow. Hence suggesting a more detail led affordability calculator (which is perhaps a little closer to what will happen during the mortgage application process). 

Other that that your question is so broad, and individual tastes and compromises so important, and given the variety of London property that it’s hard to give advice. 

Often there’s no advantage to waiting if you can find somewhere you like, because as you say you are spending on rent what you could invest in your own place. 

Zetlandroad

It's important to recognise that buying isn't a guaranteed win and renting a guaranteed money burn, especially in a market with declining flat prices (London). 

When buying you want to ensure you'll stay for a while, given the costs of moving (agency fees, stamp duty, mortgage set-up, moving, legal fees and refurbishment for unexpected problems). This is especially important now as it's not guaranteed that flat prices will increase into the short and medium term. You also need to think well beyond the purchase price and servicing the mortgage - you'll have a service charge, ground rent and maintenance to cover. Unexpected but expensive problems may arise that you'll have to pay to fix or live with. Right now with renting, you're indemnified from rate rises, service charges and maintenance, at least to the extent these aren't passed on. 

Right now your savings are too low and it'll be a few years before you're in a position to buy for £400k (allowing for a 10% deposit and funds for legal fees, stamp duty, moving costs, furniture, essential repairs and a small emergency fund). If you're set on buying earlier in London, you could look at the outer zones with commuter links, or further out still. You may find prices softening but note that servicing a large mortgage (4.5x multiplier) will be challenging at current rates. Rates may soften in the medium term, but probably not to the lows we've had. You want to consider affordability in light of that, ongoing maintenance commuting, potential family costs, energy, pension, etc.

It may also be worth looking into shared ownership. The properties are new, requiring limited maintenance (for now) and more affordable. The concession is that these aren't good financial investments, unless fully staircased, but they will give you security of tenure in a modern property in an affordable package. If you're happy to commit to the property for 5-10 years, you won't be worse off than renting and will have enjoyed security of tenure in good conditions. You may even profit but this is less likely. The primary benefit is security of tenure with a professional landlord.

Note that if you buy with a small deposit (say 5%) and prices decline slightly over the fixed term of the first mortgage, you may not be able to remortgage when the deal expires or even be in negative equity for a short period, especially if you overpay.

NameUnavailable

Pretty sure London weighting is paid based on where your work is not where you live?

There are less expensive areas in London which are very commutable - Croydon for example.

I would get 'on the ladder' soon as you can, buy the 'right' property even if it's not in your preferred area or if it's a 1 bed flat to start with, if it's a good purchase and opportunity.

kiss_me_now9

NameUnavailable said:

Pretty sure London weighting is paid based on where your work is not where you live?

There are less expensive areas in London which are very commutable - Croydon for example.

I would get 'on the ladder' soon as you can, buy the 'right' property even if it's not in your preferred area or if it's a 1 bed flat to start with, if it's a good purchase and opportunity.

It is indeed based on the workplace location not the employees home address.