Getting my First Mortgage.

On graduating from Oxford university, the idea of buying a house seemed like an impossible dream. It didn’t help that my first job was working as a gardener for £4.50 an hour. After a year of digging up weeds I thought I ought to make use of my first class degree in Economics so became an Economics teacher at the princely wage of £10.50 per hour. For 3 years I rented a house with a friend for £715 a month. Even without my training as an Economist I knew that paying this kind of rent was a very bad long term financial move. We were paying a considerable sum per month, but with nothing to show for it. Furthermore, rents in Oxford have been increasing above the rate of inflation for a long time. The situation would only get worse over time.

I desperately wanted to buy a house, but my financial situation made for grim reading. My income from self employed teaching was about £25,000 per year. My savings of £6,000 were nearly mirrored by a student loan of £4,000. A standard mortgage would give me an mortgage loan of £75,000, just about enough to buy a garden shed. The house we were renting was valued at £195,000.

Anyway my parents understood my predicament and very kindly offered to help. They offered an interest free loan of £36,000 and if, absolutely necessary would act as a guarantor for a mortgage. Even with a significant deposit, it proved difficult to get a sufficient mortgage. Eventually I decided to use a mortgage adviser. It cost £500 when I took out the mortgage, but it proved money well spent, given my situation. In the end we found 2 mortgage products which would offer sufficient mortgage. In the end, the mortgage I took out was a self certification mortgage from the Standard Life. It is possible I needed to exaggerate my income, because the mortgage loan was £139,000. The house price was £185,000. This was made up from:

• My mortgage of £139,000,
• Loan from parents £36,000 and
• £6,000 of my own money.

Buying the house left me without absolutely nothing. I spent so much money on the house, I needed to borrow on a credit card (at 0% interest) money to pay for the extra costs of moving.The new mortgage was £820 a month. Only £100 a month more than the cost of renting. Nevertheless, it is quite a high % of my personal disposable income, with council tax at £120 a month it is almost 50% of my income. Since getting a mortgage is like an investment for the future, I immediately stopped paying any pension contributions.

Since I bought the house 3 years ago, interest rates have increased. To cope with this I have remortgaged for a better deal, (with existing company) and also extended my mortgage term from 31 years to 47 years. See: Why I increased mortgage term to 47 years People usually tell you that extending your mortgage is a bad idea. But, for me it was a good move; I would always prefer a 47 year mortgage to renting. During the 3 years I have had no chance to make any savings. The credit card debt I incurred during the process of buying the house is still there; but, I have always paid 0% interest on this debt, by moving it from one credit card to another.

It has been a big financial commitment to buy a house on a mortgage so much more than my income. However, I am very grateful for the opportunity to buy a house. Quite soon, the cost of my mortgage will be less than renting. In 20 years time, the mortgage payments will be a much smaller % of my income. Furthermore, house prices in Oxford have continued to rise. At a conservative estimate the house is valued at £210,000. I still owe my parents £35,000

What I have learnt from this experience:

1. Buying a house is better than renting.
2. Be prepared to make some financial sacrifices to get a mortgage (e.g. give up pension to pay mortgage contributions)
3. Don’t listen to people who tell you to wait for house prices to collapse. Many predicted house price falls, three years ago. However, the 20% rise in the past 3 years would make it almost impossible to buy now.
4. Parents can make the difference between getting a mortgage and not getting a mortgage. See Mortgage with help of parents
5. House prices in Oxford are too high for the average 20 something teacher. I feel sorry for people coming on to the property market who cannot receive help from their parents. The scale of house prices means that there is an increasing generation gap of wealth and home owning potential.
6. New mortgage products have increased the scope of getting a mortgage.
7. Do take out a student loan, even if you don’t spend it.
8. Maintain a good credit record at all costs to enable you to switch debt around 0% credit cards.

Related:

• Getting Mortgage on low income