First time buyers… do we buy now or wait and hope rates will come down?

[treesareyellow]

The whole situation is a mess.
Hardly anything on the market near us, understandable reading some of these posts as it’s clearly not a good time to sell

We are renting for £600, a 2 bed. HA on rent to buy scheme hence why so cheap. We want to buy a 3 bed. We earn jointly 60k so this should be reasonable in the north and merely a few years ago we’d have been able to comfortably afford this with repayments of circa 800 a month - except we were students then so obviously we couldn’t buy then. In current times with rates as they are we would be paying over 1100-1200 on a mortgage for a small 2 bed! We have just scraped by the affordability for it but it would be over 30% of our joint income and considering we want kids soon I think that would be really tight when on reduced earnings/maternity etc

Often see it suggested to buy a very small property. It’s completely impractical for us to buy smaller than a 3 bed (2 bed and box room) as it just shifts the issue, if we outgrow a tiny property then try to sell it in two or three years we may be in negative equity which we want to avoid as then we would be stuck. Anyway, all the starter properties around here are either occupied by people who now presumably can’t afford to move on or snapped up by landlords within days. Flats and apartments are not as common round here. We don’t want to pay another lot of legal fees and deal with the stress and hassle of moving either.

We know trying to time the market is a fools game but should we wait given the rent is fixed? It feels like such wasted money but I am scared of strapping ourselves into ££££ of mortgage debt with repayments being so terribly high, especially at the time we’re thinking of starting a family you don’t want to be an extra -600 a month down.

Thank you

Understood! (I think). Incomes are very secure for both of us, DHs likely to go up as he’s junior atm

Focus less on how much you save based on LTV and more on the security that every extra penny you can put down as a deposit will make. Plus the lower overall payments - every £5000 you put down would make your mortgage payment approx £25 per month cheaper. Not a big deal in the scale of things but it’s still more money in your pocket to use.

That’s a good outlook on it, congratulations on your house xx

I cant give any advice about the market or rates or affordability, but i do think its sensible to buy something you are happy to be stuck in for longer than expected. After the 2008 crisis thing we got stuck til about 2015. We tried to move in 2009 but couldnt, then we both got made redundant, then we got on even keel.

It’s not about rates it’s about equity. If house prices go down you might not own enough of the house. You
may have a loan in the house greater than the value of the house.

5% mortgages are a fairly new thing. They stopped offering them after the last housing crash where a lot of people got into financial trouble because of low deposits.

I have to agree, this is why we are reluctant to go for something very small as something tells me it might not be easy to sell should we need to

More you put down on a deposit better the interest rate you get

Cant you both maybe get a second job , save hard as you can

No 1 knows how the market going to be

OP you need to try to save a lot more than you currently do. You say you are looking at houses under £300k but you only have 5% deposit, so around £15k. If you earn £30k each that's a take home of £4k a month and your rent is only £600. You should be able to save a bigger deposit very quickly unless you are wasting a lot of money.

You should be saving bank if you have a combined income of 60K, rend of £600/month and no childcare. Get over to reddit's UK Personal Finance for ideas of how to save.

Short term fixes are a fool's game if you are going through major life changes - such as having children - especially when interest rates are so volatile. We fixed for 3 years pre children and then at least 5 years post children as it meant we didn't have to reapply for mortgages when one of us was on part time hours or maternity pay. Loads of posters here finding out that banks won't give mortgages when they are on mat leave at the moment.

My advice would be to start really saving for a year and really getting a grip on your personal finances. Then you'll be in a much better position to buy, get on the ladder with a 3 bed and you can stay there for as long as you want, unless you are planning on having squads of kids.

It's not about the mortgage rate NOW, it's about future rates if you get into negative equity.

You buy at 95 LTV, fix for 2 years, plan to remortgage, because house prices are falling you get to 2 years and find your house is worth 15k less and you have hardly any equity because your mortgage rate is already high so only a tiny amount of equity has been gained in 2 years, no other lenders will touch you, and you are forced to stay with your current lenders on their SVR. We are due more rises this year, but some lenders SVRs have already hit 9%. What would your mortgage repayments look like on the amount you intend to borrow at a mortgage rate of 9%?

The only way to really do it is to buy in a rock solid, ever increasing area as we previously discussed. And even then, it would be ultra sensible to get a five year fix.

Alternatively, 95% LTV is not the end of the world if you can afford to massively overpay every month and build up more equity, but it doesn't sound like that is an option for you.

Alternatively - don't go for a short term fix whilst you have limited equity!

As others have said, the first thing I'd be looking at is where your money is currently going.
On a 60k combined salary, split evenly you must be bringing home nearly 4000 a month before pensions.
So, taking off pensions and rent, that's around 3000 every month going somewhere. Where is it going? Because your deposit account isn't massive - unless you've saved that 12k deposit in under 2 years, at which point you can afford the higher mortgage, as the savings amount pays the mortgage.

I had a 5 year fix. Still ended up in negative equity with 5% deposit

At the start of the year everyone was saying not to buy because interest rates would lower at the end of the year, we pressed ahead and got our mortgage offer in April instead of waiting, we also got a reduced price on a property. For us I'm glad we didn't wait as FTB, because we have an affordable (but still pricey) mortgage and interest rates are just going up. We also chose a property we could easily spend 5+ years in. In 2 years interest rates could still be high and market could still be stagnant and you're in no better a position. But that's the difficulty I suppose, hard to know what will happen. If you feel like you can't afford it and your rental is secure (eg they can't kick you out), then probably not a good idea to put yourself in a position where it isn't affordable for you, but only you know your circumstances :)

If you buy a new build with 5% deposit and then another 5% deposit contribution from the builder, so LTV of 90%, are you still at risk of negative equity?

Didn’t know they did this

Yes, because new builds are generally 10% more expensive than older homes, so they decrease in value over the first 5-10 years of ownership.

Potentially - on the basis that new builds almost always drop a bit for a few years unless you buy off plan and move in the when the estate is half built.

If for example you move into your shiny new build with a long item on the warranty it’s at peak value for a while. The next buyer doesn’t get the same benefits that you do. So if you had to sell for what ever reason after just a few years you might get less than you paid for it regardless of what the market is doing. Though it does very much depend on the area and how much other house building is going on.

If we’re in a downturn then you’d have the usual new build dip in value on top of the general dip in value. Which could take you very close to the 10% equity. It definitely gives you more of a buffer though than just the 5%.

They all do it where we live.
We've got Avant, Linden, Persimmon, Barratt, Harron, David Wilson, Stonebridge and Albemarle all building within a 3 mile radius. There's around 1k new houses going up altogether.
We're hopefully buying a Harron but DH has just started a new job so need his payslips before we can proceed.

We're in a similar position to you in that we're in a cheap 2 bed rental but we've already had our baby so now we're overcrowded so need a 3 bed ASAP. I have an older child from previous relationship and he can't share with the baby so she's in with us until we move.
We couldn't wait to ttc due to my age.

I think a few years ago, you would have been told to buy a two bed and then go up the housing ladder in a few years when you have kids. But the housing market is SO SHIT now that buying and selling can take actual years and cost a fortune. It's horrendous. I would wait a bit. Prices are on their way down, and I would reckon the market you're looking at will come down fairly fast, as it will be v dependent on mortgage rates (other areas I don't think are quite as dictated by mortgage rates simply because so many cash buys/downsizers etc). There are also going to be many exiting landlords. Hold your nerve and wait a bit! At the moment, you'll be paying the higher mortgage costs but not waiting long enough for those costs to feed through into house prices (which they will, despite the slightly Ponzi vibes of certain Mumsnetters!)

People always quote rent as paying someone else's mortgage and wasted money.

Remember when you buy a home the majority is interest - that is wasted money too.

Where you win/lose with buying is -

1. part of the money you repay is capital so you are working towards owning a home eventually

1. If house prices rise you are on the ladder if equity increases - positive equity. This also works the other way if prices fall - negative equity.

Wait to buy.

You are sitting pretty. I don’t think you realise how lucky you are.

Very high disposable income due to low housing association rent, no childcare or maternity leave, so you can save hard for a deposit, while waiting for the housing market to fall. You need to be knocking any luxuries on the head like meals out, weekends away, new clothes, expensive gifts.

Sadly, I can see lots of households falling into negative equity and won’t be able to afford to service a SVR so there will be repossessions. The exception will be places like Cambridge which are growing rapidly due to international investment.

FTB in your position will be the winners in this scenario. My parents were the winners in the early 90s and are now sitting in a £1.5m house which cost them £100k. I remember the previous owners stripped everything out, probably to spite the mortgage company. It’s very sad, but if it’s not a FTB it will be an investor who snaps up repossessions.

Impossible to say.
It depends on your ages and other circumstances plus whether you would have free childcare from family or whether you need to pay which would add greatly to your outgoings.

I think it would help OP if you would answer the questions re your income and savings - based on your joint income, low rent, no childcare costs etc you should be able to save a wad of money every month. This doesn't tie with your current low deposit, unless you've pulled that together in the last few months, in which case imagine how much you could save in 12-18 months.

The above info will help posters to help you.

There are so many variables and opinions. I get it. My partner and I are having discussions along similar lines although different circumstances. It's hard to know what to do for the best!!

This isn't always true. We bought our new build in 2020 for £293k on a 2 year fix. When we remortgaged in 2022 the lender valued it at £350k so an increase in value of £57k. We are now one year on and the same houses on our estate are selling for £370k.