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andrewmal

Ftb Taking £300k Mortgage On A £35k Salary... Is It Really That Bad?

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I'm a FTB putting down £75k (with parents' help) on a £375k, 2 bed "luxury" flat (new build). There's ample scope to cut down the living space on the open plan living area and put partition walls up to make another small double. I estimate that I should be able to get at least £300pw from renting out 2 rooms, or £180 pw not doing the modification and just renting out 1 room. I just graduated from uni last summer, and have a job in a big investment bank paying £35k pa, moving up to £42k pa in August. I'm not sure how much bonus will be on top of that, although I don't anticipate more than £10k. I'm pretty confident of my job security, even if a bear market hits (maybe even more so in a bear market!), but I don't ever anticipate to be earning mega-bucks, perhaps steadily rising from £50k to £100k over the next 10 years, using today's wages as a base.

Judging by the vast amount of stuff I've read here, people seem to think I'd be seriously over-extending myself, given that I'm borrowing 6-10x my job income. I want to hear any opinions, if you think I'm insane, but most importantly why.

A presentation I went to at the start of the year by John Llewelyn (chief economist at Lehman Bros) predicted a rate cut of 25-50bps by now in the UK, not least due to the effect of falling house prices have on notional wealth of the average UK homeowner, and his group expected a price dip. Of course, this hasn't materialised, and if anything both prices and interest rate expectations have drifted the other way. I'm in the 'who knows' camp with regards to rate/price expectations, where I'm aware of both sides of the argument, but can't see a clear view one way or another in a market as dynamic as the current one so I value reading peoples' opinions on here. I'm buying the flat at a significant discount so I think the equity in the house could afford to dip by 10-15% before I realise any real effect on the principal amount.

Am I dreaming and about to make the biggest mistake of my life, or is this a wise alternative to blowing away money on rent, given that I'm willing to take a lodger for a few years until the mortgage becomes more manageable relative to my wage. I definitely feel a sense of over-extending myself, yes, but I feel that this flat at this price is too good to miss. I've been looking since February, so it's not like I haven't done my homework.

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How much would it cost to rent the flat?

That will go a long way to giving you your answer.

Most people on this board (and I agree with them) think that new builds will get hit the hardest.

They have very little in the way of enduring features. Look past the new paint and flooring.

Is the place in a decent location? Does it have good storage, has it been well built.

Does the developer offer any guarantees on their work?

On a new build things will go wrong, and you will struggle to get them to do any repairs once they have your money.

If I were buying I'd buy the worst place in the best location, and spend some time doing a fixer-upper.

That way you will be far better protected from a slump.

Edited by BandWagon

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I'm a FTB putting down £75k (with parents' help) on a £375k, 2 bed "luxury" flat (new build). There's ample scope to cut down the living space on the open plan living area and put partition walls up to make another small double. I estimate that I should be able to get at least £300pw from renting out 2 rooms, or £180 pw not doing the modification and just renting out 1 room. I just graduated from uni last summer, and have a job in a big investment bank paying £35k pa, moving up to £42k pa in August. I'm not sure how much bonus will be on top of that, although I don't anticipate more than £10k. I'm pretty confident of my job security, even if a bear market hits (maybe even more so in a bear market!), but I don't ever anticipate to be earning mega-bucks, perhaps steadily rising from £50k to £100k over the next 10 years, using today's wages as a base.

Judging by the vast amount of stuff I've read here, people seem to think I'd be seriously over-extending myself, given that I'm borrowing 6-10x my job income. I want to hear any opinions, if you think I'm insane, but most importantly why.

A presentation I went to at the start of the year by John Llewelyn (chief economist at Lehman Bros) predicted a rate cut of 25-50bps by now in the UK, not least due to the effect of falling house prices have on notional wealth of the average UK homeowner, and his group expected a price dip. Of course, this hasn't materialised, and if anything both prices and interest rate expectations have drifted the other way. I'm in the 'who knows' camp with regards to rate/price expectations, where I'm aware of both sides of the argument, but can't see a clear view one way or another in a market as dynamic as the current one so I value reading peoples' opinions on here. I'm buying the flat at a significant discount so I think the equity in the house could afford to dip by 10-15% before I realise any real effect on the principal amount.

Am I dreaming and about to make the biggest mistake of my life, or is this a wise alternative to blowing away money on rent, given that I'm willing to take a lodger for a few years until the mortgage becomes more manageable relative to my wage. I definitely feel a sense of over-extending myself, yes, but I feel that this flat at this price is too good to miss. I've been looking since February, so it's not like I haven't done my homework.

why are you buying a flat ?

with that budget you can buy a nice house just about anywhere........

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A presentation I went to at the start of the year by John Llewelyn (chief economist at Lehman Bros) predicted a rate cut of 25-50bps by now in the UK

Short-sterling is now pricing in a 25bp rise by summer and a further 25bp rise by December, bringing us to a 5% base-rate.

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I'm a FTB putting down £75k (with parents' help) on a £375k, 2 bed "luxury" flat (new build). There's ample scope to cut down the living space on the open plan living area and put partition walls up to make another small double. I estimate that I should be able to get at least £300pw from renting out 2 rooms, or £180 pw not doing the modification and just renting out 1 room. I just graduated from uni last summer, and have a job in a big investment bank paying £35k pa, moving up to £42k pa in August. I'm not sure how much bonus will be on top of that, although I don't anticipate more than £10k. I'm pretty confident of my job security, even if a bear market hits (maybe even more so in a bear market!), but I don't ever anticipate to be earning mega-bucks, perhaps steadily rising from £50k to £100k over the next 10 years, using today's wages as a base.

Judging by the vast amount of stuff I've read here, people seem to think I'd be seriously over-extending myself, given that I'm borrowing 6-10x my job income. I want to hear any opinions, if you think I'm insane, but most importantly why.

A presentation I went to at the start of the year by John Llewelyn (chief economist at Lehman Bros) predicted a rate cut of 25-50bps by now in the UK, not least due to the effect of falling house prices have on notional wealth of the average UK homeowner, and his group expected a price dip. Of course, this hasn't materialised, and if anything both prices and interest rate expectations have drifted the other way. I'm in the 'who knows' camp with regards to rate/price expectations, where I'm aware of both sides of the argument, but can't see a clear view one way or another in a market as dynamic as the current one so I value reading peoples' opinions on here. I'm buying the flat at a significant discount so I think the equity in the house could afford to dip by 10-15% before I realise any real effect on the principal amount.

Am I dreaming and about to make the biggest mistake of my life, or is this a wise alternative to blowing away money on rent, given that I'm willing to take a lodger for a few years until the mortgage becomes more manageable relative to my wage. I definitely feel a sense of over-extending myself, yes, but I feel that this flat at this price is too good to miss. I've been looking since February, so it's not like I haven't done my homework.

Silly silly boy, like a lamb to the slaughter.

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How sure are you that you will get suitable tenants? Do you have them lined up? That seems like a big variable. Otherwise, I think you could probably cope with the payments. Sounds like your parents would be there to bail you out anyway (if for example the interest rates went up).

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How much would it cost to rent the flat?

That will go a long way to giving you the answer.

A lower spec has just been let for £2000pcm, so it's definitely good from that simplistic of a view of the world.

setting aside £1000 per month (half my take-home before bonus), plus factoring in the rent from the other 1 or 2 lodgers, it's a buy rather than rent, but of course real interest rates are low. It's a tough one... spend £8000 on rent over the next year in a shared accomodation, or put it into a property that I think I can get at a 10-15% discount to its true value, but could decline a further 20% over the next couple of years... This all would have been so much easier a few years ago.

Maybe could use the 10-15% mark as a 'stop loss'.

ah well, as a wise man once said, in the long run, we're all dead.

edit : to the guy who proposed the worst property in a good location, that's my next plan, but properties across the spectrum in areas I'm bullish on are getting snapped up straight away at the moment at ridiculous prices.

Edited by andrewmal

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Guest Winners and Losers

Sorry to be a party pooper, but this one is suspect to me. :unsure:

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a property that I think I can get at a 10-15% discount to its true value

It's true value is what you or anybody else pays for it. You, the buyer, set the value. The true value isn't the original 'asking price' plucked out of thin air, but what it sells for.

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Short-sterling is now pricing in a 25bp rise by summer and a further 25bp rise by December, bringing us to a 5% base-rate.

I know this. I was quoting Llewelyn as the reason I don't trust 'experts' or 'consensus'. He was hardly alone in his views.

I guess the real question here is how high do people see rates rising relative to wage/price inflation.

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Have you thought about service charges? On a £375k new build flat in London it is likely to be substantial.

Can you tell us which area of London you are in, and the square footage of the property?

Also, what is your job in banking? Judging by your salary expectations I'm guessing it isn't a front office role. IT, finance, something similar? There is usually a massive front office cull after the first year or two, as they get rid of those who aren't cutting it (the majority, usually....). If you are in more of a support role, there is always the ever present risk of outsourcing - I believe a few of the major City banks are planning just such a move.

On the upside, you have a £75k cushion which should cover your ass even if there are substantial falls in the market. On the other hand, if prices drop you'll have a bullseye moment ("look what you could have won").

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Some investment bank is pying him £35k - soon to be £42k - and he has to ask random people on an internet forum about his personal finances?

What is this bank actually paying him for? His financial acumen? Analytical skills? His nice taste in sharp suits?What?

Awooga and all that...

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Sorry to be a party pooper, but this one is suspect to me. :unsure:

I agree. If it was designed to aggravate, it certainly succeeded on me.

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Do you really want to live with lodgers? If you don't mind sharing why not get a room in a shared house for 1-2 years instead rather than rent a luxury apartment and save shitloads. If there is then a downturn in the housing market you can buy somewhere decent for a lot less plus by then you'll have much higher wages.

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I can't understand why you're posting on this forum. Most of us here are expecting a House price correction starting anytime now! If you want to buy an overpriced newbuild that's up to you!

Personally I think you probably live under a bridge somewhere in Scandinavia :rolleyes:

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Guest Winners and Losers

but properties across the spectrum in areas I'm bullish on are getting snapped up straight away at the moment at ridiculous prices.

My own personal favourite. :lol::rolleyes:

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Have you thought about service charges? On a £375k new build flat in London it is likely to be substantial.

Can you tell us which area of London you are in, and the square footage of the property?

Also, what is your job in banking? Judging by your salary expectations I'm guessing it isn't a front office role. IT, finance, something similar? There is usually a massive front office cull after the first year or two, as they get rid of those who aren't cutting it (the majority, usually....). If you are in more of a support role, there is always the ever present risk of outsourcing - I believe a few of the major City banks are planning just such a move.

On the upside, you have a £75k cushion which should cover your ass even if there are substantial falls in the market. On the other hand, if prices drop you'll have a bullseye moment ("look what you could have won").

service charges aren't too bad at all on a relative basis. definitely not enough to put me off. The sq footage is 1150.

as you guessed, not a front office role, but not really a support role. I'm 1 year into a 3 yr graduate analyst scheme, where the bulk of my work focuses on Fund of hedge funds arena (encompassing both the sales + the investment side), which is why I'm not all that worried about not being able to find work in a bear market should I stay in the 'industry'. Several people reading this are probably having a good laugh, given that this area of finance to most people is the biggest joke in the City ;-)

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I know this. I was quoting Llewelyn as the reason I don't trust 'experts' or 'consensus'. He was hardly alone in his views.

This isn't an opinion but the expectations of the money markets when they issue bonds to back your mortgage. ;)

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Guest Charlie The Tramp

Only savers have ended up in poverty for the past decade.

Well I must have been the exception to that rule. :rolleyes:

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A lower spec has just been let for £2000pcm, so it's definitely good from that simplistic of a view of the world.

setting aside £1000 per month (half my take-home before bonus), plus factoring in the rent from the other 1 or 2 lodgers, it's a buy rather than rent, but of course real interest rates are low. It's a tough one... spend £8000 on rent over the next year in a shared accomodation, or put it into a property that I think I can get at a 10-15% discount to its true value, but could decline a further 20% over the next couple of years... This all would have been so much easier a few years ago.

If you know anything about trading you should split the deal into it's component parts.

Considering renting the property against renting the money is a good place to start.

Then consider as the owner you are taking on the responsibility of maintaining the property, and a responsiblity for the income it generates, whether yourself or a lodger/tenant. Obviously with yourself as tenant you have less worries about voids etc.

You are also taking a highly leveraged position on the future movement of the housing market, this is where the potential danger lies.

Also another issue, real interest rates aren't low at all.

It's only nominal interest rates that are low, and all these do is project the burden of debt repayment into the future.

Most people have made the mistake of confusing the two.

Edited by BandWagon

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Also another issue, real interest rates aren't low at all.

really? I thought they were. maybe not on a percentage basis, but surely the nominal - inflation index spread is pretty low relative to its empirical mean. I will admit I haven't run an analysis on this.

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really? I thought they were. maybe not on a percentage basis, but surely the nominal - inflation index spread is pretty low relative to its empirical mean. I will admit I haven't run an analysis on this.

Well reading your posts it is a dot on the cards you work in the financial services industry. My guess is HSBC, HBOS, Morgan Stanley, or Amex.

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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