FTB - how much should I stretch

[flipperdoda]

Looking to buy my first property - exciting, people say. It's also a bit terrifying!

I started looking naively thinking I'd like two bedrooms and some outdoor space (direct access to private or shared space from ground, or balcony on higher floors). It's taken about three days to realise that is almost certainly not going to happen - I hadn't quite realised how much service charges are per month (freehold generally not affordable around here)!

My real question is, how much should I stretch myself financially? I've got a decision in principle theoretically allowing me a price that could get me a two bed with outdoor space, but the repayments per month would be higher than my rent and I'm not thrilled about that. I could slightly mitigate this by extending to a 30 year mortgage but again, that just costs more over time... a small one bed with a Juliet balcony on the other hand I could be paying the same as my rent/slightly less.

I can't decide! I'm still viewing so no hasty decisions to be made.

Pertinent points:

• it's just me, and I'm single so no potential move in partner (or child!) anytime soon
• the second bedroom wish was for guests (irregular, so not a massive problem) and now for the desk to go into as well - obviously this feels more urgent now than it probably will when the world calms down but I did tend to WFH once or twice a week before anyway
• I have a bike...this needs to be stored somewhere inside, I have no idea where but currently it lives in my kitchen so not high standards I suppose!
• I don't own much furniture, no big bits, which is good from a flexibility POV

Starting to think a decent sized one bed so that desk could go into bedroom/hallway/hidden behind a sofa in large living room, and ideally living room big enough for sofa bed for occasional guest, could work? But then there's the resell difficultly of one beds, and no option to get a lodger.

I'm just not sure whether I'm likely to regret a) not taking advantage of free stamp duty or b) having high mortgage payments more.

Help! As you can probably tell I'm talking myself round in circles

Differing views here which is making me weigh up pros and cons, thanks.

I'm definitely not going to rely on a lodger - my mention of a lodger was as a fallback option if something goes wrong (redundancy etc) to tide over without having to sell, it's not something I would plan on having/choose to have if there's another option. Police involvement sounds awful, sorry you had that!

They urged anyone who is not buying a 10 year plus home, to hold off.
This is a nice concept, and I will read up, but the reality is that my options are probably a) don't buy, spend unknown more years renting until the property market stabilises or b) buy a home that realistically won't do 10 years but might do upwards of 5. I do get the reasons not to, but on the other hand we're all told to get on the property ladder as soon as possible, and it's a lot of rent money.

Oh - also, opinions on parking spaces? Lots of the flats I'm viewing/considering are purpose built blocks with allocated spaces, but one I'm seeing tomorrow (reasonable sized one bed with own outdoor paved garden) doesn't have a parking slot. I've scoped out the no through road and it was jammed with cars, but the road it comes off had plenty of (free) parking 300-400ft away. I know it's a con with little ones, but a one bed wouldn't appeal in that case anyway!

My first flat didn’t have parking but it wasn’t a problem for me and it was easy to sell on but it was in an area where few people had cars.

If you’re in a commuter town, might be ok if the property is pretty central and potential buyers likely to commute into London for work. People driving to work might prefer their own parking space given that many flats come with those.

I'd stretch myself slightly I think to get the 2 bed with some outside space, even if it meant having to get a 30 year mortgage term (the term of which you can always reduce later when you re-mortgage if you can then afford higher repayments). It's more likely to be future proof and last you for the next 5-10 years easily, rather than you potentially outgrow a 1 bed in a couple of years and have to shell out for moving costs again.

With flats - check the cladding is compliant. Otherwise you might be stuck.
I'd say parking is a must, makes food shopping & then selling so much easier.

the term of which you can always reduce later when you re-mortgage if you can then afford higher repayments

I'm so glad you said this as somehow I hadn't twigged that was possible!! lots to learn...

Quite a lot of cars round here, think parking is probably a plus then rather than neutral. Thanks. Definitely leaning towards 2 bed with communal gardens not directly accessible from flat over one bed with garden, but I'll see how they are when I view them too of course!

Yes, I'll check about the cladding. Was goggling that earlier!

Communal gardens are great! Your space, shared with a few but not millions, someone else doing the maintenance.

I was recently a FTB on my own and I bought a tiny 2 bed property. Bang on 2 years later I have acquired 2 dogs and a partner and will likely be married within the next 2 years. Therefore I am now having to sell up to buy somewhere a lot bigger.

That being said, I have had low monthly payments on this place which has allowed me to live very freely and save loads which will come in handy during the move. I've been able to go on lots of holidays and shopping sprees and buy the best of everything for my house as its small. So I have 0 regrets. If my circumstances hadn't have changed as I'd have been just as happy as I'd made my bills and mortgage so low I gave myself options. I could technically even afford to work part time whilst single if I ever needed to thanks to buying small.

So I have 0 regrets. You have to think of your lifestyle. If your like me and very sociable with a love of travel and shopping then you don't want most your salary going towards your housing costs. As you'd rather enjoy life now whilst also being able to save.

However if you prefer to live a frugal lifestyle then stretching yourself won't be an issue as your money won't be going on other unnecessary expenses.

I'm buying my next house at the moment and was a ftb 2 years ago. I also work in tech.

I bought bigger further from London. Covid has taught me to prioritize space for a separate work area, an outdoor space and a suitable environment so I can own a dog.

I have always bought somewhere I wouldn't out grow if circumstances changed. We are only moving now (after 2 years) because it's now or in 5 years time to get the same square footage. Stamp duty holiday has made a huge difference. If you're not buying over £300k then you don't need to stress about the stamp duty deadline. Your main concern for timing should be product availability. High interest rates for high LTV don't make sense if your paying so much interest it's almost the same as you used to pay in rent. If you have a 25% deposit, you have much more choice of mortgage products so higher interest is less of a concern. You can also tie into different length deals. Most people are tying in for longer (5 years) because they don't want to be unable to remortgage if they fall into negative equity if the market drops in the near future, before it's had time to recover. If you take out a fixed product, at the end of the term you normally remortgage onto a better deal, or end up on the base rate (a lot higher at the moment). At the point of 're mortgage you can change the length.

On a fixed deal you can only repay up to 10% (Normally). What I've done is increase my term to 35 years, my monthly payment is now as low as it can be. I then over pay significantly each month whilst i can afford to do so. Whilst my overpayments don't exceed 10% I'll keep my term high, even when I renew in 5 years, because it gives me the flexibility to over pay or not. So don't worry about a 35 year term it's not forever.

If I were you, I'd have a long hard think about where you want to live, what's important for you? If you get stuck living there for 10 years, is it going to be somewhere you love or somewhere that feels like a prison?

For me, it's my dog, good walks for the weekend and good links to travel for work. I'm still only an hour from London, and have good access to motorways. It works well for me. I'd rather a long commute than live less rurally. I'd be in Wales if dp didn't need to live near work.

I agree with stretch whilst your young. I'm of the opinion to keep stretching until that money couldn't work harder somewhere else or needs to be used for something higher priority (e.g. DC if I have them). My mortgage is 40% of my take home pay (and will be in the new house). 45% is considered a good max by lenders and schemes like HTB in their affordability.

Hope that helps.

I think quite a lot of this is influenced by where you live.
Personally, I wouldn't consider a place without parking but in areas where there is very little parking, then it is what people are used to and might not consider so important. Same with 'outside space'.
I think the lodger argument isn't about setting out planning to have a lodger but more keeping your options open as much as you can. It can either be a 'fall back' - for example if interest rates go up - or a choice - for example if you want to do it for 2 years to pay down your mortgage type option, rather than thinking 'this is how I want to live my life'. Plus, it is a bit like reading the 'Relationships' board on here. People will only post / mention in RL conversation, the horrow stories. People don't tend to post "I've had another ordinary week with my perfectly nice lodger" in the same way we don't start a thread saying "I've had another perfectly nice week with my OH"

It is scary taking on your first mortgage, but when you do the maths about how much dead money goes in rent, then, if you can afford to buy, you know it makes sense. I don't think there is ever a poor time to buy, in certainty. A few months ago lots of folks were predicting a real drop in the housing market, but it is now booming. Yes, interest rates are as low as possible, but, with the economy as it is, they aren't going to shoot up any time soon. Plus of course, unless you are a property tycoon, overwhelmingly, we all buy when we are at the stage in life we are able to buy. It's better than paying someone else's mortgage. Remember of course, when you are talking about stretching yourself, the more you pay for your property, the more you will gain in terms of any % rise in property prices.

*the term of which you can always reduce later when you re-mortgage if you can then afford higher repayments

I'm so glad you said this as somehow I hadn't twigged that was possible!!*

You don’t even need to reduce it. Most mortgages allow for overpayments of up to 10% per annum. So if you owe 200k, you pay £800 per month but then get a bonus at work/inheritance etc you can pay the mortgage down by up to 20k in that year. That will mean that you’ll be mortgage free much sooner but there’s no need to change the term.

I have a 15-18% mortgage (ish) dependent on the final property price - I'm working all my calculations off asking price with the additional hope I wouldn't end up paying full price . If it were one of the cheaper properties I might be able to stretch to a 20% deposit depending on when I bought - need to do some maths once I've got some serious contenders.

Location wise where I'm currently renting and looking to buy works from a commute, countryside, reasonable access to family etc. I am aware of the overpaying option and I am relatively frugal so I suspect I'd do that but equally I love having the option to go and say yes to mountain biking for a weekend/a skiing holiday without some serious number crunching (I am a saver, which is why this works, but the money does need to be available to save in the first place!).

Most mortgages allow for overpayments of up to 10% per annum. So if you owe 200k, you pay £800 per month but then get a bonus at work/inheritance etc you can pay the mortgage down by up to 20k in that year.
Just to clarify - you mean in a year you can max at out repaying 10% of the outstanding debt?

It is scary taking on your first mortgage, but when you do the maths about how much dead money goes in rent, then, if you can afford to buy, you know it makes sense.
This is what is really pushing me at the moment - currently I'm paying off someone else's mortgage for a one bed flat with shared outdoor space, even if 'worst case' is I can afford a one bed flat with outdoor space, surely it still makes sense to be paying off my own mortgage!! (Yes I'm going to try and get two beds)

People don't tend to post "I've had another ordinary week with my perfectly nice lodger"
This made me laugh
Yes, it wouldn't be a disaster. Just not my preference, and I'm buying this primarily as a home rather than an investment so I guess I get to be a bit selfish!

I think if you end up selling the place within 3 years or so you could potentially lose money on it compared to renting.

If you keep it more than 5 years then not so much. My first place was a 1 bed flat - I didn't long for a second bedroom or more space or even private parking but I did long for my own outdoor space.

The only time buying doesn't make sense is if you're going to out grow the place too quickly. The fees of moving mean you can pay more "dead money" to that than you would having rented for a few more years and buying the bigger property. For example, we paid 2.2k in fees to buy our first house. To sell our current house and buy the next house we're looking at 8k in fees. If We were buying outside the stamp duty holiday we'd be paying 14k in stamp duty too. So for the privilege of having our own house we could have been looking at 24k, once you add in ~500pcm in interest for the mortgage for the current house over 2 years = 12k, so up to 36k in "dead money". If we'd stayed in our rental, we'd have paid £23k over 2 years. So that plus cost of being a ftb 2 years later (assume, again, being outside the stamp duty holiday) costs would be around 11k (inc. FTB allowance) so £34k "dead money". We'd have only financially gained after 2 years. As it happens, with the stamp duty relief we're better off having bought.

This assumes our property held it's value, which it did thankfully. 2 years isn't enough to see much market growth.

You might want to run similar numbers, the house you can afford now, and the house you think you'd get as your next step (For us it's going from a 3 bed semi to a 4 bed detached with Study and Garage in same area)

the house you can afford now, and the house you think you'd get as your next step

I'd need another 70k to get up to the most obvious next step in terms of buying. I can afford a one bed with a garden, or a two bed maybe with communal gardens (maybe a balcony), I could technically stretch to a two bed flat with access to a patio but they're new builds and the service charge is really high.

To get to a house it's 70k+ on top of what I'm currently 'allowed' to max out at from a decision in principle POV.

So...I can't move up the ladder much further without seriously improving my salary (possible, I guess, but a decent jump needed!!) and/or waiting til I've built up some equity in whatever I buy first. I don't think I'd be looking to move after 3 years due to this (particularly if I got a 2 bed, which is why I'm focussing on it now)

My other option is to totally relocate somewhere more affordable, but there's likely to be a salary hit (I work in central London).

Snog, did you have any communal outdoor space? Just wondering if the longing was specifically for your own personal outdoor space, or whether you had none to access bar parks at all.

Just to clarify - you mean in a year you can max at out repaying 10% of the outstanding debt?

That’s right. That’s how it works with most mortgage products hence it’s better to stretch out your mortgage over a v long term, have small monthly repayments and overpay when you can.

Are you in one of those naice commuter towns? I know you don’t want to move but a lot of outer London is actually cheaper + cheaper to commute from too.

Streeeeetttccccchhh!

We wished we'd stretch ourselves more when we bought out first house 8 years ago. If 'd have done so we'd be looking at a far more expensive property than we are now.

As it stands, we've paid down a lot of our mortgage but made a smaller comparative gain than we could have.

Are you in one of those naice commuter towns

No, I wouldn't class it as 'naice' but it's a bit hard to gauge obviously! Nice countryside but I'd describe the town as functional. I've steadily moved further and further out of London - I'm not willing to move back in really. I love the countryside round here too much!

I don't think it's necessarily ridiculous prices for the commute time, it's just being young (so not far into career) and buying alone makes it a bit harder.

*Streeeeetttccccchhh!

We wished we'd stretch ourselves more when we bought out first house 8 years ago. If 'd have done so we'd be looking at a far more expensive property than we are now.

As it stands, we've paid down a lot of our mortgage but made a smaller comparative gain than we could have.*

This is useful too, thanks! I think I've decided stretching isn't the worst thing BUT I don't want it to be on expensive service charges and I'd rather it was on the property itself. Naturally, I may come to regret this horrendously but I will do due diligence to make as sure as possible that the service charges are adequate and sensibly planned etc, I won't just look for low ones - but even an estate agent earlier mentioned them as a negative factor to a flat.

You are right @MyDucksArentInARow, which , to me, is a real reason for making sure you "future proof" as much as you can with your first buy, and stretch to something you are less likely to outgrow in 3 or 3 years.

Advantage of a guest bedroom is you can get a lodger if money is tight - I did this and it really helped when I had an unexpected bill from the management company (commonhold)

The best advice I was given was "buy the best property you can afford"...and that obviously means different things to different people. But personally I would stretch as far as you can, while still feeling comfortable.

My first flat was a 2 bed (when most pals bought 1 beds) and I was eternally grateful for it, when they all hung up washing in their kitchens, and had guests on their couch! A second bedroom just gives you more flexibility.

I bought that first flat on a 35 year mortgage! By the time I remortgaged 2 years later I brought it down to 29, then 15!

When I bought my house with my partner we really blew the budget, but got so much more bang for our buck as it was an amazing deal on a new build. To pay for it we took out a mortgage which went beyond retirement. Shock horror! However, I'm due to remortgage soon, and will bring it back down again. I expect to pay it off well before I retire, but see no issue in having longer mortgages to begin with.

The point I'm making is that as long as you have a good/secure job and promotions are likely, there's nothing wrong with long mortgages. Don't think of a mortgage as 30 years...think of it as 2 or 5 years, then reassess when the time comes.

It's not that bad outside of London for tech, especially now so much is remote. Our in London and out of London employees are on the same pay scales. A lot of my colleagues leg it to the north if the can!

From what you're saying, I would absolutely get the biggest, nicest place I possibly could, stretch to the absolute max. I would consider looking for a fixer-upper to max that out as you're looking for somewhere longer term, unless you're wanting somewhere you can just turn up to.

I would add though, if your budget is under £300k and you do have a 20% deposit, I'd wait and see what this recession has planned for the London property market. If covid leaves a long lasting hybrid working pattern, there may be significant long term drop in value for London properties as more people move out into the commuter belt because they don't need to living centrally any more. Might be worth trying to wait for that initial drop. If it doesn't happen, you're really in a different position in 12 months than you are now.

My first flat had no balcony and no garden, shared or otherwise. I'm not even a particularly outdoorsy person but I did yearn for outside space. I did have window boxes which was something!

Are you looking to start a family in a certain timeframe? If so that probably puts a timeframe on how long a one bed would last you. I bought mine as a single person and then had a baby 3 years later whereupon the flat was outgrown! This is fine in a market where prices are rising strongly but if not can be expensive and disruptive.

...there may be significant long term drop in value for London properties as more people move out into the commuter belt because they don't need to living centrally any more.

So my issue with this is I agree with you that it's a possibility - and I'm trying to buy in the commuter belt, so it probably makes sense to get something ASAP in fact!