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mortgage advice

 
#1 mortgage advice
13/03/2008 15:18

peso

my better half and i are going to buy our first house and we are a bit in the dilemma on how much to gear up.

we have circa 100k of equity, and a joint household income of 130k. this would be our first house.

i would like to spend 550k - is this nuts?

thanks for advice, peace in the middle east

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#2 RE: mortgage advice
13/03/2008 15:41

Mervyn King to peso (#1)

I'd personally be inclined to have a lower exposure - mindful that the day usually comes when you have kids and may need to survive on one salary, even if you are gay - but at present:

- 100k equity - allowing at least 25k for stamp duty and expenses, we'll say 75k down

- 550k purchase price, let's assume you pay that (either asking price or a 25k discount on a 575k house or whatever

- you'll need a 475k loan

- that is 3.65x joint income, not too ridiculous and you should still be able to persuade someone to lend you that

- it'll be about 2,200 pcm interest only, 2,900pcm repayment

- suggest you do a monthly budget and work out whether you can afford this!

- if you can now, think about future plans (family and career-wise)

- be careful about opting for interest only, as it will of course need paying back at some point - may not be such an issue if you're confident of decent bonuses

- with this level of exposure, you really should get a fixed rate to save yourself sleepless nights

That's my take anyway

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#3 RE: mortgage advice
13/03/2008 15:47

Mervyn King to Mervyn King (#2)

PS - also think "do I mind living somewhere cheaper if it means a thousand more in my pocket each month" and "do I need a house when a flat might do me nicely".

I add the latter because I bought a house last year (upgrading from a flat) and they do come at a significant premium. I do now wonder whether I should have just got a flat in a nicer area.

On the other hand, move into somewhere that will last you and save handing over large sums to our dear Chancellor (along with removal fees, legal expenses, redecoration etc etc etc) each time you outgrow somewhere.

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#4 RE: mortgage advice
15/03/2008 22:15

JohmSmith to Mervyn King (#3)

I think its nuts to buy a house now.

Have you guy's heard of the credit crunch/mortgage crisis and falling house prices ?

If you guys are smart enough to earn 130k you should now that you can invest your money more wisely. Housing prices in the UK are way over the top.- its going to fall 100%.

JohnSmith

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#5 RE: mortgage advice
16/03/2008 13:31

year zero to JohmSmith (#4)

I'm in a similar boat having been married for a couple of years now, still renting but finally close to having a mentionable deposit. I'm convinced that house prices are going to fall, it's not rocket science to see that the average salary can't afford the average house monthly repayments and that is unsustainable. Free markets are great but how much they go down is usually equal to how much they go up and things always revert back to the mean. Plus look at the US as a leading indicator, in the last year the average property price in California has dropped by nearly 20%. I don't think there's going to be a sudden unwinding as the government doesn't care about inflation and wont be increasing interest rates anytime soon, unless something else happens to really kick all the buy to let types to sell in a frenzy. So I guess I'm expecting more of a long drawn out slump Japan-style where property prices have fallen steadily since about 1990, despite interest rates of close to zero. Nobody there says 'property always goes up'. But there again, prices always come down faster than they go up. hmm.

That said I would consider buying a property that I could call my own and see it not as an investment but as something that would depreciate with value over time (like my car), like say a 200k house that's worth 5k less each quarter. I would expect negative equity and pay off as much as possible as quickly as possible to counter it.

Dunno. It's quite scary. The stock market has fallen again recently and it's basically like on average all the gains made in the last year have been lost and if that happens regularly it can be a long time before you see any profit. In the same way people buying property in 2007/2008 could be those slightly unenviable types who all bought at the top of the market and who can say in real terms no one will ever again pay as much for their house as they did (at least for the next 20 years anyway).

Try this from a few months ago:

http://www.moneyweek.com/file/34354/why-now-is-the-time-to-rent-not-own.html

For me the considerations are cost of ownership and the quality of life that comes with owning your own property, how much the wife really wants our own place, how nice a place I can find to rent, how quickly house prices are falling and therefore how much more we could buy if we just wait another six months....

Sorry if that went a bit off topic! I am fully prepared for a slating from you homeowners!

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