How much would you borrow?

[Skewbald]

We are hoping to buy a house for the first time soon at the advanced age of 40. Would be very grateful for the advice of wise Mumsnetters on how much is sensible/realistic to borrow.

Circumstances:

Gross household income between £62,000 and £70,000, made up of:

Salary 1: £50,000 pa
Salary 2: £10,000 pa
Variable income from extra work £2,000 to £10,000 pa (gross)
Savings for deposit and costs £40,000
Childcare costs (for next 2 and a half years only) -£7,000 pa
Commuting costs: approx -£1,500 pa

Commuting costs and second salary all dependent on staying reasonably close to where we are now. We are keen to do this to avoid changing schools, but it's looking a bit unlikely due to local prices, so commuting costs could end up being more like £3,000 and second salary might disappear temporarily.

Any ideas? I am thinking that we could borrow maybe £210,000, bringing our total budget to £250,000. Does this sound about right?

I'm coming up to 40, H is a little bit younger, income of around £70k. Childcare of £800 per month. Commuting costs for 120 mile round trip each day - probably double what your H pays. We initially borrowed £275k when we bought this house (almost 2 yrs ago), payments are £1600 at the mo, coming down to £1450 in March when 2 yr fixed rate comes to an end and we revert to SVR. We have 23 years of a 25yr repayment mortgage to go.

Just about do-able but only on the basis that there is light at the end of the tunnel when we stop paying childcare in 18 months and our income will go up by aprox £10-15k as I will be able to take on more hours (currently do 21 hrs a week). If we faced the level of budgetting / scrimping we have now for the foreseeable future, also with a possible rate rise, I would be panicking.

We are paying a thousand a m

A thousand a month mor than we should be due to fixing our rate. Interest rates will not be rising any time soon the whole housing pyramid scheme is just about staying uP because of low rates. The whole thing would collapse instantly with a tiny rise and everyone knows that.

Yes I am worried about this too, Heswall. London prices seem to be held up largely by investment money and by ordinary people letting out instead of selling those homes that they no longer want to live in. I would imagine that it wouldn't take much of a rise in interest rates for these arrangements to become unprofitable and for a huge number of houses to come flooding onto the market in consequence. Unfortunately I don't think we can wait for this to happen though. No doubt the crash will come about a month after we finally buy...

It is all going to go arse up at some point for alot of people. Intrest rates will have to rise, there will be alot of people who lose their houses because of the dodgy mortgages they have, and not allowing enough money aside etc.

Having said that, as long as you don't overstretch yourselves, and you sit and work out your money you will be fine. With property you have to think of the long game. Provided you buy a house that you can stay in, it will all go full circle. Yes in a few years the market may be flooded and your house will be in negative equity - but it will settle down and improve.

My house is worth 25% less than I paid for it in 2008. I paid every penny into getting my mortgage down so I could have some equity in it. Thats wiped out now - for now. I can afford to pay my mortgage, and its a big enough house that I can stay here for as long as I need to. It will come right again in the future.

And now I am wondering again whether we should wait for 2 years and save...

You are going to be faced with dilemas and problems if you are buying anytime in the next few years. It might take more than 2 years to go up and you will still be in this position, or you might find just the right time. If you wait untill it has gone up and there is a glut of houses due to repossession just remember that by that point the base rate will be up and you will be talking about a much higher mortgage payment.

I would speak to your bank. Find out what mortgage options are open to you and what you will have to pay.

Then look for houses. Can you get something you want for your money?

If it were me and buying is something you want to do, I would do it now, get a couple of years under your belt beforw the intrest rate rise, and pay off as much as you can.

Also WRT renting, there is a chance that the rents will go up when the rates do, landlords have mortgages to pay, and esp in places like London, the people who lose their houses need to rent so demand will be there to pay higher rents.

God I'm such a doom monger! I should think you will be able to easily afford a house. Our combined income is just under £50k, and we have a £155 mortgage on one house and a £30k on the other and plenty of money left over at the moment.

The thing is Skewbald, it's impossible for anyone to predict what will happen to Uk house prices.

Interest rates are set by the BofE (Independent of the government) and used to manage growth and inflation- if growth is too low, they want to have low interest rates BUT if inflation gets too high, there's pressure to put interest rates up. So, to predict interest rates you have to have a view on those two things (and be right, which is the hard bit ). Obviously growth atm is crappy, so there's pressure to keep rates low. Inflation is also nosing down, despite continuing pressure from fuel prices, but hard to say what will happen in future. Worst case scenario =stagflation (low UK growth and high inflation- prob linked to prices of global resources)

My personal view (and it's completely personal) is that the government knows that current housing prices are causing huge structural problems for the UK economy in that it locks us into globally uncompetitive salaries and high benefit burdens. I would imagine they are not adverse to prices coming down, but at the same time they want it to be a controlled drift that improves affordability, not a massive crash that gets loads of people repossessed. Also, remember that mortgage rates and base rates are not perfectly correlated. The spread required by the lender is also very important.

Based on that view, I'm not sure that a house will be an inflation beating asset over our lifetime BUT you have to weigh that up against why you're buying a house (in your case so that you have the asset and aren't paying rent in your retirement, which is a very sensible reason.). Does it really matter if the house ends up not gaining in value, providing you meet your objectives?

Thanks, oreo. We certainly can't get what we want for our money, but we might just be able to get what we need

Yes I would agree with all that, reallife. Only thing is that where we probably need to be for the next few years is not where we want to be for too long, so wouldn't like to find ourselves in negative equity in 5 years time, say.

They always say that if the house is for less than 5 years when you take stamp duty, solicitiors, removals etc into account you are better off renting.
If this is only a house for 2- 4 years I would wait personally and put your deposit money in an Australian bank account earning 6%

Yes, I don't know what the answer is. We certainly wouldn't be looking to move again in 2 years. Probably between 5 and 10.

6% though! Are there any tax issues?

By the way you've all been so helpful, thank you. Can I come back and consult you again when we've seen the Mortgage Man tomorrow?

You do pay tax on the interest at source as a non resident but I found it still beats anything in the uk, even ISA's

Yes, I have nothing better to do than hang out here (I 'work' weekends ).

Try and do some basic sums before you see the mortgage man, and think about financial scenarios etc

Write them down so you don't forget. And try to relax a bit!

It's very simplistic I know and i'm sure i'll be shot down in flames but the way I look at house buying vs renting is that if I had pay rent for my house it would cost roughly £1400 pcm, so over a year i'd have to spend £16,800 to live where I live and without having any future equity .

Over 5 years that's about 90K i've paid out on rent, so my house will have to have dropped in price by more than 90K before i'm realistically losing out. House prices in my area have been stagnant for the last couple of years but things are now hotting up, and we've noticed that prices are about 10- 20% more expensive than when we bought

Negative equity becomes more of a problem if you need to move to a larger house because of an expanding family or if your work relocates, as with most things if you can ride it out then it should restore it's value. Personally as we're all working and living longer, I think 30-40yr mortgages could be the answer

Mixed up thinking. Negative equity comes in the form of a) missed opportunity for every pound you save on the asking price you save at least another in interest, plus for you to spend £90k on rent and still be up on the deal providing your house hasn't dropped £90k would require you to have a 0% rate on your mortgage, so if you have that, lucky you, most have not.

Sorry to put a spanner in the works....but i'd phone a few lenders and see what they are prepared to lend. Regardless of what you can afford to pay back.

We got a shock as we thought we were ideal borrowers. We had over 50% LTV in our house, no other loans or committments blah blah and thought we were in a great position to get a slightly (and i mean slightly higher) mortgage than we were on now........and got turned down by the first bank, who would only lend us less than we currently owed!!! We were absolutely stunned! 2nd bank were happy to lend, but only just what we wanted!

Mortgage advisor friend says it happens all the time - banks advertise fabulous rates but don't dish them out to many people these days.

It used to be the case of working out what you could afford rather than taking the high loans offered, but it seems to have switched over recent years.

Yeah but at least the house is mine after 25 years and I can leave my children an inheritance, i'm aware that there is other things to consider such as interest on the mortgage loan. If in my circumstances i'd choose to rent my property for 25 years based on my previous calculations , without taking into account rising rental prices then i'd have spent £450,000 and still have nothing to leave my children. At least when i'm in my sixties i'll be mortgage free and with somewhere to live. What if I live to 80 or 90 still having to pay rent, or do I expect the working population to pay my rent when i'm no longer able to work.

feelinghappy, thank you. Yes that is a bit of a shocker. Good to be prepared.

Am thinking perhaps we are heading toward a much bigger move, ie out of and away from the city altogether to places where you can buy 3 beds for £200k. But of course that means either new lower paid jobs or huge commuting costs and times. But then it would take two years of big commuting costs to spend the stamp duty you would otherwise be paying on a house over £250k iyswim. 2 hrs each way commute a killer if you're already doing 10 hour + days though. I suppose there is no point worrying about it until we've spoken to the mortgage man and a few banks.

We bought in 2009 at the bottom of the market. I trusted all those financial pages that say fix now. Worst decision I've ever made. I fixed for 5 years, and won't be off till 2014. And it's at 5.99% since we are at 90% LTV. At the time, HSBC would give us a tracker at 3.5%, which would still be at 3.5% now. BTW, you can look at the bank's website and they can estimate what they'll lend you and what the repayments are, based on your income and the LTV. We decided to buy because we are paying slightly less in rent for a 2 bed flat. And we are looking at 3 bed semis. The rental market is stupidly expensive.

We have a similar income to you, and am paying just under £1k a month on the mortgage. I think you need to talk to the banks first and see what you can borrow, and what the repayments are like. You need to know how much you get in the bank every month too. Then you can worry about the house you can buy. 2 hour each way commute is far too much, IMHO.

Thanks onelittle. Sorry about the fix. And this great thing "choice" is supposed to be all about benefiting the consumer.

Yes it's tricky. A two hour commute each way is a horrible prospect, but having failed to buy when we were younger I'm not sure how many options we will have.

Onelittle we were in the same situation but including the penalty for early redemption, plus the fees involved, shaving a couple of years of the term and borrowing a little more, we are better off a month. Seriously, its definitely worth investigating!!!! You've got nothing to loose and may get a lovely surprise!

Skew we did the online calculators saying what they "might" lend us....and they still didn't....another reason why it was a shock. All sorted in the end though Good luck