One of the things we found when buying our first house was that everyone encouraged us to spend as much as we could possibly could.
When my husband and I bought our first house just over 18 months ago, one of the biggest things we found was that everyone seemed to be trying to encourage us to spend more money than we wanted to. While our financial adviser was excellent and had carefully poured over our income and outgoings to determine what we could afford to spend on a mortgage each month, she didn’t offer much advice in the way of preparing for the future.
Whenever estate agents asked how much we could spend they always asked for the maximum figure we could borrow, rather than the amount we actually wanted to spend. This lead to them offering to show us houses around and slightly higher than that figure that would come in around the maximum we could spend with a bit of negotiating. Of course, they are in it for the money, but when your a first time buyer it’s easy to be overwhelmed by everything and go along with whatever they have to say.
Our first house
In the end our first house was actually around £13k less than what we could afford to borrow. Yes, we made sacrifices. Ideally we would have liked a 3 bedroom house. All the 3 beds we could afford were in horrible areas. All the 3 beds we liked were out of budget. So we went for a 2 bed house in a nice area that was massively under budget. We got a further £5k knocked off because the central heating didn’t work and we had enough in savings to have this put in without adding it to the mortgage.
Buying a house so far under our budget meant that our mortgage was instantly £100 a month less. We already knew we were going to be comfortable because we had saved up such a huge deposit, but this made things even easier in the first year while we were finding our feet and getting used to paying bills.
If the house you are planning to buy is at the top end of your budget do your research on house prices in the area. We found one estate agent in particular priced all of its houses about 10% higher the other agents in the town. We ended up walking away from a house we loved because we felt it was overpriced compared to recent sales in the area and the owners were refusing to budge on the full asking price. It still hasn’t sold almost two years later.
Planning for the future
Buying under budget also meant that we don’t need toworry about the future quite so much. Interest rates are so low at the moment, eventually, inevitably, they will go up. But we know we can afford it if and when they do. Unfortunately we know plenty of people that would really struggle to afford their mortgage should interest rates take a jump. We also feel secure in the knowledge that would could quite easily live off one and income and still be able to afford our mortgage. While we do have insurance in place should we be off sick long term or should we be made redundant it’s nice knowing we could live off of one income if we really had to.
Affordability if rates should rise is something that wasn’t discussed with us at all during the process of buying a house. I know initially it’s likely rates will only rise a small amount – but if you’re already struggling or living paycheck to paycheck then this could have severe ramifications. While another huge hike in interest rates like in the 1980’s in unlikely it still pays to be prepared for the future.
If you are currently going through the process of buying a house for the first time or have family that are it is really worth considering the future and what might happen. While most people to tend to opt for a fixed mortgage for as long as possible it can be so easy to get comfortable paying that rate and not thinking about what will happen in the future when the fixed term ends.
I know for some people affordability in the future isn’t an issue, as buying house and having a mortgage actually means spending significantly less than what they are currently paying rent. After years of saving for a deposit and then finding money on top of that for solicitors fee’s and moving costs it an be easy to feel like you want to spend as much as you possibly can on a house and get as much as you can for your money since your likely to be spending the next 25 – 35 years paying for it. It’s also worth deciding what sort of life you want, we enjoy knowing that we can afford treats and could probably manage if we lost one of our incomes.