Lots of ???s

bunnysw

Hi
We are considering moving to a larger property from our 1st property (a memebr of the family has just put theirs on the market) but as per usual I am VERY confused when it comes to mortgages and what our options are!!

At the moment we have a mortgage for approx £77000 (part repayment £20,000 , part endowment £57000) we have had this for approx 9 yrs - our current mortgage deal ends in june this year and to get out of it would cost approx £1700 - we have made small overpayments to the mortgage each month of about £200 for the last year or so. We bought our house for £70000 and expect it to be currently valued at £130000 - the property we are interested in is about £225000.
What options do we have? Obviously this is our first move of a mortgage so I have no idea what happens to the existing mortgage etc etc.
Any advice would be fantastic please.
Thanks

Trying_to_be_good

You need to work out the equity in your current home (assuming £130,000 is a realistic sale price, and the current mortgage balance is £77,000, this is about £53,000).

To buy a property at £225,000, you will need to borrow at least an extra £172,000 if you put down ALL the equity from your current house. You will also have Stamp Duty Land Tax of over £2,000, estate agent fees, solicitor fees, moving costs etc. You will need to cover the 10% deposit at exchange (or whatever you agree with the people you're buying from), either from whoever buys your house or topping up with savings.

You need to ensure you have enough salary for someone to lend you that amount of money (about 3.5 times salary, so for £172,000 you'd need a joint salary of £50,000).

You may be able to 'port' your current mortgage, therefore avoid early repayment charges, otherwise you'll save that money if you wait until your fixed rate deal ends.

Hope this helps, and starts pointing you towards some of the numbers you need to be thinking about.

GGGG

Assuming your house values at the £130000 you expect, & your outstanding mortgage balance is £77000, you will have £53000 equity, which would be your "deposit" for the new property. If you buy the new house for £225000 with a £53000 deposit, the LTV (Loan To Value) is 76.45%; you will need a new mortgage loan of £172000. (172 divided by 225 x 100 = LTV).
Remember there will be fees to pay on top- arrangement & possibly brokers' fees, Stamp Duty, solicitor's, etc., etc..
You will need (conservatively) to have a joint income with your partner of approximately £50000 per annum (3.5x joint income is common, although you can borrow larger multiples in many cases PROVIDED you fit lenders' "affordability" criteria- for example, if you have other existing monthly commitments for loans/credit cards, they will deduct the payments from your income before calculating income multiples).
Next, again conservatively, let's assume you can find a deal over the remaining term of your mortgage, i.e.16 years, fixed at 5%; your monthly payment would be approx £1303.
I would suggest you speak to a qualified independent adviser, preferably someone recommended to you by friends/colleagues/family, who can explain in simple terms how everything works & what costs would be involved.

GGGG

Trying to be good (post #2)- it's spooky that while I was typing my reply, I was interrupted & in conversation with a client; when I'd finished & posted, you'd said pretty much exactly the same...!

bunnysw

Thank you both for your replies - very kind of you to give me some perspective on how it all works out!
Salary wise we are okay - was a bit shocked about the suggested monthly payment figure - that's quite a jump! Can we extend say the 16 yrs we have left to 25 to therefore lower the costs?
What happens to our current endowment then?
Thanks again :T

Trying_to_be_good

GGGG wrote: »

Trying to be good (post #2)- it's spooky that while I was typing my reply, I was interrupted & in conversation with a client; when I'd finished & posted, you'd said pretty much exactly the same...!

Eek! We are virtual twins!

Trying_to_be_good

bunnysw wrote: »

Thank you both for your replies - very kind of you to give me some perspective on how it all works out!
Salary wise we are okay - was a bit shocked about the suggested monthly payment figure - that's quite a jump! Can we extend say the 16 yrs we have left to 25 to therefore lower the costs?
What happens to our current endowment then?
Thanks again :T

So long as 25 years is still pre-retirement, you can extend pretty much as long as you like.

bunnysw

Thank you!

bunnysw

Being silly again!! In the following example kindly given what happens to the existing endowment and payments?

"Assuming your house values at the £130000 you expect, & your outstanding mortgage balance is £77000, you will have £53000 equity, which would be your "deposit" for the new property. If you buy the new house for £225000 with a £53000 deposit, the LTV (Loan To Value) is 76.45%; you will need a new mortgage loan of £172000. (172 divided by 225 x 100 = LTV).
Remember there will be fees to pay on top- arrangement & possibly brokers' fees, Stamp Duty, solicitor's, etc., etc..
You will need (conservatively) to have a joint income with your partner of approximately £50000 per annum (3.5x joint income is common, although you can borrow larger multiples in many cases PROVIDED you fit lenders' "affordability" criteria- for example, if you have other existing monthly commitments for loans/credit cards, they will deduct the payments from your income before calculating income multiples).
Next, again conservatively, let's assume you can find a deal over the remaining term of your mortgage, i.e.16 years, fixed at 5%; your monthly payment would be approx £1303."

I'm sure these are obvious questions but this is all pretty new!
Thanks again

GGGG

Bunnysw-
You could keep your endowment, & maintain £57000 of your new mortgage on "interest only"- i.e., you just pay interest on this element, as the endowment is designed to repay the capital. Assuming you extended the term of the "repayment" part as "Trying to be good" says (provided it doesn't go beyond your normal retirement date), & again assuming you took out the endowment for 25 years originally, in 16 years time this would mature and THEORETICALLY pay off £57000 from your mortgage balance- however, it is your responsibility to monitor it's performance, as there are no absolute guarantees that it will meet the target figure.
For comparison's sake, let's assume you have £57,000 on "interest only" at our hypothetical rate of 5%: this would cost £237.50 per month.
The balance of your mortgage (£115000- 172000 less 570000) on "repayment" at the same 5% rate over 25 years would cost an additional £672.28 per month. Therefore, your monthly payment would be:

£237.50 + £672.28 = £909.78, PLUS cost of endowment.
You should also consider protecting the repayment part with Decreasing Term assurance & Critical Illness cover; this is not mandatory and is an extra expense, but the consequences of NOT having it should the worst happen must be taken into account. I'll repeat what I said in my original post- speak to a good local adviser, who can explain any scenario in plain English, & has the knowledge/experience to answer all your questions.

Hope this helps....

bunnysw

Ok beginning to make more sense now - thanks for advice and we will be arranging a meeting with a financial advisor very shortly.
Thanks again for your help. :beer: