House buying, renting and investment. Please help!!

Jack0212_2

Calling all money saving experts!! I am confused and don't know where to start!

I have currently moved in with my boyfriend after selling my property and have 30K which I was just about to tie up in investments. We are currently living in a small house and had decided to move in around 12 months when the house market had settled down a bit.

We have now seen a house up for sale (or auction just enquiring now) for £170K which has been reposessed. I know similar houses in the same road have sold for £238K in January. I know that it is unfortunate to be in the position to loose your house but this seems an ideal opportunity to get our bigger house a lot quicker!

Our current house is worth around £120k and we only have a £45k mortgage. What do we do. I think we need to move quickly to get the bigger house but am aware that we may not be able to sell ours straight away. Do we go for a bridge loan (i don't like the idea of this) or can we split the equity in our house to enable us to buy the new one and rent ours out in the meantime? If so, how do we do this? I haven't got a clue.

Greatful for any help given.

lynzpower

If it is at auction, then youll need to complete within 4 weeks of the auction date.

Can you afford to pay a bridging loan? Have you done saome back of a fag packet calculations? Have you enquired whether bridging finance is available to you?

I personally have never liked bridging finance, my parents were developers years ago and they had it, to buy one house they couldnt miss, whilst selling another. the buyer of the first house pulled out due to illness and this left my parents paying bridging finance for about 5 months. However, this was in a rising market and both houses had gained value. As we are now in a falling market, be aware that if you do not sell your house, then it will be falling in value- as it is possible will be the one you are buying too. Therefore both assets are falling in value, and the loans could veer towards being worth more than the properties in question. Although you have a healthy deposit. Worst case scenario would be one or either of you losing your job, whilst 2 lots of finance are in place? What are the chances of this? high/slim/none ?

mewbie_2

Jack0212 wrote: »

Our current house is worth around £120k..

I honestly don't know where the bottom is for the housing market. Your house may have been 'worth' 120k, similar may have sold for 120k recently, but until it is sold you cannot be sure.

Picking up a repossession may be a good idea, but in this climate a bridging loan is definitely not - too much risk attached.

teabelly

You are basically in a similar situation to what I was a few months ago. I spotted a repo house and decided to put my own house to rent out rather than mess around trying to sell in such a poor market. I hadn't intended to move but theis house appeared that was nearly everything I wanted and in a nicer place.

You need spare cash to cover all expenses, rental short falls etc and it is hard work to complete in 28 days. I was run ragged and was up and down to the solicitors nearly every day to pick up paperwork or drop it off. If you want a survey done then you need to sort it before you even go to the auction as once you have paid your 10% you are committed if you manage to buy it. Buying ours was hard work but the discount on the new house meant the chance of negative equity is pretty much nil. The new house also needed work and was a mess when we bought it so doing simple things like finishing the kitchen and putting the light fittings back (all but a few were removed!) and sorting out the central heating and getting gas installed etc have probably added enough value to cover any likely falls.

Find out what your current house would rent for. This will limit how much equity you can pull out. Decent BTL mortgages are only 75-80% ltv so assuming 120k value, minimum 600 pcm rental then you'd get 96k so basically a 50k equity to add into the 170k price. If you have 30k from your house sale then that is the 10% deposit you'd need for the new house + extra cash to pay rental short falls, refurbishments and moving costs. You would need to get your mortgage finance arranged pdq before you even bid on the new house. Your mortgage would increase substantially so make sure you can afford it.

If the rent will cover the mortgage then you could get a BTL mortgage without an early redemption charge. This is one step away from a bridging loan and will give you time and money to sell your current house if you want rather than commit to renting it out for a minimum of 2 or 3 years as most good deals are fixed rates for this sort of time. Bridging loans are expensive and I would say it really wasn't a good time to use one in these circumstances.

No one knows where the bottom of the market is. It could be here and now, next year or 3 or 4 years time. If you like the new house and can afford it and can cope with likely eventualities then take the leap.