Buying a house...mortgage confusion...

[Night Train]

When I bought my house 13 years ago the general rule was minimum 10% deposit and 3x single income or 2.5x joint income.
As my then wife was the main earner in the household when we split up I had to take over the mortgage from her or risk being homeless. Effectively I needed to take out my own mortgage to pay off the joint mortgage.
This meant that my lender was lending me 8x my income on the promise that I would pay off the bulk of it with a windfall within a year or two. They must have been mad but at the time I guess financial institutions were happy to lend anything as the economy was good.

Fortunately I was able to get my windfall and pay off the mortgage so now I am on a mortgage of around 2x my income.
However, given my income is so small and my house so big, the mortgage payments are quite difficult sometimes especially when I am not teaching. This is primarily due to the large cost of C.Tax, utility bills and running repairs.
For example, I have been repairing a roof leak by reroofing a section of the roof. I decided to do it myself not because of the £400 quote from the roofer but because of the £6000 quote from the scaffolder! I am absailing off the roof with a scaffold tower at the gable end and a net between the tower and the chimney to slow me down should I slip off.

Everything just cost lots of money to do and when you own the house no one else is going to pay for it to be done, sometimes least of all the insurance company who will find any get out clause they can.
Sometimes owning a house means investments in things like decent ladders (6 now), scaffold towers (3 now), cement mixer (only 1), trailer to go to the tip to save on renting skips. It can also mean learning how to repair electrics, plumbing, carpentry, plastering, roofing depending on the depth of your pocket and the condition of the house you can afford to buy.

 

[buggi]

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?

yes, be careful of extra charges when buying a flat, like service charge. but you can get a discount on council tax if you live on your own.

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)...

with house prices low and mortgage rates low it is actually quite a good time to borrow and get a fixed rate. but don't let the fixed rate fool you into borrowing more punky. it's very low, like about 1% or something at the moment isn't it?, but that only means that at the end of your fixed term you could be looking to remortgage for at about 4.5%.

this is how to look at it and this is where a lot of people get confused. If you have a mortgage at 2% and you pay say £400 a month, and then mortgage rate goes up by 2% so you are now paying 4%, it doesn't sound very much does it? you kind of think well that's £4 to every £100 instead of £2 to every £100???? not much increase?? BUT it doesn't work out like that unfortunately.

a 2% increase to 4% = double the amount you are paying. 4% is double the amount of 2%. so instead of paying £400 on your mortgage you will then be paying £800. even if it only went up to 3% you would still be paying £600. now that sounds a lot more right????!!! so imagine if the rates go up to 10% or even 15% which has been known to happen (and a massive amount of properties got repossessed!).

obviously, if they went up that high we'd all be fooked, so you can't worry yourself about that, but you should be prepared for a small shift in percentages, so it's very important that you protect yourself by not being silly and borrowing more than 4 times your wage. 4 times should be the max but keep to 3.5 times if you can, and get some proper advice. don't let someone talk you into more than you can realistically afford and you should be fine.

as you said, it is a good time to get on the property ladder and maybe a two bed would be good so you have a room to rent out if things get tight.

unfortunately for me, at the time i was looking the house prices were going up at more than £1,000 a month, so i was fighting a losing battle where saving for a deposit was concerned, so i borrowed quite high (not as high as i was offered tho!) and i do only scrape by now. i find it quite hard and i'm considering renting my flat out and going home to my mum's for a couple of years to try and get a bit of money behind me. Really wish i had waited because my flat is now £20k negative equity and i'm gutted to think i could have bought it for £20k less.

 

[marinyork]

I think it's worth point out for clarity, as I'm sure Buggi knows but missed it out, what was written in the above post is Interest Only, or refers to the interest component rather than what you'd be paying back.

In the case of the sorts of amounts talked about earlier with punkypossum, a mortgage going from 2 to 4% would mean more like a 15-25% increase in monthly payments, which people could still every bit as much find unaffordable e.g. sort of amounts of money for a Band B/C property's council tax for an entire year.

 

[punkypossum]

The fixed rate ones run between 4.1 and 4.5% at the moment anyway, despite the base rate being considerably lower...which I can afford at the moment. However, if it goes up to something like 7.5 I'm screwed...

 

[marinyork]

If that extra £100-150 a month is going to mess you up then fair enough. It really depends on when it reaches that and whether your salary has gone up quite abit by then.

 

[punkypossum]

If I stay in my current job, which I'm likely to do for a bit, then my salary will only go up by about 1.5%-2% a year, which doesn't even cover cost of living increases...I'm already at the top level that I can get in that department, so chances off sudden richness are slim...

 

[HelenD123]

If I stay in my current job, which I'm likely to do for a bit, then my salary will only go up by about 1.5%-2% a year, which doesn't even cover cost of living increases...I'm already at the top level that I can get in that department, so chances off sudden richness are slim...

You'll be lucky to get that level of increase this year. We've been offered 0.5%.

 

[dellzeqq]

There's a vast amount of good advice in this thread. I'd add....

- don't go shared ownership. If you even consider it, pm Patrick Stevens and ask him why not.

- if you buy a flat look at the service charge and imagine it doubling (I own a small flat, and the service charge which was £250 six years ago is now £900)

- whatever you buy make sure you can sell it. That means buying a commodity house or flat, with no unusual or interesting features, that is either in good decorative order, or capable of being put in good decorative order, with a nice kitchen less than five years old (or make allowances for a kitchen) and a bathroom less than five years old (or budget for a new bathroom). The garden should be sort-able. Budget for floor coverings unless the existing ones are less than two years old. Budget for a complete paint job. If the windows are rotten budget for hardwood windows with double glazing and get a quote from a local tradesman. Don't buy in a scruffy street near to houses with rubbish windows and crap front doors. The point is - if you are up against it you want to be able to offload in a big hurry.

 

[Over The Hill]

The fixed rate ones run between 4.1 and 4.5% at the moment anyway, despite the base rate being considerably lower...which I can afford at the moment. However, if it goes up to something like 7.5 I'm screwed...

About two years ago base rate sat at 4.5% and you could get mortgages at 5% fixed or variable (some had good 0.5 above base rate variable and are laughing now).
After all the banking problems they and now offering mortgages at 4-5% which you will note is really a lot more over variable but not really any less or more than before.


So - dont go for a deal that locks you in to x% over base now as when base hits 5% you will be stuffed.
Dont worry about rates running up to 7.5% they really will not. They only run high when inflation runs high and it is not going anywhere in the future.

Safety nets.
1. You will be paying about half the monthly amount to repayment and half to interest. If it hits the fan you can drop to interest only and tread water for a while. After all that does not but you any further back than paying rent.
2. If the market gets so strong to take a 7.5% interest rate, you will have a strong market and high prices to sell the house if you have to.

Also note
Your landlord is using you to pay his mortgage for him. If his costs go up he will just put up your rent to cover it! He will not rent to you and be out of pocket. So you are no less open to rate rises in a rented house.

If you get a flat, just watch out for the running costs.
An older block with minimal management costs would be about £500 per year but newer bigger blocks with a lift can cost £2,000 in maintenance.
Maisonettes or just older split houses can cost almost nothing but then you do get stuck with a bit more decorating and upkeep of the outside.

I would 100% go for it as long as you were settled with a secure job and not planning to go off somewhere else.

 

[buggi]

punky don't let a lot of the advice on here put you off. we are only disclosing the pitfalls, so you don't fall in. there are also a lot of pro's to owning your own property too... like bringing back a shag and not having to worry if your parents will hear LOL

all we are saying is get some proper advice from more than one source, don't over commit yourself and be sensible ... and you will be fine.

 

[punkypossum]

I think more research is required, but it's really good to read through the different points made on here. Have looked at a couple of properties just for the experience, and it looks like I won't get anything for my budget in my prefered area, however, the second choice area seems considerably more feasible, although quite a lot of redecorating would be needed even then. As long as it's structurally sound and the heating system not on the verge of blowing up, I suppose I could handle that and as long as it's liveable I could take my time over it... And yes, I suppose a lodger would always be an option if I got desperate, although I would rather avoid that!

And no, there is no way I would go shared ownership - I work for a housing association and know the pitfalls of it only too well! Won't be looking at flats either, the reason I want to move is partly the disadvantages of living in a flat, so a 2 bed terrace still seems like the best option. Will have to chew the finances over again and see what I end up with....

I think I'm more scared of taking the jump than the average person, as I currently live in a housing association property, meaning my rent is pretty stable and unlikely to shoot up ridiculously all of a sudden...

 

[Mr Pig]

I live in a housing association property, my rent is pretty stable and unlikely to shoot up ridiculously all of a sudden...

That's not a bad situation to be in, lots of people would envy you. Have to thought about trying to move to a better house within the association?

Years ago most people lived in rented houses, it was normal and everyone was perfectly happy with it. Thatcher changed that but it's good to think long and hard about why you want to own a house.

At the moment, should your heating pack in or your roof need replacing, no worries, some bods come around and sort it at no cost to you. Own a house and you're looking at a a bill for probably several thousand pounds. If you buy a place that needs work, like I did, you'll never have money to spare as the house will eat it all.

And this idea that you'll own a house that'll be with zillions one day, or two-pounds-fifty depending on how things go, so what? You can't get that money because you need the house to live in! Just about the only reason you'd sell it, without having to buy another one, is when you're ninety and moving into a care home!! When all your hard-earned wealth will go to pay for your liquidized potato.

So what if you never own a house? Don't believe Thatchers big lie that accumulating wealth and possessions is the route to happiness. It isn't and never will be. Financial slavery is the route to misery. Freedom and stability will serve you much better.

I like the bit on the film 'Happy Go Lucky' where Poppy's flat mate goes to visit her sister. "You really need to get on the property ladder" her sister bleats and her answer is "Piss off, I don't want the hassle". Wise words ;0)

 

[punkypossum]

That's not a bad situation to be in, lots of people would envy you. Have to thought about trying to move to a better house within the association?

They won't move me, as a single person I'm lucky to have a 2-bed flat in the first place. However, I'm desperate to get away from the grumpy old man downstairs and the rest of the neighbours are getting a bit too "interesting" for my liking as well. The noise insulation here is non-existent and I don't think how much longer I can live having to permanently tiptoe everywhere in order not to set him downstairs off. Also, I'd love a bit of private outside space, even if it's only a tiny back yard...

I do get all your points about repairs being done without having to worry about the cost, etc. but overall, I'd still really like to get on the property ladder, the mortgage (at the current rate) would likely to be lower than my rent, which would hopefully pay for the extra insurance needed etc, and I really fancy the idea of having it paid off when I'm 60 and hopefully still alive and in reasonably good health, and then being in a better situation where I only have to pay for bills and upkeep.

However, the only way that's going to happen by the looks of things without running a risk of overstretching myself, is looking at ways to get a bigger deposit, so a lot more research is required. In the meantime, I'll carry on looking at places to see what I can get for my money and learning as much as possible about the ins and outs of housebuying...

 

[Mr Pig]

Neighbours are always an issue but never stay the same. The old guy down stairs will be dead soon so that'll change. My mother lives in a terrace of four houses, all privately owned. Used to be a very well kept block, now the two houses either side of her are rented out and the gardens are tips!

What about getting an exchange with someone else? It might seem unlikely but it costs nothing to try. The father of a guy I work beside got a swap out of a high-rise block into semi! The guy who wanted the flat worked away a lot and wanted a place that was more secure.

Buying a house that needs work is one way to save big money. You just need to really do your homework but you could get a house for a fraction of the price and work away at it at your own pace as funds allow. That's what we did. I'm happy to chat to you about that option if you like? Just drop me a PM and I'll give you my phone number.

 

[buggi]

don't forget...

location location location. better to have a house in a decent area that needs doing up, rather than a house in a chavvy area that doesn't need doing up.