First Time Buyer - On the right lines??

[Dom1982]

Hi All.

I'm a first time poster so please be gentle! Great forum on here, which I've had a good read through!

I'm really after some advice and reassurance that I'm thinking along the right lines, possibly in preparation of buying a property in around six months.

To give some brief background, I am 29, just relocated to a large town in Leicestershire from the south coast, earn £37k in a stable job, have a very high credit score and, after spending years house sharing down south, have a deposit of £12k.

At present I am renting a room which costs me £4k a year. Whilst the housing market seems quite unpredictable at present, I'm very aware that renting for another year or two is throwing a fair bit of money away. I am therefore tempted to buy a 2-4 bed property and rent at least one room out for again around £4k a year. Therefore, as long as the property I purchase doesn't decrease in value by more than 12-16k over the next few years then my brain says this is a good investment. Is this reasonable?

In some ways I'm not fussy as to whether my first purchase is a 2-3 bedroom town centre flat or a slightly larger house in the suburbs. I think I could rent a spare room or two in either. I am aware however that I may need to sell/rent the property in three years if I need to move for work and was wondering what peoples views were in terms of whether I borrow a maximum amount to purchase a house now or borrow a more conservative amount for a flat? Are there advantages long term to investing more now and hopefully gaining more in the future?

Two quick cheeky questions too please:
1. I have a year left of a five year car finance agreement (won't be doing that again!) which sees £250 paid every month. This doesn't impact on my deposit but will it be seen as a problem for borrowing? This is my only major outgoing every month apart from rent and student loan which comes directly out of my salary.
2. Are the government borrowing schemes for first time buyers worth considering, even if I have a deposit of around 8%?

Any thoughts/opinions would be really useful.

Thanks for your time.
Dom

[Adam Long]

Hi Dom,

Nobody knows what the housing market will do in the next 12 months but in my humble opinion now is a good time to buy particularly away from the South.

It sounds like you have a good idea about buying a property which has some additional rentable rooms, in the current financial climate it's always a good idea to have a fall back if things go wrong. The only drawback with this is that you should declare it to your lender and this may narrow your choice of lenders.

If you are looking at potentially moving out later and want to keep the property as a rental vehicle then a larger house which could be let on a room by room basis will always give you a greater yield and less impacting voids than a single let.

However:

1. You would have to obtain consent to let from your lender and most lender will penalise you in some way from HBOS who regularly raise the interest rate by up to 2% down to some lenders who will charge you a nominal admin fee so you need to make sure that you choose a lender who will take a better view unless you want to remortgage.
2. Unless you want to go to the hassle of obtaining a license from the council you need to check the local HMO licensing regulations but in general if your house is 2 storey and has less than 5 lettable rooms you should be OK.

Car question, the lender will just look at it as part of your outgoing when calculating affordability, if they did not lend to people with loans they would never lend at all


Government scheme question, in my view it's just a scheme to help new build builders out not buyers. If you want your investment to fall by up to 20% when you open the door then buy a new build, other than that don't touch one with a barge pole.

Good Luck

[Richard Webster]

Some sensible advice from Adam Long there.

Also in general terms, particularly outside London, houses are easier to sell and hold their value better than flats.