90% mortgage in the South East/London borders - how much did you borrow with a low deposit?

[Marghe87]

Starting to think about what type of property we will be able to afford in a few years. We won't receive any help from our families for a deposit and we have been unable to save much over the past few years for several reasons.
We think that if we really go for it, we should be able to raise 45/50K deposit over the next 5/6 years or so and by then, we might be able to borrow around £400K to get a property of about £450K. I appreciate this might sound like a ridiculous amount of money to many of you but it will barely get us a decent house in the south east.

I just wanted to see how much people tend to borrow as my understanding is that a 400k mortgage is a lot but then how do people do when they have good salaries but not a big deposit??

Thank you

You should speak to a mortgage broker about your options. E.g. possibly you could qualify for a 95% mortgage. Natwest for example are advertising this.

If your salaries are good then there's no reason not to raise half that as a deposit, buy, then overpay and re-mortgage later. I'm in the South East as well so totally get what you're saying as we've bought here.

You could also buy small and then upgrade later but obv would need to decide if the outlay of stamp duty twice in under five years is worth it.

How much you can borrow will be more based on affordability. I would play around with some of the mortgage calculators online- they give a fairly good indication. And play around with what repayments would be at different interest rates too - to make sure you have a picture of how things might change in the future.

Obviously it's relative to your income, and whether you have kids yet etc. When we came to mortgage due to high childcare the most we could be lent was £230,000, we opted to buy a house that meant borrowing about £160,000 (obviously not in the south!) although the bank would technically lend us £230,000 that would have meant a mortgage of £1000 a month and that just makes me wince. While we may be able to afford it on paper it would have meant a much reduced lifestyle to what we are used to. We need to upsize but hopefully our wages will have increased enough that a larger mortgage then won't be quite as noticeable. So I would weigh up your affordability with your lifestyle. Also, I find it quite comforting to know if one of us lost our jobs we aren't mortgaged to the gills, it would be manageable in the short term on one wage. This is the reason we do a long term but over pay, for more flexibility.

Don't forget the impact of fees. On a £450k house you'll probably pay around £10k in stamp duty and survey and solicitor's costs meaning on the numbers you give, you won't have a 10% deposit and you'll probably pay higher rates if your mortgage is over 90%.

If possible, try to save a slightly bigger deposit or buy a slightly cheaper property, so your LTV is under 90% so you should get a better rate, that could save thousands in interest.

Obviously things can change over the next few years for all sorts of reasons, but in the meantime, saving as big a deposit as you can and looking into the help available for FTB (help to buy ISA or LISAs) is the best thing you can do for now.

We bought in South east a few years ago. 10% deposit on £300k house which needed full renovation (spent another £20k sorting out the basics and now saving up to do the main work required)

£270k mortgage was the maximum available to us based on mortgage multiples

How much space do you need now, and are you planning to stay in the same area? Could you buy a small flat now to get on the ladder and upsize in a few years?

We bought our flat with a 6% deposit (£9k), consequently our interest rate was high for the first two years. Prices went up by 50% in three years our area (Crossrail) so what we would have paid for a 2-3 bed house in 2014 (if we'd have had a sufficient deposit for this to be an option) would only have got us a 1 bed flat in 2017, if we had spent the three years saving for a bigger deposit. Because we bought a flat in 2014, we had £70k equity (after selling costs) to use as a deposit on a house.

We used the HTB equity loan scheme to put down a 5% deposit, but with a clear plan to continue saving and pay back the additional 20% loan within three years. So we now own the house outright.

Because mortgage payments were cheaper than rent (also in the south-east) we could save more than if we'd stayed renting, and like the PP have been able to gain equity in the meantime.

We did consider a cheaper place to start with, but would have outgrown it by now and be faced with all the cost and hassle of moving.

Well, how much you can afford to pay in a mortgage will depend on how much you earn. You can look up what a mortgage of £400k would cost you at various rates of interest and compare that to what you currently pay in rent/save towards the deposit/have spare. Or go and see a broker. But obviously things could change over the next 4/5 years - maybe you’ll be earning more or maybe house prices will go up/down.

FWIW I don’t think a £400k Mortgage is that shocking - we are looking at buying soon in London and will be looking at borrowing about £700k 😬

And even with that we will be better off than we are now when we consider what we are saving per month plus what we are paying in rent!

@BarbaraofSeville - regarding Stamp Duty if they are first time buyers, they will benefit from the relief - so £7.5k would be payable on a £450k property (compared to £12.5k without the relief)

Swiftier that is true now, but I would be wary of assuming it will still be the case in 5-6 years when OP plans to buy, as the government could revoke it. We paid SD (not masses luckily, £150k purchase) in 2014 as first-time buyers.

@AwkwardPaws27 yes that’s true - SD could change over the next few years.

Go for a property in a good location with potential to extend and improve in the future. Then you can buy a cheaper place but do work when you can afford it, rather than moving house and all the costs that come with it. Something like a house with a garage on the side that you can build behind and over would be ideal.

Swiftier

But they have solicitors, survey, moving costs and possibly a mortgage fee too, which is why I rounded up the £7.5k stamp duty to £10k with the other fees which could be an underestimate.

In the example the OP is giving, there is a risk that they will not quite make the 10% deposit, so even if they have a 9.5% deposit they will be restricted to 95% products and pay a higher interest rate.

@BarbaraofSeville - sorry misread your original post, thought you meant £10k for stamp duty not the stamp duty plus other fees.