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Sibley's Love Child

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Now, I’ve intimated on a previous thread that my missus is getting increasingly antsy about buying soon (please, no ‘don’t listen to the missus’ or ‘grow a pair’ comments). I reckon I can keep her mollified till Q4 2009 or Q1 2010 at the latest. Assuming this as a given, I’d like to get your opinions about hypothetical debt-to-income ratios.

I’m working on the assumption of buying a two-bed terrace for 120k at the maximum. We have a 15k deposit so worse-case scenario looking to borrow 105k. My gross salary is 27k and the missus’ is 25k.

Just ignoring the point of how I’ll be missing the bottom by months or even years (for the TFH crowd), is this a risky scenario or do you think it’s manageable?

Many thanks as always.

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Now, I’ve intimated on a previous thread that my missus is getting increasingly antsy about buying soon (please, no ‘don’t listen to the missus’ or ‘grow a pair’ comments). I reckon I can keep her mollified till Q4 2009 or Q1 2010 at the latest. Assuming this as a given, I’d like to get your opinions about hypothetical debt-to-income ratios.

I’m working on the assumption of buying a two-bed terrace for 120k at the maximum. We have a 15k deposit so worse-case scenario looking to borrow 105k. My gross salary is 27k and the missus’ is 25k.

Just ignoring the point of how I’ll be missing the bottom by months or even years (for the TFH crowd), is this a risky scenario or do you think it’s manageable?

Many thanks as always.

Doesn't sound like a great plan. If you have a kid the 2 bed will seem very pokey and your mortgage will be nearly 4 times your income. So quite high leverage on a property that you could be feeling pretty cramped in. That said, you could be in a much worse position.

edited to add - if you think you can save all of one salary to pay the debt down with for at least a couple of years, this should be pretty affordable

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Just ignoring the point of how I’ll be missing the bottom by months or even years (for the TFH crowd), is this a risky scenario or do you think it’s manageable?
IMO, it's a very risky scenario. People are losing their jobs at a rate of knots and even well qualified people in many fields are having a tough time getting new ones. If you lose your job for any period of time, that mortgage will soon become a millstone. You can't ignore the point of missing the bottom, because if you move into a high level of negative equity, at best it will increase your mortgage interest rate, and at worst the bank will call the loan. These are issues you need to consider. It's all a matter of how bad you think this depression is going to be.

Not a good time to buy, IMO. Stay liquid. If you can at least stall the missus until the start of 2010, I think the gravity of the collapse will be much more apparent. Start reading up on the housing collapse, job losses and tent cities springing up across America. As it goes there, it will go here. They are a little ahead on the curve. (All with a big 'In my opinion', lack of crystal ball not withstanding.)

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Risky, but in my view not terribly so.

If you and your wife's jobs are secure, and if you are prepared for a further fall (although with a 15 per cent deposit now, and presumably you've already argued a reduction in the original asking price, then you may just about avoid negative equity), and if you are happy with the place (two bedroomed houses are not necessarily "pokey"), then it might be worth a punt.

Just to add: the above opinion is based on the presumption that you are looking to stay in the house for a good few years. If you are planning to buy, and then more on in two or three years' time, then please don't do it. It's too risky. You'll likely end up trapped.

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Doesn't sound like a great plan. If you have a kid the 2 bed will seem very pokey and your mortgage will be nearly 4 times your income. So quite high leverage on a property that you could be feeling pretty cramped in. That said, you could be in a much worse position.

edited to add - if you think you can save all of one salary to pay the debt down with for at least a couple of years, this should be pretty affordable

Fair point re: affordability Worzel, I agree it's not ideal but do-able.

At the moment the missus, I and our newborn live in a very pokey (bedroom, bathroom, lounge and toilet) one-bed flat to to be honest a two-bed terrace is positively mansion-like.

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Guest X-QUORK

Take her on holiday, buy a puppy, anything to distract her for another year at least.

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IMO, it's a very risky scenario. People are losing their jobs at a rate of knots and even well qualified people in many fields are having a tough time getting new ones. If you lose your job for any period of time, that mortgage will soon become a millstone. You can't ignore the point of missing the bottom, because if you move into a high level of negative equity, at best it will increase your mortgage interest rate, and at worst the bank will call the loan. These are issues you need to consider. It's all a matter of how bad you think this depression is going to be.

Not a good time to buy, IMO. Stay liquid. If you can at least stall the missus until the start of 2010, I think the gravity of the collapse will be much more apparent. Start reading up on the housing collapse, job losses and tent cities springing up across America. As it goes there, it will go here. They are a little ahead on the curve. (All with a big 'In my opinion', lack of crystal ball not withstanding.)

Cheers PR8, i'm getting very 'don't do it' vibes already, then. Yes, I have no idea about job security. Public sector for what it's worth but, hey, it's only a matter of time.

To be honest, i'm hoping to arm myself with counter-arguments to persuade the missus to 'accept' going in a privately rented house for a year or two.

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Just ignoring the point of how I’ll be missing the bottom by months or even years (for the TFH crowd),

why is it TFH to assume a long term secular housing bear market - was Japan's lost decade a TFH situation?

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Risky, but in my view not terribly so.

If you and your wife's jobs are secure, and if you are prepared for a further fall (although with a 15 per cent deposit now, and presumably you've already argued a reduction in the original asking price, then you may just about avoid negative equity), and if you are happy with the place (two bedroomed houses are not necessarily "pokey"), then it might be worth a punt.

Just to add: the above opinion is based on the presumption that you are looking to stay in the house for a good few years. If you are planning to buy, and then more on in two or three years' time, then please don't do it. It's too risky. You'll likely end up trapped.

Thanks Danny, a slightly less pessimistic response. If I followed my hypothetical plan, I agree that we would only just avoid NE assuming further falls but once we buy we're there for the long-haul.

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Fair point re: affordability Worzel, I agree it's not ideal but do-able.

At the moment the missus, I and our newborn live in a very pokey (bedroom, bathroom, lounge and toilet) one-bed flat to to be honest a two-bed terrace is positively mansion-like.

I feel for you, classic example of what HPI has led to. You and your missus are both earning the natioanl average or just above, and you are having to live in a one bed flat with a little un. I trust you are making sure you are claiming all the available tax credits? I would imagine that it would be a decent amount in your situation. are you paying for childcare so your lady can work or making use of family?

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Cheers PR8, i'm getting very 'don't do it' vibes already, then. Yes, I have no idea about job security. Public sector for what it's worth but, hey, it's only a matter of time.

To be honest, i'm hoping to arm myself with counter-arguments to persuade the missus to 'accept' going in a privately rented house for a year or two.

Print off the house price inflation graph from this site and ask her which way she thinks prices might be going for the next couple of years.

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Take her on holiday, buy a puppy, anything to distract her for another year at least.

Cheers X-QUORK, have you got anywhere nice to take her? Just bring her back in one piece. Oh, and she's fully immunised.

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Cheers X-QUORK, have you got anywhere nice to take her? Just bring her back in one piece. Oh, and she's fully immunised.

Mrs X-QUORK might have something to say about that idea! I was only semi-joking, having a nice long holiday together in the winter will give you both something positive to look forward to. You can justify it financially by comparing it to the lack of depreciation you'd suffer from buying a house now.

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Now, I’ve intimated on a previous thread that my missus is getting increasingly antsy about buying soon (please, no ‘don’t listen to the missus’ or ‘grow a pair’ comments). I reckon I can keep her mollified till Q4 2009 or Q1 2010 at the latest. Assuming this as a given, I’d like to get your opinions about hypothetical debt-to-income ratios.

I’m working on the assumption of buying a two-bed terrace for 120k at the maximum. We have a 15k deposit so worse-case scenario looking to borrow 105k. My gross salary is 27k and the missus’ is 25k.

Just ignoring the point of how I’ll be missing the bottom by months or even years (for the TFH crowd), is this a risky scenario or do you think it’s manageable?

Many thanks as always.

Sit down and calculate if you could make the mortage payments and pay your other (necessary) bills on one income if the interest payments were 50% higher

If you cant then you are taking a risk IMHO

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I feel for you, classic example of what HPI has led to. You and your missus are both earning the natioanl average or just above, and you are having to live in a one bed flat with a little un. I trust you are making sure you are claiming all the available tax credits? I would imagine that it would be a decent amount in your situation. are you paying for childcare so your lady can work or making use of family?

Yes thanks, although I think we're only entitled to the basic tax credits circa £80 per month. The missus is off on a year's maternity leave (until March 2010) at which point the mother-in-law will look after the little 'un for us full-time. Thank god for her.

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Sit down and calculate if you could make the mortage payments and pay your other (necessary) bills on one income if the interest payments were 50% higher

If you cant then you are taking a risk IMHO

Thanks Neverland, even that makes sense to an economic simpleton like myself. Quite possibly is the answer but, as you say, would need to some playing around with figures.

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What was totally lost sight of in the last insane house price boom was one word "Affordability".

As it was similarly in the 1980s Thatcherist Boom-Bust.

Perhaps losing much capital through unwise property speculation in the Heath-Barber Boom-Bust (1973 Bust) was a harsh lesson which has remained with me ever since.

The last and most painful Boom-Bust was predicated on the lowest effective interest rates for 50 years; coupled with insanity demonstrated on behalf of lenders: Northern Rock taking first prize by lending on LTVs (Loan To Value Ratio) of 120% LTV: and equally insane Income Multiples, as every mortgage provider fought the others for market share, thinking the carnival wopuld never end.

This meant that morgagers (Borrowers) could borrow silly amounts of money, which in real terms were simply not servicable if and when economic conditions changed.

Well, as we know, they did: and pretty dramatically too!

Let's look at the core numbers firstly

You plan to proceed with a deposit of just 12.5%: meaning 85% of your intended house purchase will be debt.

We don't know what the tenor you plan is (How long the mortgage will run).

Now this is perhaps OK, if and when a buyer completes right at the beginning of an economic upswing: and a property boom.

However, you are planning to complete (Latest Q1 2010) early next year: when the economy is still contracting, unemployment is heading inexorably towards 3 Million and only the fools in Treasury, Westminster and the B of E believe that Quantative Easing is "Uncharted Territory.........and we don't really know what the outcome will be!"

When contracting any significant debt a prudent borrower plans contingency exits: called, popularly Back Stop Strategy in Corporate Finance and Strategic Planning.

Financial Planning must always assume the very worst Downside Risks: in this case, one of you lose your job, or even both!

We know that taxes are set to rise; dramatically! Britain has to pay back hundreds of billions of sovereign debt (Government borrowing).

In more sane days, mortgage lenders re-set the clock on time to end of mortgage when interest rates rose: thus a 15 year mortgage became a 17 or 18 year term, thus dropping monthly repayments: when things steadied down again, then the term reduced to original.

Where does on go from 35 years? 40? 50?

Now one facet that no main commentator has addressed (Except myself BTW!), is Britain's Balance of Trade Deficit.

At some forward date this has to be addressed: additionally, by the MPC of the B Of E synthetically holding down Base Rate, this plus rapidly mounting government debt has drastically affected the exchange rate of Sterling to the Euro and the US Dollar.

Unfortunately, Britain is a massive importer, not just of Asian plastic tat, but essentials: such as Natural and Petroleum Gas, coal and anthracite, crude oil, food, raw materials and main manufactured durables.

Without these imports, then the country pretty quickly dies on its feet.

Thus despite Godron and his gang trying to desperately to stem the economic tide and kick start the housing market (Which is why they are falsely holding down Base Rate) soon, Base Rate will have to rise: and quite quickly too.

OK: say you get a good fixed interest rate mortgage deal: what happens if your only escape route from debt is to sell, since you can't service the mortgage?

You would be trying to sell on an already depressed market which was accelerating to destruction!

OK: find another job: with then unemployment exceeding 4 million? (Quite feasible).

My advice is to save like mad: and wait out the market until it turns: it has quite some way to go down as yet, IMHO.

Discount the VI forecasts as such as the CML and the RCIS: stick to this more sane view!

http://www.telegraph.co.uk/property/proper...Federation.html

Finally, consider this bit of simple pragmatism: in order for house prices to start really rising again, then incomes must rise in lock step, since at the peak of the insane boom, it was only silly income multiples, idiotic low base rates, and lunatic LTVs which caused the boom, supported by crazy financial leverage which used Structured Investment Vehicles to bundle dodgy Mortgage Backed Securities, with dubious insurance warranties, in order to attract foreign capital to fund the whole charade.

Those funds are now not accessible: and there isn't sufficient native capital in Britain to fund a modest rise and a steady growing market: let alone a boom.

Save - Save- Save.

Cash is King right now!

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Prescience's advice is good and I would recommend that you heed it.

My very basic advice is to base your numbers on a mortgage interest (repayment) rate of 7% (long term average). Aim to keep 3 months emergency cash as a bare minimum, preferably 6 months if you can. This amount should cover whatever is needed to keep your house and bailiffs away, stuff like poll tax, mortgage, leccy and so on. If things are dire you can always cut off sky/lose car etc.

If you are feeling brave, see if you can cope with a 12% mortgage rate, although fixing for a few years might help

With that in mind look at 7% mortgage monthly payments, and if you get a lower rate either stash the cash, protecting liquidity, or if possible, overpay the mortgage. If you can get a mortgage that allows holidays and can be offset against those overpayments then all the better.

I didn't spot your age/time in life, so I would urge you to think about what would happen if you have children together and how that would affect your situation and so on, so forth if that might be in your future together.

None of this is financial advice and taking it as such would be foolish.

Good luck!

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Put in lots of stupidly low offers.

When you get gazumped tell your wife "it's those b*stard estate agents people are always moaning about on HPC".

By the time you secure a place hopefully the market will have moved in the way you want it to.

Good luck ....

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You may wish to put it to your wife that renting for a year or two may give you a better idea of what size house and garden would fit your family best.

It does no harm to live in the street or close to it before buying, there are lousy and good streets in all areas. A house is a huge purchase and it would make sense to check out everything before parting with cash and signing on the dotted line for a good chunk of your future salary. It will also give you time to see what way the financial wind blows.

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Prescience's advice is good and I would recommend that you heed it.

I agree, and in the current very uncertain conditions my own instinct would be to save like mad and build up a bigger rainy day fund over a year or three. And if the worst predictions don't materialise then you've got a bigger deposit (I can't see any significant price rises, one taxes and interest rates start to go up as they surely must)!

Just sell her the idea of getting a 3 bed house for the same level of debt if she can wait a year or two?

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