Jimmima and me have been looking for a house in Edinburgh for a while with mixed results, but mostly paying a lot of money for not very nice houses in nice locations / nice houses in bad locations etc. So now we’ve found one which ticks pretty much all boxes… except the price, which is £50k more than the original budget range. This, it seems, is a fact of life in Edinburgh. The one thing in favour are current mortgage rates which make the extra £50k just about affordable -relatively speaking, albeit takes away a fair chunk of current disposable income between us.

Without a crystal ball interest rates are likely to stay low for a while but could jump, and with 10yr fixed mortgages it might not be such an issue. On paper, it kind of makes sense. It’s just a shed load of money if things go awry in the mortgage market…

So, is it a good time to push the limits? Is it ever?

I’d be less worried about Interest Rates and more about the long term demand in the area. A good location in Edinburgh will always be in demand, so you can always sell up and get out if things go pear shaped. Short term you can just hedge your bets with a 5 year fixed rate etc.

It’s just a shed load of money if things go awry in the mortgage market…

No, it’s a shed load of money if things go awry. Full stop.

Only you can decide – take the risk or sit back and be safe.

Safe route – you’ll be pretty sure you can afford it, but you may not have the nicest house/area

Risk route – nice house/area but strapped for cash – what happens if little jimmy’s or jimmima’s come along and you’re down to 1 salary etc etc?

Tread very carefully.

Dont want to be having your house as your only savings vehicle – (like the rest of the uk) now do we.

No. If you can’t comfortably afford the mortgage now, then when rates start to rise at some point in the future you’ll really feel the squeeze. And wage inflation is not what it used to be so you can’t bank on earning a lot more years down the line.

Do you want nice house but no spare cash, or not so nice house and spending money. Tough choice.

I don’t know enough about the current state of the economy to comment but I pushed myself right to the limit (101% mortgage as a 1st time buyer) 6 years ago to buy in Edinburgh and it’s something I’ll never do again. I’ve enjoyed living here but we’re just about to put it on the market and will take a 15-20% hit on what I paid, without even factoring the £1000s spent on upgrades and improvements in that time.

We’re moving out of the city where an extra £40k is moving us from a 1 bed flat to a 3 bed house with massive front and back gardens. I’m sure you’ve heard it before but from now on I’ll never consider a house an investment, so long as I think it’s worth paying £x a month to live there I’m happy and if it happens to increase in value so much the better.

My suggestion: if you’ve money to spare, go cheaper and pay your mortgage off early. The point of having a budget is to stick to it.

I’ve enjoyed living here but we’re just about to put it on the market and will take a 15-20% hit on what I paid

That reminds me of 92 when I started working in Harlow. All my colleagues who’d started a few years before me had bought 1 bedroom flats at the peak of Thatcher’s boom and were all sat there nursing large losses, as the starter homes always take the biggest hit when the market dips. Plus Harlow never was, nor will be, a desirable place to live….

I started by looking outside of the city- 2 bed city flats in anywhere you want to live here cost the same as a 3 bed semi on the outskirts – about 10 miles out.

Ive got too many colleagues stuck as land lords or taking massive hits due to saturated flat market – and they are atill building em – while affordable family housings out the window as you cant cram as many of them onto a plot can you !

And when you both cycle to work 10 miles is just extra training – i have other colleagues who have gone a step further and live 40 odd miles away simply because they can have a 5 bedroom detached house with an en suite in every room for the same price – then moan at traffic and the cost of diesel/cars every other day !

Interest rates at the moment are held at an artificially low rate that is totally unsustainable, at some point in the coming years there is going to be another meltdown and interest rates and inflation will go through the roof otherwise our economy will go tits up, and by tits up i mean a proper recession – not like this current “managed” recession so i would be very-very wary of doing anything with my money at the moment apart from figuring out how to move somewhere abroad where you’ll be sheltered and self sufficient from the impending meltdown.

One of my mates brothers is something very important to do with an element of the UK’s monetary policy or something (i don’t fully understand what he really does or did for a job?) and he’s just spent the past 3 yrs finalising the sale of all his properties and businesses in this country and has moved to a small self sufficient farm with a borehole and tiered hydro electric system in Portugal. I dunno if he’s just went “postal” or if he really has the jump on the rest of us but he’s been saying “this place is ****” for the past few years along with “get out, go somewhere you can be self sufficient”.

Perhaps he’s right, perhaps he’s wrong……….. i know where i’ll be heading if his premonitions regarding the economic forecast over the next few years ring true.

I’m kind of with Somafunk in that my view is that this is not as bad as it’s going to get.

Either interest rates will suddenly rocket or house prices will drop again (-20%?) or both.

Unless you can see where this country is going to get a sustainable recovery from, why would you over-extend yourself?

To Jimmy:

No, it never is!

Only you know your situtation and whether an extra 50k borrowed would push you over the edge, but my opinion is that its worth paying for high quality housing in the long run. It will always be better than lower quality, go for the best example of what you can afford.

If youre going to compromise on something, dont compromise on the location, ie buy the less than perfect house in the best area.

Imo interest rates are going to be low (not necesarily at the current rate of 0.5% though) for the next 2-3years at least.

Whatever you do, understand what it means for you and accept the consequences of your actions

Have you done the sums? Have you worked out how much your repayments would be if the interest rate went up to 5% or 10%?? There’s plenty of online calculators that will help with this.

It depends on how risk averse you are to a large extent. My OH & I are both quite risk averse and we worked on the assumption that we wanted to be able to pay the mortgage still if one of us was out of work.
I can’t remember the ins and outs, but I think this was still valid even if interest rates go up by a fair amount.

We could have bought a fancier house and stretched ourselves, but I don’t think either of us would have liked the added stress it brought.

You can use the calculators on the banks’ websites to see what happens if interest rates go up. I planned to still be able to afford my mortgage at 8%.

Quick example (using a £250k mortgage, 25 year repayment, and 3% and 9% rates):

£1304 / £2122

Interest rates have peaked at 12% in the last twenty years. Can you afford £3,000/month, for example?

Mortgage rates are certainly at a long time low, which means that they can only move one way if they move. Like everyone else I’d say budget to give yourselves some leeway if rates go up.

I can remember my parents complaining bitterly about the 12% mortgage rates in the late 80’s

Lots of cautionary tales above, lets have something different….

He who dares.

What’s the worst that can happen?

You’ll lose the house and take a bit of a hit…. so what?

Your pride will be a dented but that doesn’t mean you can’t be as happy in a smaller house or a different area…. Better to have tried and failed than to have never tried at all.

And who to say it’ll all go wrong… it may very well go right and you’ll be living the dream.

Go for it

A little history lesson. I bought a house in 1991 and interest rates hit 12% around that time. We did our sums on rates going to 15% which would have been an all time high. Since that time they have fallen to an all time low and it is just about affordable for you. Rates are only going one way in the next 5 years so unless you can afford to pay for the insurance a 10 year fix I would advise caution in the current market.
Also as rates rise house prices generally fall so you could potentially be stuck in that property with a lot of negative equity.
Finally, not sure where you are in the reproduction department but any little Jimmy’s will mean a lot of extra strain on your finances.

I dunno if he’s just went “postal” or if he really has the jump on the rest of us but he’s been saying “this place is ****” for the past few years along with “get out, go somewhere you can be self sufficient”.

Postal….

Flaperon – Member
You can use the calculators on the banks’ websites to see what happens if interest rates go up. I planned to still be able to afford my mortgage at 8%.

Quick example (using a £250k mortgage, 25 year repayment, and 3% and 9% rates):

£1304 / £2122

Interest rates have peaked at 12% in the last twenty years. Can you afford £3,000/month, for example?

Therefore assuming that you can doesn’t it make senses to:

a) fix as long as possible at the lowest rate possible
b) Make overpayments to reduce the loan amount outsanding when you inevitably arrive into a high(er) interest environment?

IME you want to worry less about interest rates and more about your ability to pay – whatever the rate is.

If one of you lose their job, or have a long-term illness, or you lose bonuses/overtime etc. What if your job relocates and you have to sell up in the next 2 years?

Also consider a longer commute – when we lived in the SE for the money we paid for our detached house 40 miles out of London you couldn’t get a studio in a decent central area.

And we live an hour outside of Edinburgh, and what you can get for your money is fantastic.

http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/qe.stm

Hmm, Edinburgh prices down 3.7% on the quarter…

As above – if you fix for a long period, what is your concern about the “mortgage market” in that period? Your concern is more the security of your income.