Can I afford to buy?

[heyya99]

I am doing the sums to see if I can afford to buy a new flat. My contract is up in a few weeks but clientco have told me they would like me to stay so a 6 month extension is likely.

I have set myself a monthly repayments budget of 1500-1600pm, and a 20% deposit. The places I have been viewing have been 450k. The broker I am using has given me two options initially:

1.89%, 2 year fixed, 1507pm, 20%, Overpay: 10% per year in the first 2 years
1.99%, 2 year fixed, 1619pm, 15%, Overpay: 10% per year in the first 2 years

My business bank has 175k and my corp tax is circa 25k.

Being tax efficient in the new tax year, I will have circa 39k net to spend per year, circa 3250pm.

After I pay a mortgage of, say, 1600pm, I have about £300 left. The budget includes bills, service charges, etc.

I have budgeted that I'll need 110k to buy:
90k (450 * 20% deposit)
12.5k stamp duty
7.5 in fees, solicitors etc.

To get 110k, I will use all my personal savings of 30k, and the rest from extra dividends from my business:
110-30 = 80k from my business.

To get 80k net from my business, I'll need to draw about 110k, with about 30 going to HMRC in tax. (Does anyone know if payment on account kicks in here and I actually have to pay 60k to HMRC or does the fact it's a one-off discount that?)

What will be remaining in my business after corp tax and the 110k drawings will be 40k (this is assuming I buy today, when in reality it won't be for a while when I am still invoicing whilst I find a place).

If I do this, I have literally no personal savings left and all my potential income will be in my business. My figures are all worst case scenario but do you think I can afford to buy? The place will be a 1 bed and I'll be living alone in London.

[PurpleGorilla]

I am doing the sums to see if I can afford to buy a new flat. My contract is up in a few weeks but clientco have told me they would like me to stay so a 6 month extension is likely.

I have set myself a monthly repayments budget of 1500-1600pm, and a 20% deposit. The places I have been viewing have been 450k. The broker I am using has given me two options initially:

1.89%, 2 year fixed, 1507pm, 20%, Overpay: 10% per year in the first 2 years
1.99%, 2 year fixed, 1619pm, 15%, Overpay: 10% per year in the first 2 years

My business bank has 175k and my corp tax is circa 25k.

Being tax efficient in the new tax year, I will have circa 39k net to spend per year, circa 3250pm.

After I pay a mortgage of, say, 1600pm, I have about £300 left. The budget includes bills, service charges, etc.

I have budgeted that I'll need 110k to buy:
90k (450 * 20% deposit)
12.5k stamp duty
7.5 in fees, solicitors etc.

To get 110k, I will use all my personal savings of 30k, and the rest from extra dividends from my business:
110-30 = 80k from my business.

To get 80k net from my business, I'll need to draw about 110k, with about 30 going to HMRC in tax. (Does anyone know if payment on account kicks in here and I actually have to pay 60k to HMRC or does the fact it's a one-off discount that?)

What will be remaining in my business after corp tax and the 110k drawings will be 40k (this is assuming I buy today, when in reality it won't be for a while when I am still invoicing whilst I find a place).

If I do this, I have literally no personal savings left and all my potential income will be in my business. My figures are all worst case scenario but do you think I can afford to buy? The place will be a 1 bed and I'll be living alone in London.

Are you kidding me, you're gonna do all that for a one bed flat?

[northernladuk]

TL; DR
Do you not think if your budget is that tight you want to be asking a specialist that might care what happens to you if it's goes wrong?

[PurpleGorilla]

Can I afford to buy?

FWIW you could get a 4 bed house close to Hungerford station - Into Paddington in an hour. Lovely walks along the canal, nice pubs, outstanding countryside... All for less than you are considering spending on a flat.

http://www.rightmove.co.uk/property-...-52560823.html

[ChimpMaster]

Potentially complex. I was going to reply with a more detailed answer but I have to agree with PG here in that you're going to strap yourself to the wall for a 1 bed flat at £450k in what is probably an overpriced market. There's far greater value to be had even with a short commute of 20 minutes into London - for example, Slough, Ebbsfleet or parts of E.London (which I would avoid personally).

[jamesbrown]

E.London (which I would avoid personally).

East London is bubble central. I have a friend that lives in a very average part of East London - not somewhere I'd want to live myself - and his 2/3 bed semi that cost 280k in 2012 is now pushing 700k and some absurd multiple of average earnings.

It could extend further yet, bubbles are generally taken to an extreme, but you'd be nuts to buy in that market in the hope of making a long-term investment. Monetary policy is asking us to suspend our disbelief.

[SueEllen]

FWIW you could get a 4 bed house close to Hungerford station - Into Paddington in an hour. Lovely walks along the canal, nice pubs, outstanding countryside... All for less than you are considering spending on a flat.

http://www.rightmove.co.uk/property-...-52560823.html

He doesn't want to commute.

However he also doesn't realise that there is a limited market for expensive one bedroom flats.

[PerfectStorm]

http://caniaffordtobuy.co.uk/

Put your numbers into that and it will show you your affordability, up-front fees and what will happen should interest rates rise (and they will)

[PurpleGorilla]

He doesn't want to commute.

However he also doesn't realise that there is a limited market for expensive one bedroom flats.

So what do you suggest he does then?

Rent your basement?

[northernladuk]

So what do you suggest he does then?

Rent your basement?

I've a funny feeling SE's basement is fully kitted out and not in a style that will be to his taste