This is a thinking-out-loud post regarding the housing market.
I rent my home and have done so for several years, nearly 10 years now. I did once own a house, and one of my main aims in life is to be able to own another one sooner rather than later!
I live with my 5-year-old son and fiancee, and my fiancee has recently moved roles in her job and now works full-time from home every day, rather than working part-time and having to switch from working from home and being in a couple of locations over a week.
We live in an unusual house; it's an old Victorian military hat factory that was converted into 2 homes several decades ago. It's a strange design, with really tall ceilings (an absolute nightmare to heat!) and stairs that go on forever, as the house is so tall! But it has done us well, but we are aware that the landlady (a family friend) is looking at selling the house in the next few years, and so we, as a family, are now actively thinking about what we are going to do in regards to housing.
As I mentioned many times before, I was made bankrupt back in 2017, as my business went bust. I couldn't afford the personal guarantees and had no choice but to go down the bankruptcy route, as I was never going to be able to clear that much debt, working a regular 9 to 5, so I had to be realistic and take bankruptcy. However, on the business debt, I had waited a long time before actually applying, as I wanted to avoid this. The biggest ongoing issue with my bankruptcy is the repercussions to my credit rating and my credit score being destroyed with the bankruptcy showing on my report for 6 years, which has meant that I have no chance of getting a mortgage until those 6 years has passed.
My 6 years will be up next August, which should mean that I will be in a better financial place, and we can start looking at houses, locations and most importantly, what we are likely to be able to borrow once we are in that position.
So we've been using sites such as Rightmove, Zoopla, and On The Market to use as guides to see what sort of housing is out there and what sort of pricing we are looking at (very likely to change with everything going on at the moment). It's frightening, as most of the housing locally to where we live is so expensive, with properties far smaller than we have now, working out at a monthly rate higher than what we are paying now as a rental!
Now, this isn't massively unexpected; we knew this was going to happen; we have been monitoring the state of the UK housing market for a while now, and have been using sites such as Rightmove, The Bank of England, Money Saving Expert, Mortgage Calculator UK, Citizens Advice, and our bank's website, to try and get an idea of what's happening with the housing market, where it's likely to go and what we are likely to be paying a month for the properties we are looking at.
It's not great news, especially at the moment! The Bank of England increased the interest rate in September of this year to 2.25%. With the next rate evaluation taking place in November, it's looking like this will increase again, with Sky News mentioning, only yesterday, on their website that interest rates are likely to rise higher than expected, likely a full 1% on current figures, and more extended range forecasts predicting a working 6%, maybe even 7% interest rate in 2023!
The chart below shows the Bank of England's interest rate changes over the last year, and it's plain to see what's happening.
With the current political ups and down's not helping with the financial uncertainty at the moment, I'm hoping we will either have another change in the Conservative leadership, or a General Election, to help settle things back down again, as this political turmoil on top of the interest rate rises is doing nothing to help the mortgage market. Many lenders aren't even offering mortgages at the moment, although several stopped for a while and have now re-introduced some, and this isn't helpful for those looking for a first mortgage, as the offers don't exist!
Look at the increase on this chart from Rightmove, which shows the extra cost per month of the interest rate rise for homeowners based on a £200k mortgage (which, for where I live in the Southeast, I would say is less than the average loan), next year a homeowner could be paying an extra £535 per month on their mortgage, that's an astonishing £6,420 a year extra, and that's on top of all the other price rises already hitting UK households and who knows what else will be going upon next year, it's scary!
We've been looking at local housing and its costs. For the type of property we want, which would be a 3 bedroom property with a small garden and a reasonably sized kitchen or a 2 bedroom house with an extra area we can use as an office, as my fiancee needs somewhere to work every day, that's functional, not a broom cupboard with a monitor. I get busy with my blog and social media work, so I also need to be able to work in a comfortable area; that extra space is essential, as it pays the bills! Everything locally is just crazy prices, and I really think we may have to move area completely to get what we want, or should I say need!
Here's an example of what the differences are between areas. I live in Aldershot in Hampshire, and here is what I could buy today locally, with information taken off a random search on Rightmove, using the exact requirements settings.
Here's another for a property in Hull, again a random search for a more Northern location to where I live currently
Look at the difference! Which one would you rather live in? I know you have to take a lot into account when moving areas. Do you have a job you can perform in the new location, are you positioning yourself a long way from family (my fiancee and I have ageing parents, do we want to move further away from them when they may need our help), and what are the schools like etc., but with this sort of price difference it's very tempting! You move hundreds of miles from where you have called home for years but have a nicer house and a lower monthly cost than a less desirable house locally.
I did a quick look at what our monthly prices might be based on the two properties via the Mortgage Calculator UK website, which is a payment estimator site for mortgages. I'm using the same, and the current mortgage interest rate of 2.25% and saying we would put down a £10k deposit for both, and here are the results:
Here are the monthly mortgage costs for the Aldershot property:
Here are the monthly mortgage costs for the Hull property:
It's a no-brainer, isn't it!? Using this type of mortgage estimator to show what your mortgage repayment amount is likely to be, it really shows you the staggering differences. Look at the savings on the interest alone between the two properties; we would spend nearly £35k less on interest throughout the mortgage by moving to Hull, that's more than I make a year before tax, so I would be losing over a years pay staying local, on extra interest, in a property that currently is less desirable to me, than the cheaper house!
We aren't the only people in this position; thousands of people want to move home, be it a home upgrade, or moving from renting to buying, perhaps simply needing a bigger home to be able to work from, with many people since Covid-19, now working at home rather than an office, and many employers now actively promoting remote based job roles on job boards. Workers may need to have that extra space to make working from home more streamlined, rather than trying to share a kitchen table with kids running around and a lack of comfort and peace!
Mortgage affordability is also important as well I found this handy chart on the Mortgage Calculator UK page that showed how banks work out your affordability to repay a mortgage, and using this has helped us to be realistic about what we are likely to be offered and to plan accordingly; I think it's fair to say that lenders aren't feeling overly generous at the moment!
As a baseline, most lenders typically do not lend more than 4.5 times the borrower’s annual income. For example, if you make £50,000 a year, a lender might be willing to grant a loan amount between £150,000 and £225,000. For joint applicants, the limit is usually slightly lower. A lender might offer a full multiple on the first income and then add the second income, or they lower the multiplier across incomes down to 3. Examples are shown in the table below:
The site has a helpful affordability calculator that allows you to enter your earnings and any debts for all mortgage payers' incomes. It will give you an estimate of what you may be offered, which has been super handy for us!
Money Saving Expert, has a similar calculator as well, allowing you to get an idea of what you may qualify to borrow from lenders, but both calculators are computer-generated and rely on certain assumptions, and have only been designed to give a useful general indication of costs.
Sadly, for us, it's a wait-and-see scenario; we can't be sure about what the next few months will bring financially and politically and how that will impact our plans and decision-making factors, but I can't see massive change positively, so it may be that our family will have to make a big move in the not so distant future. Still, in the meantime, we've started buying a lottery ticket every week, as frankly, the chance of a win seems just as likely as being able to move locally at the moment, so matching those six numbers would help us with making a huge decision!
Information correct as of the 16th of October 2022 - Very likely to change!