Andrew Dixon

Thinking of taking out a mortgage of £95,000 on a £100,000 property in South Manchester as it's about time I bought my first house! To do this I'd need to borrow £5000 from my folks (to be repaid over 5 years) for the deposit, and in addition run up debts of about £2500 to cover costs, stamp duty, etc. This is before having to buy fridge, washing machine, beds, etc.)

I earn just over £26.5k PA .. but with no prospect of any pay increase (not even inflationary) for at least the next 2 years.

I don't have any other big outgoings as my car is paid for and I have no kids, pets, expensive drug habits etc. to support.

However, the thought of getting myself into all this debt absolutely terrifies me! Is this just a natural thing, or do you reckon I might be getting myself in too deep? Anyone got any other advice or suggestions?

The only other thing I am considering is renting for the next 6 months and trying to scrape together a couple of grand while I see what the housing market does. However chances are it'll keep on growing while I get left even further behind!

Many thanks in advance ...

davegtt

Buy if u can afford to, that is the best advice I could give any1. I have got an 82k morgage on a house that I bought last november for 87k. I have looked into it and now the house is worth 135k so u can see how the market is still going up. nearly 50 in a year for my gaff

I can only just afford to pay my morgage every month with every other bill, cant afford to go out on the pi55 but I do have other debts for the short term to pay back and then I'll be sound, this is on 21k and the misses 7k. if u have no other debts then u should be OK to manage a morgage that high with a low interest rate

Andy Tang

iTrader: (3)

Don't look at how much you owe, but rather can you *actually* afford the monthy repayments!!!

You have to be honest and look at:

Mortgage repayments
Parent repayments
Credit card/other loan repayments
Electricity, gas, water, council tax, etc.
Food (include money spent on lunch, easily forgotten)
Beer & kebab money
Clothes, toys, DVD's, etc, etc
Mobile phone/Internet charges/Phone line/Digital TV
Pensions
Contents & Building insurance
Money spent on women/men!
Car associated costs (petrol, servicing, insurance, tax, MOT, etc, etc)
Money spent on hobbies, etc.

You get the idea!!!

Tot all those up and see how much you realistically have left at the end of the month!!!

There are places to reduce cost (you'll be surprised how much you can save with packed lunches, etc)

289

Do it.

You're getting yourself into debt on an appreciating asset, so it's not like financing a Scoob!

Only word of advice - borrow more from your folks if you can, and repay them as and when you can - it'll reduce the indmnity premium you have to pay.

Then after a year or so remortgage and pay them off.

HumptyDumpty

a mortage is debt but it's different to debt racked up on sh1te.

yes you will owe money but have an appreciating asset to set against it

you'll also have a private place to bone ya missus and that's got to be worth getting into debt for

Andy Tang

iTrader: (3)

Forgot to save, you can save money on any existing debt, by getting a Barclaycard. 0% interest as long as you spend £50 per month, which you will probably do on food, petrol, etc!

330uk

You cant beat property mate. As a long term investment you cant loose out. Market may go up and down but as long as you keep up your payments in 10-15 years you'll be laughing. You might be in trouble if you looking to make a quick profit but then again you might not.
But as a long term investment you are guranteed to do well.

You need to stay away from hype in press and false valuations. Just think long term and you will be a happy monkey. South Manchester is a very sound investment and at 100K it sounds like a bread and butter house. Bread and butter houses are always easy to sell and in demand.

Where abouts in South Manchester ?

lightning101

"By all means believe the lurid predictions of a price crash of 20% or more...just not yet."

http://www.thisismoney.com/sections/...c=2&sections=3

Have a good read of this - I would say middle of next year 20% drop.

By the way I have made a small fortune buying and selling property and am now renting, waiting for the price crash and all the people who are living off toast and beans to have a nice new house will be selling just to clear the mortgage, never mind the negative equity from overpaying in the first place. Should bag me a lovely deal when they hand their keys back.

JimmyRB5PRO

Andrew,
do it , it gets you on the property ladder and you would be very very unlucky should you have to sell it without a profit, if it got really bad, u rent it out and cover your mortgage.

renting is dead money, 6 months ( which will fly ) more like 12 months @ say a small amount of £400-£500 a month is £ 2400-3000/ £4800-£6000 down the drain......

another option is look at getting a lodger for the first 12 months or so to help you will pay for some of the other costs - beds, sofa's tv etc....

Life's to short , get on the property ladder, at the end of 6 months renting it will cost you minimum £2500 more , ie what u just paid to rent...what part of manchester is it ?

289

lightning

I've been hearing people say that for years. In fact a friend of mine put off buying about three years ago because "an expert" told him that prioces were going to fall. He could have afforded a four bedroom house then, now he can only afford a two bedroom, depite the fact that his annual earnings have gone up £40k in that time

There might well be a slowdown - I hear that the annual house price inflation is now ONLY 14% pa - but the idea that there'll be a crash is laughable. All that will happen is that houses in some areas will fall, others will stagnate. There certainly won't be a massive fall in the value of housing stock, as much because interest rates are low and will stay low as for any other reason.

lightning101

I am not trying to put him off buying, as I said a fortune to be made.

Make sure you can afford the payments at different levels e.g. use a mortgage calculator, provided free on the BBC home website.

£100,000 mortgage with 5% down is £95000 outstanding, at 5% on a repayment mortage this is £555.36 a month, plus council tax, plus running a car, shopping, insurances, bills etc, plus your family loan.

All fine.

£100,000 mortgage with 5% down is £95000 outstanding, at 12% on a repayment mortage this is £1000.56 a month, plus council tax, plus running a car, shopping, insurances, bills etc, plus your family loan.

messiah

My opinion is not to even think of buying a house at the moment - I was planning on moving next year but as the market is rediculous if youre wanting to move I'm not going to bother.

Anyone buying a house at the moment will soon have a big steaming pile of negative equity...

330uk

Property is a 100% guranteed profit maker if you buy for long term.
Just dont remortgage your house keep up your payments for 10-15 years and I will eat my hat if you loose out.

People who are looking for quick profits are the only ones taking a real risk. Buying a bread and butter house as a long term investment with your first mortgage is NO risk.

davegtt

mucho agree, it depends on the area if house markets prices will fall, I live in grantham where prices are ridiculasly cheap which is great but we have seen house prices rise more than any other part of the country, I bougt my first house 2 years ago for 50k. sold it a year later for 73k now going again for 93k and still rising, bought my second house for 87k last nov and its worth 135k now still rising, my mate wants to buy but keeps saying financial advisors say the house market wll crash so wait, so far hes waited and they are just rising, we persoanlly are juts catching up with the market so even if there is a house crash Grantham will just hold as it is it wont go up. now they can barely afford a "nice/decent" house.

as stated above the houses wont come down in price esspecially with low interest rates which will stay low to come inline with Europe. Am I right in saying we cant join the EU unless our Interest rates are a certain low level???

I have heard they are due to rise but not by much but same with Ive heard for the past few years te market will crash.

Gordo

As has been said above, make sure you can afford it if interest rates go up - they could easily double in the next 3 years (after all, it wasn't long ago the 'experts' were saying that base rates wouldn't go below 5%!). Looks like you're gearing yourself fairly highly to me - with no prospect of increasing your income, do you really want to shoulder such a steep level of debt for the foreseeable future?

Whether you need to worry about property prices is down to whether you intend living there for 3 years or 10. If it's a short term thing you might be better off renting to see what happens to the economy - if it's long term then it doesn't matter as the prices should go up over that period.

Good luck
Gordo

lightning101

Un unbiased answer

A slowdown in house prices rather than a crash is still predicted by most experts, despite inflation remaining in double figures.
Richard Donnell of leading estate agent Savills says interest rates now are so much lower than during the 80s that they would have to climb by "at least 5% to have a significant impact on the rate of growth".

He points out: "40% of borrowers have fixed-rate mortgages."

Prospects for stable rates rose last week with a hint from the Bank of England that it might drop its base rate from the present ultra-low 4% to keep the economy on track after the stock market slump.

Donnell reached his conclusion after analysing average household incomes in every postcode in England and Wales. He assumed that 20% of the money would be an affordable level to spend on mortgage repayments, and compared this with real borrowing costs to come up with actual sums.

If households spent this proportion of their money on buying their homes, "average mainstream house prices have room for further growth in seven out of 10 regions", he says.

"In the north of England, for example, house prices would need to rise by 33% to take them into line with what households could afford."

The Halifax bank agrees that properties are generally still affordable, with the ratio of prices to average earnings at 4.1, compared with a past peak of five. In common with Nationwide, it expects prices to begin to slow down towards the end of the year.

Mike Warburton, a partner in accountant Grant Thornton, invests privately in buy-to-let property. He has several and is selling one in Cardiff now - but not because he thinks the market will crash.

He believes today's low interest rates make the property market safer for investors than it was during the 80s boom, although he adds: "I wouldn't buy in London at the moment."

Andrew Dixon

Wow! Thanks for all the responses.

First of all, I've been through all the possible expenses of running a house, loan repayments, etc. I can think of and it still leaves me with about £250 per month left over. Quite happy to live a simple life for a while if it means I can get on the property ladder!

Won't have any 'existing debt' by the time I make the purchase, so no need to move that around.

The house I'm looking at is in Burnage, but very close to both East Didsbury and the Heatons. It's in (what seems like ) a nice, quiet, leafy cul-de-sac, and only 1.5 miles from work.

Think I might go over my figures once more time tonight and then make a decision. Just a shame that there are so few properties coming up!

One question to those predicting a market crash and/or interest rate rises .. if the 'experts' are predicting it, how come mortgage lenders are happier than ever to offer huge salary multiples, 105% mortgages, etc. After all, it is them that will be left to carry the can if people start defaulting? Right?

Thanks again!

lightning101

Have a look back to the eighties price crash and you will get the same stories leading up to it.

Remember for every 150,000 houses built at the moment 200,000 are required by the public - that is why prices are so high.

Now eventually there will be a huge shortfall as first time buyers won't be able to keep up - therefore - price crash is inevitible. In My not so HO

Goochie

I have complete a purchase last weke on a £133,000 house on a 90% mortgage. Everyone was telling me not to buy 18months ago so I rented, waiting for the crash. 18 months later I've spent over £10,000 in rent that could have gone into my own house.

The repayments on my mortgage are only £7 more than my rent, fixed for 2 years!

My advice:

Buy a house now.
Buy second hand appliances
Dont buy too much on H.P. (if anything)
If you cant afford it dont buy it.
Save for things rather than using a credit card.

davegtt

B2O speaking common sence there.

if u think u can afford it matey buy a house. you wont regret it.

Goochie

Also, you're figures look like you're after a 95% mortgage. Watch out for the MIG on a mortgage of that size. You'll be paying a premium to protect the bank's interests not yours!

Go for either a fixed rate for two years or a low rate tracker for the same period.

lightning101

How can anyone possible foretell what might happen next - our fuel just went up to pay for the Iraq war.

If Bush or Blair say the wrong thing, or make the wrong move - who has to pay for the consequences ?

On the whole, fiscal policy going back over 10 years has been much sounder than it was earlier, and in terms of the amount of debt relative to GDP [gross domestic product], we are one of the lowest countries in the world.

I welcome the fact public spending is increasing. If it were not, we would be even more dependent on growth in consumer spending which I don't believe can go on at the recent rate forever.

Andrew Dixon

With regard to MIG I certainly don't intend to pay this if I can avoid it. Currently Standard Life or Stroud & Swindon are looking like the best bets, and neither of them charge any MIG fee on 95% LTV.

There's a possibility that the property may qualify as being in a Disadvantaged Area and thus be exempt from Stamp Duty .. looking into this one!

A

Goochie

Hmmm I've never heard of that before - but I dont think the heart of the Cotswolds qualifies

Goochie

You mentioned borrowing your deposit - make sure you dont tell the bank its a loan (even a family one) or they will take 12 of your monthly repayments off your income before doing the multiples.

Dont forget, and current debt (loans, credit cards etc..) may show on a credit check so make sure they're all cleared.

Dont apply for too many mortgages either - this makes you look desperate and hence could possible damage your credit file.

carl

My philosophy has always been to do what's right for your circumstances at the time. Unless you're looking to move again, even being in negative equity isn't a problem. Long-term (>10 years) property investment will always be a winner (as long as you can afford the repayments, of course )

fast bloke

Andrew - Try Mortgage Express or Northern Rock. 125% LTV - 4* salary and no MIG

MartinM

Someone told me about how you can get a slightly higher % mortgage (if you really want to) than normally offered. It goes something like this:

House advertised at 100K

You make an offer of 95K, offer accepted

The Memorandum of Sale prepared by the Estate Agent says that the purchase prce is £100K, BUT that there is a 5% discount on completion for the buyer.

Everyone in the process takes the purchase price of £100K, so you get yourself a 95% mortgage (£95K) (personal experience - I'm buying at the moement and everyone asks me what the purchase price is, NOT what the settlement figure will be at completion!)

On completion, the settlement due to the seller is £95K 'cos there's a 5% discount on completion

...but, you've got £95K from your mortgage so you can pay it straight off


Net result is you get the house, the seller gets the agreed £95K, and you never had to put anything in up front

It's not illegal. Allegedly, all you need is the Estate Agent and the solicitors on each side to understand the method - it may even have a fancy name, but I don't know what it is.

I've a mate who's done it twice (buy-to-let, so it reduces the amount of capital needed) and, allegedly, it's the way it's done for these new developments you see advertised that offer 100% mortgages.

Thoughts??

MartinM

The other thing maybe worth considering is an interest only mortgage, certainly to start with.

The payments are much lower and OK, you don't pay off the capital, BUT if prices rise that doesn't really matter for a year or two - I'm sure you've all seen the graphs of capital outstanding vs time. They hardly come down at all in the first 2-3 years - so why not just go the interest only route with a flexible mortgage that you can change to capital and interest in a few years time?

BTW, I am not qualified in any respect to give financial advice. If it all goes pear-shaped, I will admit nothing. If it all goes fantastic, I'll send you my invoice