A Friend Of Mine Looking To Buy But In A Predicament

Vegeta · 20 April 2009 at 3:14PM

So a friend of mine admitted earlier today that he is looking to upsize to a 3-bed detached property from his 2-bed terrace. He has about £130,000 in cash and his property is probably worth around £110,000. I've told him about the house price crash but he doesn't care.

The problem he is facing is the area he wishes to buy in is very competitive for detached houses as there are many more semi's and terraces compared to detached so when a detached place comes on for sale, people jump on it like crazy. Prices have fallen despite this though from £315,000 to £280,000 but he wants to stand a chance of purchasing one.

His 2-bed terrace is a bigger problem as there is a flood of properties like his and it would take ages to sell. What he has told me he wants to do is purchase the new home with his £130,000 cash with a fixed-rate 10-year interest-only mortgage then after that, put the terrace up for sale and then use the sale proceedings from it to pay off the majority of the mortgage.

Now I ain't clued up like some posters here are but don't mortgage overpayments have a limit? What other ways could he proceed in keeping his current house, buying the new house with cash+mortgage, selling old house and then using the cash from the old house to reduce the mortgage on the new one?

He earns around 45k p.a

Thanks.

betmunch · 20 April 2009 at 3:35PM

Theres nothing in your post that would cause an issue.

Most mortgages limit overpayments, but theres still a few that dont.

Get your friend to sit down with a local Mortgage Consultant and crack on.

Cheers

Vegeta · 20 April 2009 at 3:44PM

betmunch wrote: »

Theres nothing in your post that would cause an issue.

Most mortgages limit overpayments, but theres still a few that dont.

Get your friend to sit down with a local Mortgage Consultant and crack on.

Cheers

Are the rates higher on mortgages with no limit on overpayments?

herbiesjp · 20 April 2009 at 5:22PM

Not really

Would your friend let out the first property while trying to sell?

Vegeta · 20 April 2009 at 5:35PM

herbiesjp wrote: »

Not really

Would your friend let out the first property while trying to sell?

No, because usually the houses that do come up for sale that he wants to buy need work as it is usually a pensioner who is selling so he will be staying in his own home while it is for sale while making repairs to the new one.

Also, would an offset mortgage be better with what my friend is trying to do? Are the rates any higher for those?

BTW, how long does it take from a house becoming Sold STC to contracts being exchanged on a house with no chain?

I remember it taking a little over a month in 2006.

Thanks.

herbiesjp · 20 April 2009 at 6:36PM

So what would be:
Property1 value
Property mortgage

Property2 value
Property2 mortgage

Vegeta · 20 April 2009 at 7:37PM

herbiesjp wrote: »

So what would be:
Property1 value
Property mortgage

Property2 value
Property2 mortgage

P1 - £110,000
M1 - £0

P2 - £285,000
M2 - £135,000

So with Property1 sold which he completely owns i.e no mortgage, he will owe approx £45,000 + interest for Property2.

285,000 (p2) - 130,000 (cash) - 110,000 (p1) = £45,000 + IR (remaining interest-only mortgage)

That is right yes? Would early repayment charges be present if the mortgage was paid off before the 5 or 10 year period?

herbiesjp · 20 April 2009 at 7:51PM

Mortgage 2 needed would be £155k I think and not £135k -was that a typo?

He is looking at 3.5 times income - so no problem there

You would be under 60% LTV - so no problem there

You would more than likely have a penalty if you cleared the morgage completely within the period chosen at the outset.

Some flexible mortgages however will allow great flexibility, and may be a good option if your friend is looking to clear asap