Buy outright and remortgage, or mortgage first?

worried_mummy_4

My 20 year old daughter has been left a modest amount of money that would enable her to buy a 'run down' property in the local area, possibly at auction, for around £75,000. However that would use up all of her available money and she wouldn't have any money left to do up the property.

Should she look to get a mortgage first (she would be looking to borrow around £30,000 - which two FA's have said wouldn't be a problem) or should she purchase outright, using all her savings and then look to remortgage the property in order to do the circa £15,000 of works required and have no savings to fall back on?

Please help!

socrates

If this is her only money - why would you risk all of it in the worst financial crisis this country/the world has seen for donkeys years?

Sit tight and approach a 'wait and see' attitude.

Kev09

I agree its nuts to buy just now! Tell her to use some of the money to go traveling with, property markets is going nowhere except down for the rest of 2008 at least! she can come back and pick up the same kind of property for less and she'll have a sun tan!!!

puddy

why does she need to borrow 30k if the works are about 15k?

just because its at auction it doesnt necessarily mean it is cheaper than the current prices, it just means that its probably the current correct price rather than the current over priced asking price.

does that make any sense?

does she want her own home or is this an 'investment'?

worried_mummy_4

She's thinking that borrowing £30K initially will cover for any shortfall in costings for works required and give her a bit to 'fall back upon' if required.

It wouldn't totally wipe her out of her savings! Would give her something of a security net?

Her fuel expenses to work are costing her in excess of £350 per month - mine are about the same, the only difference is I get the bulk of mine repayed, she doesn't. She can't claim mileage allowance.

It would be her home - not an investment. Nice first/second time buyers 3 bed estate house - so always a good owner/occupier or residential lettings investor property - particularly given the local hospital staffing requirements.

If the property she's interested in was 'done up' it would probably be - in the current market around £120,000 - £125,000 in today's values, probably £140,000 in a thriving market. I wouldn't want her to spend more than £75,000 for purchase, given that it will take around £15,000 to get it 'liveable' and taking into account any depreciation in the housing market - which probably will happen at around 10 - 15% in the coming year?

A £30K mortgage would cost her around £170 per month - far less than her fuel bill to commute to work, which would go from 35 miles to around 5 miles each way - but she would also face living expenses and insurances on top of that figure.

I can see her there for another 5 - 10 years personally, it will suit her needs, readily saleable/lettable if push comes to shove and she has to let it out?

Your thoughts please?

puddy

well, im not one of these that say, dont buy now under any circumstances, i would say buy now if its the right price and the right thing for your lifestyle and needs and from what youve said, it does sound like the right thing.

but, she needs to be careful not to get into the cycle of what she is already suggesting, that to borrow a bit more 'to fall back on' believe me, thats exactly how me and my friends who are similar to me managed to spend money like it was water and lived on the equity of the property, now im paying for it.

so, why not try for a property around the price you say, but to get something that is at least liveable, then she can do the property up slowly over the next few years, not borrowing too much, say 10k at the max on a personal loan to get the heating or kitchen/bathroom etc (whatever needs doing most) done and then the rest of it she can do slowly over the next few years. come 5 or 10 years time, she will have a done up house, having paid a very low loan cost, hopefully her wages have increased and she will have saved some money.

it sounds ok to me as long as she doesnt get carried away and just sees the house as an opportunity to draw money off it in the form of a mortgage and go mental with gadgets and flashy taps

Doozergirl

I am so frustrated! This web book is so rubbish and I've just lost my post AGAIN.

I say buy. Saving 350 odd a month on the travelling is a great reason to move and as interest on savings will not provide the income to rent then I see no reason not to buy. The house is modestly priced and will therefore fall less in price in cold hard cash.

Auction is a good route with cash to spend but I say that renovating is hard hard work and very stressful for a FTB. It's also hard to quantify what needs spending if you already think it needs 30k.

Id look for a newish build repossession that will also come with a lower price tag if you look carefully. The one you have seen isn't cheap because the maths says do it up and you make a profit, it's just cheap. If you look carefully enough you can buy a pretty neat house cheaply and not have to get dirty.

Lots and lots up for auction at the nationals in a couple of weeks time. Have a peruse through the catalogues on the Savills, Countrywide, Allsop and the Andrews Robertson auction websites.

worried_mummy_4

She's quite a careful bunny - just very sad/tragic circumstances as to how she inherited the money. Hence, even more, why I want to protect her as much as I can.

I think it's the right place to buy - if she can get it for the right money.

It is just about liveable, very smelly/trashed and the bathroom is a bit like something out of 'Trainspotters!' - I can see that there would be a hefty 'retention' from a lender, but even at 25% loan to value - it's got to be a good bet for a lender?

A lot of the work I can do & have done for various family members - other than electrics and plumbing but like you rightly say, if the money is 'available' like any young girl - she's already looking at furniture, appliances etc.... and I agree it will/can/does run on....

I think once the figures on paper become 'real' - she's quite switched on and very cautious.

So should she buy outright, or mortgage/remortgage if she's successful?

socrates

Have you actually seen a property that is for sale at £75k or is it a guide price at an auction?

If it is a bargain then there are experienced investors/cash buyers - who thrive on cherry picking at auctions.

Have you had a proper estimate for the work.

Buying a property and renovating is not easy at the best of times - let alone in the current climate.

Have you calculated in all living expenses on a monthly basis.

Is she taking in lodgers?

There are so many variables.

Like the other poster I am not saying do not buy a house.

Personally if I could find a property for the right price and the correct size I would prefer to buy and convert into two flats and live in one - whilst renting the other one out. It somewhat reduces the risk and the renovation costs will probably be similar.

However I have been 'in the game' for twenty years and have learnt from my mistakes.

Doozergirl

worried_mummy wrote: »

So should she buy outright, or mortgage/remortgage if she's successful?

I'd mentioned that in my post that disappeared.

If a mortgage is needed then there will only be one set of legal fees to contend with if you mortgage it straight away and work can start sooner rather than later with the funds to do the work. I'd speak to a broker first to see what deals are available and whether it's possible to get a quick turnaround at a decent rate on an auction property.

Obviously it's great to have cash for auction because you have the confidence that you can complete in the required time frame even if a mortgage doesn't come in on time. It's important though that the house is surveyed and confirmed that it is mortgageable.

If she remortgages quickly then there might be a bit of a delay in waiting for the property to be properly registered in her name at the Land Registry and work will be delayed ever so slightly.

First choice would be with the mortgage but buying outright if she had to is no big deal.

Why do you think there will be a hefty retention? How old is the house?

stolt

if it was me i'd buy it and do it up as you say. 30k, is this a estimation from what you think it would cost so if you arr not use to doing houses up you may well have over estimated it by quite a alot. I remember doing my first end of terrance house up with not much money and its surprising if you are quite handy at DIY how much can be done and how well it looks.

I would like you say take a mortgage out, cut the travelling costs down as you say, fix the mortgage for 5 yrs and see where she is in 5 yrs time, who know the prices may well rise (i'l get flamed for saying that) and she has the option of selling or paying the majority of the mortgage off in 5 yrs. Good luck.

just my opinion but go with what feels right at the end of the day. You only the regret the things you don't do!!