First time buyers - Monthly payment seems huge!!

[Walterwhiteswifey]

We currently rent a 3 bed for £1200 a month. We are in the south and trust me this is cheap! We have recently come into money, enough for a decent deposit but houses we want are around 500k.

Right move have mortgage calculators for properties we want, which estimate our monthly mortgage payments will be nearly 2k! Despite a sizeable deposit worth a quarter of the value of the house. Is this right? I'm so confused as I always thought renting was more expensive than owning but we would struggle to pay such a huge amount each month.

I find this all really daunting and annoying as we have such a large deposit but seems we can't afford the house we need.

Well it sounds as though you want to borrow £375K, so presumably have a household income of a little over £100K? I'm struggling to see why £2K a month would be such a problem?

What’s your monthly income?
If you are getting a steal on your current property it’s not unlikely that a mortgage could be more.

Sadly with interest rate rises monthly repayments have obviously risen too. However as a PP says, if you have the income to be approved for a mortgage of that amount you should be able to afford the payments, unless you have unusually high outgoings otherwise?

Are the houses you are looking at a similar size / condition / type of house / area as the one you are renting, or are they bigger/better/detached etc? If the houses are better, that could explain it?
I think with higher mortgage rates they aren't necessarily cheaper than renting any more, however you do gain equity over time so it's still a better investment than renting, which is going towards someone else's mortgage.
Could you look for a smaller house or cheaper area?

The obvious answer is don’t take out such a big mortgage and buy a cheaper property .

You probably just need to adjust your expectations of what you can buy. If you rent there's not the equivalent of a property ladder; if you buy it's normal to start modest and 'upgrade' as your income changes.

Is the 500k house equal to your current house in terms of area and size? If not, then it's just that what you want costs more than just buying what you already have.

Most people's first properties are not their "forever" or perfect houses. They are a step on the ladder. Fine while you are young but with the house price madness people are being able to afford this only later in life when they have more requirements/stuff/dependants.

You'll have to compromise - which I know will seem weird when you have this huge chunk of money. Have you been saving as well?

No I think you’ve had a mistaken assumption there. Coming up renting in London, we could always afford to rent places we’d never in a million years be able to buy.
The costs of owning extend beyond the mortgage payment anyway, making it even more expensive as owning a house then comes with all the risk of mortgage rates changing, costs of upkeep, insurance, etc etc.

Also I hate to break it to you but…you know about stamp duty, right?

As first time buyers stamp duty will be fairly low on a £500,000 house

Mortgage statements showing how much you repay compared to how much you borrow can be absolutely terrifying. The interest repayment alone each month is several hundred pounds!

talk to a mortgage advisor who will help you work out what you can afford to repay and therefore what you can borrow.

In your shoes i would look at taking a longer term (30 years is fairly standard now)

We did this and plan to over pay later like in 15 years OR sell and down size before 30 years.

It's tricky when you have a decent deposit but not necessarily the salaries to match!

I would suggest buying a cheaper house to get you out of the rental trap - with a decent deposit you'll have a lower LTV, unlocking better mortgage deals. Then you can either have a lower mortgage payment and build up savings, or overpay your mortgage to increase the equity in your property. Then in a few years, you'll have a much bigger deposit from the sale of your first house, making the house you really want more achievable.

Yes that looks about right with current interest rates on a 30 year mortgage.

Also please remember to factor in stamp duty (£3750), legal fees (I'd allow £5k), repairs and any changes needed (variable) and moving costs (at least £1-2k). You will also need to start paying for the maintenance of the home including insurance to factor into your expenses.

I'm assuming your joint income is around at least £90k for that size mortgage, assuming an even split between your salaries and a pension contribution of 5% you're take home pay is is around £5500 per month so it's just over a third of your income. i think on average they say it should be under 40%

I think people always assume renting is more expensive than owning but not always

Yes this is about right. We’re currently upsizing and our new house is £650k.
(plus 50k of extras as it’s a new build - conservatory/flooring/solars paid out of pocket so we won’t be putting that 50k on the deposit as we want to move in and be happy with it all) and our payments will be around £2800pm.

We can afford it though so we don’t mind too much. It is daunting when you see the numbers though!
The interest rates at the moment won’t help and that’s why it seems so high!

If the house you rent is similar to those at 500k then the (current) gross yield is less than 3%. This implies your rent is exceptionally low as 5%+ is more typical.

So for something similar, even with a big deposit, you should expect the mortgage to be higher than your current rent. Or as other have said, look to buy something more 'modest' if you are concerned about high mortgage payments.

The other thing to bear in mind is current house prices largely reflect years of 'emergency' ultra low interest rates feeding into mortgage rates of 2% or lower.

Now interest rates have returned to near-normal (and assuming they stay there) there will be an inevitable decrease in house prices as buyers can now borrow a lot less for the same monthly payment, with mortgage rates closer to around 5%.

However, it will take time for this to work through the system as many sellers either can't take the 'hit' of a reduced price (even if in theory their onward purchase should also fall in price) or won't sell for less than they think their house is 'worth' (usually based on sales achieved when interest rates were ultra low).

All major indices (Nationwide/Halifax/LR) are showing stagnant or falling prices over the last Quarter. All major banks are also predicting 5-10% falls for the next year/18 months.

So if you are happy with your current rental and the rent continues to be very low then you could consider a delay while you track whether properties of the type you want to buy start reducing.

In the meantime, you should be able to easily get a decent interest rate on the deposit you have so, all other things being equal, you would need to borrow less even if prices stayed the same.

I think you might need to reevaluate how big a house you need and be prepared to look further afield if you need to. For example I'm in a fairly large 3 bed semi with mortgage repayment of around £250 a month- house was £75k when we bought it 15 years ago and we were fortunate to have a fairly sizeable deposit saved.
We bought well within our means and this meant we had no worries about it through lockdown etc which was a huge relief. Now obviously I stay in a completely different part of the country to you but my point is maybe there's scope to find something more suitable for you and your financial circumstances. And above all remember to consider what would happen if either of you lose your income down the line etc as you really do never know. So buy well within your means to accommodate this.

What you want and can afford are two different things, especially as first time buyers.

House prices have doubled in our area over the past 10 years and interest rates have increased. Mortgage costs are now much higher though it sounds like your rental cost is low if the property is comparable.

Start by looking at what you can afford comfortably and then look at what that will buy you. You need to look at up and coming areas or moving further out from your ideal location.

I wouldn't go by the Rightmove calculators too much.
I would speak with a mortgage advisor or put it into an online calculator yourself

We are paying £1.1k/month for £190k remaining balance. So if you were doing something like a 25% deposit, leaving you with £375k to mortgage, £2k a month sounds right.

Thank you all so much for your replies. We have a joint income of 70k so I guess we could afford it monthly, we just weren't expecting it. I think we have been naively assuming it would be a LOT less than renting. We have a meeting with a mortgage broker soon so will sit and go through everything properly then.

It's hard being a grown up isn't it 😕

On a joint income of £70k you’d likely only be able to borrow about £280k. 4x income is generally what you are looking at

It won't let me edit my comment but we earn 90k a year not 70. Dont know why MN won't let us edit mistakes!

Thank you for simplifying it for me! That's a good rule of thumb to follow.