Buying a cheaper house...

SarahSausage_3

We bought our house in 2006 for £133000 and we took a 100% mortgage which worked out as £136000 with all the fees added to it.
We think our house is probably worth about £140000. We are thinking of buying a house in a different area that is bigger but only costs £125000.

So if we bought this cheaper house, I know we can transfer the mortgage accross but what happens to the extra £15000? I know that any equity is ours to keep and that will obviously go towards solicitor/removal fees but what about the extra money? Surely if we paid it back onto our mortgage account we will get charged for overpaying?

Please can someone explain how it works!

Thanks!

beecher

I doubt very much that your property is worth £7000 more than it was in 2006. You may not be allowed to port your mortgage - it isn't an automatic right and you have to fit the lending criteria as it is now, not what it was in 2006. You will need a 10% deposit at least - not sure how it works when the amount of the mortgage is less. Hopefully someone else will explain. You could phone your lender and ask though?

SarahSausage_3

We bought the house quite cheap because it needed work doing and we have done all the work now. I live in an area where the house prices have not fallen and the houses are still selling like hot cakes.

I have looked at what other properties are selling for down our road and all the house sold in the past year have been between £140000-£145000.

beecher

It amazes me how many people on here think that their area is immune to the house price decline! You need to phone your lender and find out if you are allowed to port your mortgage - they'll be able to explain to you what happens, and how much of a deposit you'll need.

Robert_Sterling_3

It looks as if you might have to pay a redemption penalty on the difference between your current outstanding balance and the lower amount required for the new house.

silvercar

Taking your word for house prices.

You have a 136k mortgage on a property worth 140k. The mortgage is portable we assume. You now want a mortgage on a property worth 125k.

So you ask the lender what they can do for you. Chances are that their max mortgage LTV is 90% so they will be prepared to allow a mortgage of £112,500 on the new property.

If this suits you, you sell your 140k property repay the 136k mortgage leaving you with 4k in your pocket. You then buy the new place for 125k with a 112.5k mortgage, the 4k in your pocket from the previous sale and an extra 8.5k from your savings.

If you have ERC charges on your old mortgage, you will probably need to pay ERCs on the difference between 136k and 112.5k is 23.5k. If you have reached the end of your deal, there may not be ERCs to pay.

Portability means you can transfer the old mortgage deal to the new property, it doesn't mean you can keep the current mortgage amount or that you can borrow limits that are not currently given by your lender. They also credit check and salary reference you again.

Now lets look at the costs.

Say selling costs are 1% + VAT. On 140k that would be 1,610 + say 300 for HIPS + legal costs of buying and selling of say £1,000 total + any arrangement fee/ survey on the new place and mortgage application, say another £500, plus say removal fees of £500.

So this is going to cost you the 8.5k from your savings to reduce your mortgage to 90% of the new property value, ERCs on 23.5k, at 2% that would be £470 plus all the bits in the previous paragraph which add to 3,910.
Total cost= 12,880.

So you spend out £12,880 from loan or savings, reduce your mortgage from 136k to 112.5k (interest only at say 5% drops from 567 to 469 monthly payment) and have a home worth 125k rather than 140k, but you do have a reduced mortgage.

A lot of figures there, but I hope it helps you decide.

cranezoe

Silvercar has done a lot of working out for you there. Hope it helps you to think it all through.

the only thing I have to add is that our mortgage was portable but only if we ported the whole amount - ie I couldnt take some of it with me and the rest given to me in a cheque!!

you wont get another 100% mortgage.