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.

What's your deposit and loan to value ratio? Look up mortgages and see what rates are out there with your ltv ratio to give you a better idea. A broker will probably find you a slightly better interest rate. Bear in mine though you'll only be able to borrow about 4x your income, you'll need to do an affordability calculation too. Is 90k your pre or post tax income? Also keep some money back for fees/stamp and fixing things once you move in, there's always something you don't bank on.

We’ve just moved into rented after selling and the rent is triple what our mortgage was and our energy bills have tripled as well for a house that has 1/2 the square footage of the house we sold and is in a not great area

I think it depends what you buy

Friends moved from there rented 3 bed houses to 1 bed flats with their children to work their way up so they saved thousands.

I know someone who pays £60 per month on their 1 bed flat in central London. (Sitting tenant been there since the 70s)

He is very smug about all those people paying out thousands per month on their mortgage.

It is only when you point out that if he had bought instead of renting his flat he could have bought the flat 3 times over even adding in mortgage interest and he would now be paying £0 per month and be sitting on a very nice nest egg so £60 per month seems horrendously expensive.

Having a longer term will reduce the monthly cost (but will increase the amount of interest you pay, as interest is usually charged daily).
You could get the mortgage deal over a longer term and then when your deal is due for renewal then look at a mortgage with a shorter term.

There is also a disconnect at the moment in that vendors are still - in the main - pricing as if interest rates haven't gone up. Whereas, as in your case, the interest rate rise will very much hit your ability to borrow. The interest rate rises are therefore v likely to falls in house values over the next year - do bear that in mind.

Well, I don't think you can afford a 500k house or a flat on your income. I'd start looking further afield.

Yup. We were on the verge of buying last year but since mortgage rates have gone up, it's effectively reduced what we feel comfortable borrowing so that now it's impossible to buy anything suitable. We are looking at a much cheaper end of the market 220k houses with a 45k deposit. It's also tough as we are in our early 40s so time is not really on our side.

Interest rates have gone up

Can you lengthen the term of the mortgage? Stretch it to 30 years?

This is me. We couldn't buy until I was 40. With two dcs we needed good schools and a minimum of 2 bed but our view was that we needed to future proof somewhat given our ages and our general view of the economy so we were only viewing 3 beds. We would like to sell in the future but we were only prepared to buy a house we could live in forever if needs be. We were looking in various towns, including over the border to the next county to achieve this. I sometimes think this is one of the reasons flat sales are performing so badly now as there isn't a ladder as such these days (covid/abundance of flats also being factors).

We also took a 5 year fix (I was being a huge negative nelly) which is am really pleased we did. We bought just before interest rates went crazy. Our mortgage is £200 more than our rent (I think this will be the case for most people in the SE) but will be even higher in 4 years time when our fix ends. Utilities are about the same as the house we bought is very similar than we were renting but our house is annoyingly a higher council tax band.

We didn't go to our absolute maximum but have spent all our savings doing some necessary work to our house, and since being here we've twice had to call out the electrician and plumber. We need to fully decorate, need a new kitchen, bathroom, new guttering, flooring and fences. It's not even a major reno job, no extensions or walls being knocked down, but will be sucking up our money for the next few years. That said, I'm glad we bought rather than remained renting.

Just to add my house is nothing special - it's a 3 bed mid terrace with a yard. We saved for 10 years for the deposit and stamp duty.

We have a similar mortgage and Donny pay considerably less than that, despite being on a better interest rate that we could get now. Saying that, the rent on our SE home wouldn't be too dis-similar. I think the rent- mortgage comparison really depends on area and interest rates.

We have the same joint income and our payments have just increased from £650 to £770 a month as we had to remortgage onto a higher rate. Our house was £250k and owe £170k.
I certainly wouldn't want to have to repay lots much than this. Any time we have a holiday or we have to do repairs or refurbs we use up all our savings.
We live a relatively comfortable lifestyle, and we could cut back if needed, but I think if we were paying £1000+ on a mortgage monthly things would feel a lot tighter.

Most people don’t live in a 500k house

I think mortgage interest rates have been low for so long we’ve just gotten use to the cost of borrowing being cheap. In the last recession we bought a house and were on 5% interest for five years which was expensive but at least we could budget for it. It was stressful when we were both under redundancy consultation at the same time.

Our house is worth 500k now, despite being a very ordinary house (3 bed semi) on an ordinary road, albeit with lovely neighbours. Just an expensive bit of the country.

I would also recommend a good financial advisor who can help with the mortgage products and anything associated (like life assurance)

How many years term are you looking to take it out over?
My mortgage advisor always recommended taking it over as long as possible to get a lower monthly amount and then take the term down every time you re mortgage.
It's worked well for me so far.

Good luck op, hope you find a lovely house!

This is a good point that I can give you a real life example of.

We bought our house 10 years ago for £430,000. Mortgage payments are around £1,300 a month as we had a £100k deposit and fixed at a lower rate than you can get now.

The house opposite ours is identical but is rented out. When we first moved in it was on the market for £1,400 a month.

10 years later our mortgage payment is the same, but the last time the house opposite went up for rent it was £2,500 per month!

I agree with this. Also, make regular overpayments when you can.

A decent independent mortgage advisor will steer you right.

Definitely book yourself an appointment with a mortgage advisor, even if it's just one at the bank you have a current account with initially, as they'll be able to take you through how much you might be able to borrow and affordability of repayments - you need to factor in any other debts, student loans, car loans etc. Be aware that what lenders might be willing to lend you and the affordability of paying that back can be very different, there's no way I would have been comfortable repaying as much as some lenders were willing to offer me!
Yes, renting might be cheaper now but that can also increase, your landlord can decide to sell and you have to move when it's not your choice to move, and in 25/30 years time your mortgage will be paid for whereas you'd still be paying rent out of your pensions.

You seem to be looking at buying something several rungs up the property ladder than what you are renting. The property you are currently renting at £1200pcm wouldn't be selling in the same price bracket as the homes you are looking at buying. You'd be able to buy something similar with a mortgage around £1,000-£1,100 pcm depending on what mortgage deal you could qualify for (you can often access better interest rates if you can get a bit higher deposit which reduces the risk for the lender).

Or put the same postcode as the properties you are looking at buying, into a rental search engine, and see what the rental price tag would be - I would guess you'll find the rent on those would be more than £2k, if there's anything available. A £500,000 home would probably rent out at about £2300-£2500 pcm.

You can save £100,000 or more on the price tag if you go for a less desirable location. The premium for a home being within the catchment area of an outstanding school is enormous for example, but you pay it even if you don't have kids, so take time to think about whether you need all the things that have been factored in to the price tag.

Not really.

When one/both get a pay rise they can either:

• overpay up to about 10%
• shorten the term of their mortgage if they are renewing the mortgage
• move and start again

Mortgage brokers have been advising this since around 2005 due to the problems with people ending up in their late 50s with interest only mortgages they have no hope of paying off before they reach retirement age with little more than the state pension to live on.

You seem to be looking at buying something several rungs up the property ladder than what you are renting.

@ArdeteiMasazxu Not necessarily. Some of the landlords around me own their properties outright. So some charge lower than market rate to keep tenants long term.

@berksandbeyond I'm only 28 so would be paid off when I'm 64 if I just left it.. However we will reduce the term when we don't have children in nursery as we will be able to pay much more a month. I'm also going to start overpaying soon which will reduce the term and interest 🤷🏻‍♀️

I used to work with Mortgages. Impossible to help without further info.

How old are you both?

What lump sum deposit do you have?

I can do sums if I know this.

I do think that getting on the property ladder (without help) is difficult for most people. I had to buy a dilapidated 2 bed terrace, in an undesirable area with terrible parking. I lived in it for 5 years. It was a stepping stone to my current house. Most people move, to keep going up the property ladder. Could you buy a smaller property in an undesirable area, with a plan to sell in 5 years time?

This is why it has annoyed me (for the past few years) when people say they should be able to meet affordability to get a mortgage if they can afford rent, as mortgages are cheaper. Yes, they were, at 2% interest, not at closer to 5% which is where we are now!