Buying a house...mortgage confusion...

[punkypossum]

I know we had a similar thread recently, but I'm looking seriously getting out of my rented flat and buying a property and this whole mortgage business is confusing me greatly!

However, I've been playing around with the figures, and looking at the pretty standard mortages of about 4 times my salary with a 25% deposit, I could afford a mortgage now, fixed at 4.something percent. However, after playing around with worst case scenarios, including 15% interest rates which we apparently had in the early nineties, and a more likely scenario of 7.5% percent, which is probably more realistic, there is no way I could afford 15% and in fact I don't think 7.5% would be sustainable over a longer period of time either. This brought me to the rather dissappointing conclusion that I can't afford a house after all, unless I find one that would mean a smaller mortgage or I win the Lidl £50,000 price draw. Neither are likely, but what I can't get my head round is how other people do it! The 4 times your salary mortgage appears to be pretty much the norm, so surely everybody would end up in a situation where they can't afford the repayments anymore once the rates go up - especially at the lower end of the market where people have to count the pennies more anyway and where there is only one income. So how come houses don't constantly get reposessed? I don't get it!!!

 

[accountantpete]

Houses are getting reposessed all the time,others come to an arrangement with the bank.

I'd wait personally as there are at least two economic scenarios which may lead to further falls in the price of houses - namely a double dip to this recession and the impact of increased interest rates when the base lending rates rise as the government seeks to tighten monetary policy.

This is obviouly guesswork on my part - but it does give you some hope!

 

[marinyork]

Houses do get repossessed all the time. To answer your question, it is assumed crudely that conditions at the start of the mortgage will be the worst (it's not necessarily the case).

 

[Shanks]

There really is no simple answer to this. We've had a mortgage for the last 14 years and it has varied in cost considerably throughout that time. I appreciate that it sounds trite but the only answer is that you have to adjust other spending to fit. If you can get a fixed rate deal, that will certainly help for a period but undoubtably the cost will alter over the term of the mortgage. I can recall the days of 15%+ and it was crippling for a lot of people, I can't see it getting there again but 7.5% is certainly foreseable. The only advice I can give is not to go to your absolute max and leave yourself strapped. Try and keep a small buffer and save it somewhere so that you can draw on it if the rates change. I don't want to teach the art of sucking eggs etc. but the golden rule is that if you find you cannot manage to cover the mortage one month go and talk to the company concerned. If you talk first I have have always found them to be very reasonable and willing to find a way of managing it. Cheers

 

[buggi]

i borrowed 4 times and i'm struggling now. my mortgage hasn't gone up but everything else has and i just about scrape by.

they say if you are on your own you should only borrow 3 1/2 times. my own bank were very sensible and told me they wouldn't lend it me and also advised me against borrowing any more than that off anyone else. they were right, but there is no way i could have a property if i didn't.

having said that, i like being a home owner.

i wouldn't go down the part buy part rent route if i were you either. the problem with that is that you buy say 50% and rent 50%. the idea being that when you are a bit more flush you can buy a bit more percentage until you own the whole house. but everytime you want to buy more they come out to revalue the house and go on that price. and also, if you make any improvements to the house, you have to fork out for it and then when you want to buy some more, they re-value the house (and usually because of the improvements its worth more) so you end up paying twice for it. it's a rip off if you ask me. also the bit you pay on rent added to what you pay on a mortgage...well... you may as well just borrow extra mortgage.

so, what i really wished i had done was... stretched myself the extra five grand i could have had and had a two bedroomed property instead of one. because it wouldn't have cost me much more per month to do that and i could have rented the room out for much more than the extra i would be paying on the mortgage.

as it happens my flat is now in negative equity so i can't bloomin move either now to a two bedroomed

so my advice is, if you're gonna buy somewhere, make sure you have a room to rent out and it will ease the pain.

o yes, you could try looking at interest free mortgage, because me and my sister had the same amount but mine was a straight repayment and hers was interest only. her mortgage payment was £450 a month, mine was £750. but remember, it's only really a short term solution, because at the end of the mortgage you still owe the original amount as you have only been paying back the interest (but hey, you might have met your prince charming by then/won the Lidl lottery/re-mortgaged and be in a totally different financial situation). It's brill if you only want to live somewhere for say 5 years and house prices are going up, as you'd probably make more than you would have paid off if you had a repayment... or if you re-mortgage after a couple of years when your wages have gone up... but if you're planning on living in the house for the rest of your life and your wages are going to stay pretty much the same, it doesn't really work because when the mortgage term ends you still owe the price of the house.

so... either get a spare room and a repayment mortgage.... or consider getting an interest only if it's a short term buy or you plan on remortgaging at a later date (which you should do anyway to always get a good deal).

 

[Globalti]

Our mortgage is with Nationwide. You can still phone them up and talk with somebody British and you can still walk into your local branch and chat with a mortgage advisor. Good.

 

[yello]

Why buy? There are distinct advantages to renting, especially when you are young and maybe looking to travel, less settled, etc etc. It's considered very much the thing to do in Britain but less so elsewhere.

People say renting is 'throwing money away' but that's a bit of a simplistic statement. It depends on the individuals circumstances and wants. There's also an element of expectation to it in Britain. Home ownership in Germany, for instance, is (or at least was) very low compared to the UK. Renting is considered very much the norm, even for families.

I didn't buy until I was in my mid 30s, and even then it was only because I knew I was staying put in London for 5 years whilst I did my degree and wanted to reduce my outgoings by getting a tenant in. As I say, look at your own circumstances and don't be persuaded by what others do.

 

[HelenD123]

I'd agree with Buggi. 4x your salary might be too much to manage. I borrowed 3.25 and that felt like plenty at the time. It partly depends on the state of the property you're buying though. If it's in good nick and you are confident that you won't need to spend anything on it you may be able to afford a higher multiple. Definitely look into getting a fixed rate mortgage as well. If you're buying a flat, aren't there maintenance charges to factor in?

 

[Mr Pig]

Don't talk yourself into debt because you think it's normal. Lots of people are up to their neck in it and heading for trouble, don't follow them.

When we went for a mortgage I remember sitting across the deck from this very pleasant man who happily told us about the vast sums of money he would lend us. Far more than I could repay. Thankfully I'm not a f****** idiot but some people seem to think that because the bank will lend them the money it must be ok to take it. I guess they trust the bank's judgment more than they trust their own. News flash, the banks ain't doin that well. Or rather all the people who trusted them too much ain't doin that well. Bankers are only human, allegedly, and greedy humans at that.

Forget everyone else and budget for what you can afford. Don't go to the limit, don't even go close to it. The interest rates might well go up and the cost of living definitely will. Don't live in dreamy dream land, budget for worst case.

Trust me on this. You will be a lot happier in a rented house, or in a smaller house that you can comfortably afford to buy, than you will be in a big house you're worrying about paying for every day.

 

[Crankarm]

Just because you have a mortgage on a property (freehold) doesn't mean in practice you own it. You might be the legal owner of the freehold but the mortgage company who you are up to your eyeballs in debt with has first charge on it. If you default and they obtain a possession order and sell it you will no longer have a home . Any shortfall in the value the property realises on sale against the amount you initially borrowed you will still have to pay. IMHO x3 salary is the comfortable multiple of salary. Save up as much as you can for a deposit as this will mean unsurprisingly that your monthly repayments are lower as you are not borrowing so much. Also it is saying to your lender you are a much lower risk. I want to purchase a house costing £100k. I can put up £25k and can you give me the rest £75k? They are more likely to do this. The down side is that your £25k equity is the lender's safety net as if the value of your property goes down, you default and have to sell or forced sale, any monies you owe them will come from the balance of your equity if less than £25k. Is it better to lose your own money or be in debt to your lender whom if you cannot pay you can just go bankrupt?

When you don't have a mortgage then you really own your house as your are the legal and equitable owner, no one apart from bodies under compulsory purchase can take it away from you. All those who think "I must own my own house" and get into debt up to their eyeballs to do so -they are kidding themselves. It is a financial arrangement where some one lends you the money to buy the property. They are not doing it for free. You will pay thousands upon thousands in interest. The house is not yours until you pay them back. If you have a standard repayment mortgage repayments will decrease over time as the capital is slowly repaid and interest on the diminishing balance decreases. On any mortgage the first few years are the most expensive as you are paying the charges of the mortgage as opposed to capital repayment. Hopefully as the years go by the value of the property and your earnings will increase. However what happens instead as the years go by is you want a bigger house as the family grows so you become even more indebted . You want this and that and before you know it you are suffocating under a mountain of debt for stuff you bought you never even wanted, use or like.

But there is good debt and bad debt. Good debt is not a problem until it becomes bad or you rack up bad debt such as store card or credit card purchases which you cannot afford to repay within an interest free period.

Everyone should live within their means. Unfortunately many didn't, this is why the country is in the current economic mess.

End of ramblings.

I had an uncle who used to say "What do you want to take a loan out for a house for? Save up and buy one".

 

[Mr Pig]

Everyone should live within their means. Unfortunately many didn't, this is why the country is in the current economic mess.

Yip yip yip. Who says we should all be able to live in a big house and drive a BMW? Go on fancy holidays? These things are luxurys, not rights.

 

[Brains]

Marry a rich girl (or at least one with a good job)

 

[punkypossum]

Thanks everyone - that makes it a bit clearer, although not exactly less depressing. The figures I'm looking at are for a repayment, not interest only, mortgage fixed for a few years as the interest rates are hardly likely to go any lower than they are now. And I'm hardly looking for a mansion, just a 2-bed terrace or something like that for around the £80,000 mark, but it's a lot harder than I thought. Just feel that overall now would be a good time to do it, as I'm 35 and pretty settled in my job for the time being, and at least in theory it would then be paid back by the time I'm 60 - don't want to be renting once I hit retirement (if I get to that)...

 

[Piemaster]

Got to agree with Mr.Pig.
Don't overstretch yourself. We never have and it allows us to do some of the extra things that make life more bearable - days out with the kids, eating out occasionally, holidays, bike stuff . I don't ever want to feel I'm just slogging through the day for the benefit of the bank.

I'll assume you've done the sums and know how much difference it will make to how much you have in your pocket. How much difference will any loss make and what you can bear to give up over a long term (and it is 25 years) because of extra outgoings.

At the moment the mortgage isn't the biggest expense, its fuel, council tax, water, utilities, etc.

 

[punkypossum]

At the moment, with the current interest rates and factoring in all the extras like insurance, etc. it would cost me about the same as renting. Problem is even now I haven't got a lot of money to play around with, so once interest rates go up, I'm screwed. Only way I could afford it is if I had a higher deposit, thus making the mortgage smaller to start with, but as that's unlikely to happen, I suppose it's no house for me!