Monday, October 1, 2012

Kicking off house week: setting a budget

A long long time ago, I promised you guys a series on what it was like to buy property in the UK. But then life and that house happened, and here we are nearly 2 months into living in said house and all I've told you about is painting and DIY. As you can see above, I'm at it again with used bedside tables we picked up over the weekend that I'm painting grey.

But today's post is not about DIY; it's the first in a five part series I'm going to be writing this week about the steps we went through to buy our house in London. I'm going to keep it topline and factual, but obviously go into the details of how the experience felt in emotional terms. It was a wild ride, and I think I needed a few months of perspective to be able to write these posts objectively. 

So without further ado, let's chat about the real driver of a house purchase: money. When The Irishman and I set out at the beginning of the year to buy a house, it wasn't a spur of the moment thing. We had been talking for at least a year about finding a place to buy together so that we could create the home we wanted. Our previous place was a one bed flat that was probably better suited to a single person rather than a couple, and we dreamed of each having space as individuals to pursue hobbies and interests. Buying always felt just that little bit out of reach, though, with newspapers and financial journalists reporting that stricter lending criteria meant that first time buyers had to put down at least 30% deposits. It felt impossible, to be honest.

But somewhere around the first of the year, something snapped. I don't really remember what it was, maybe frustration at living in a cramped space, maybe frustration at not having equity and throwing away money in rent, maybe a sign that 10% mortgages were returning... at any rate, The Irishman and I sat down and reviewed our respective savings and realized that we were both sitting on more money than we thought. We each had approximately the same amount of individual savings, which amounted to a possible 10% deposit on a property. So we made an appointment with an independent mortgage broker recommended by a colleague to discuss our options.

If anyone in the UK is thinking about buying a property, my first piece of advice is to find yourself an independent mortgage broker. Ours was so helpful on so many levels in terms of helping us understand what we actually could afford. He recommended we stretch as far as possible in terms of buying the first property, as it makes us more financially independent moving forward with regards to recouping the initial outlay of stamp duty as well as just putting us that farther up on the property ladder. He also advised on calling in any possible loans from parents, bequests, gifts, etc, so that we could put as much in the down payment rather than paying off additional interest. He gave us handy spreadsheets that helped us understand things like actual monthly mortgage payments, interest vs capital repayments, and how the mortgage rates actually work. Most importantly, he gave us a sense of which banks would lend to us given that I'm a foreign national. More on that later.

So after one meeting with him we had an idea of what price range we could afford, and that made our property search come into crystal clear focus – all of a sudden, things became real in terms of price ranges, locations, numbers of rooms, and other features. At that point, we felt ready to actually start looking at properties and had the confidence that if we saw one we liked we could actually do something about maybe buying it. That in itself was the most amazing and exhilarating feeling – we were empowered as home buyers, not just property stalkers.

Tomorrow, I'll tell you all about how we approached our search and the ups and downs of navigating the world of estate agents and property open houses.

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