LTV - This whole credit crunch and LTV thing could be a problem...

beckstrous

Hi there,

I'm married and my husband and I both have fairly well paid jobs. We have accepted an offer on our house, and are looking to move up the property ladder. We've done our sums, and worked out that we can afford to pay up to £375k for a new house, and this is taking into account our plans to start a family and the fact that my salary would reduce for a time. We have about £50k equity but the estate agent's fees would come out of this.

We are coming up against a problem we had not thought about - it looks like it is going to prove very difficult to borrow what we want to borrow at a decent rate, even though we could afford it. If we bought for £375k we'd be looking to borrow 86% of that, but our existing lender is now only lending up to 80%. We do have some savings, about £15k, but we had been using this money to drip feed various savings accounts (at about 5% and 6% interest rates), and two ISAs.

I don't know if it is better to continue with the drip feeding of savings or instead use some of this money to increase the size of our deposit. This is a really important and big move for us as we intend to be in our next house for several years. It will be frustrating if we can't borrow what we can actually afford to borrow.

I wondered if there was anyone else in a similar situation? I will speak to a mortgage broker (London & Country were very good last time), but have noticed just from Googling that the very best rates seem to be reserved for those with 30% deposit or more.

At the moment we are 3 years into a 5 year fixed rate mortgage with Norwich & Peterborough, at 4.68%. What I don't quite get is if we ported this mortgage and took out a second mortgage with someone else, how would this work? What I mean is, the overall amount we may need to borrow would be max 86% LTV. But if it is split between two lenders, would it mean we'd need to borrow less than 86% and could therefore use the better deals?

My head is swimming - I am not good at maths! Advice would be much appreciated :-)

unite79

You cant have 2 mortgages with 2 lenders, you can have a second charge loan, but the rates will not be nice!

You are correct in rates are resticted to Low Loan to Value's - You N+P mortgage will have a reasonable redemption penalty - so you ned to find out what LTV, they will allow you to port it at, and what the additional rate would be for the additional borrowing - Then weigh up weather the loss on interest on Savings, Isa etc, matches that you will lose by taking a new Higher Ltv.

Trollfever

You could also factor into your calculations that the £375k property will be dropping in value by £721 a week.




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hoggums

A change of mindset required here.

You can't afford a 375K house because you haven't saved up enough deposit.

Either:

(a) Save up some more money
(b) Lower your price range.

beecher

I order to buy a house at that value, you'd have to get a new mortgage with a new lender, as I doubt if your lender will allow you to port with such a high LTV. Look and see what Early Repayment Charge you'd have to cough up to do so.

It sounds like you haven't found a property yet - hopefully ones you like will be cheaper than you expected and you won't have to spend the maximum possible amount

dimbo61

Why are you looking at such an expensive property if you are about to start a family ?
You pay 3% stamp duty over £250,000 and to get the best deals you need at least 25% deposit or £60,000 on a £240k property!
Use " whatsthecost" to work out the cost of this much bigger mortgage and think long term ! You will need security for at least 5 years until your child/children start school.

mahdlo

it's not all about money dimbo!

maybe the OP really wants/needs to move house and can do?

to the OP - how much would it costs you to come away from your existing lender??

if the Early Repyament Charge isn't too excessive it might be worth doing - HSBC will lned upto 90% LTV at either 4.99% (£1499 fee) or 5.49% (£249 fee).

beckstrous

Thanks, everyone, for the replies. We want to move because we were planning on starting a family and also because our circumstances changed after buying our first house (bigger salaries). We can afford our current house quite comfortably, with a fair bit of money to spare, but it is small, with little storage, and it's bursting at the seams. So we wanted a bigger place - for a future family - somewhere we could be in for a good while. We are also considering moving a little closer to my family, and into a nicer area.
We looked quite closely at affordability, including taking into account maternity leave etc, but we did not take into account the amount of LTV you would require. So much has changed since we got our first mortgage, and even though we could afford the monthly repayments, I don't think we would be able to actually get a loan. Rats!
Assuming we sell at the offer we've accepted, we have about £50k equity in our house. I think we have between £15000 and £20000 saved, although our affordability calculations were based on using nearly £8k of that.
The early repayment charge is about £7k, which I think is too much money to throw away. So unless we can maybe move some of our savings about a bit I think we will have to reconsider a little bit. That is annoying - it feels as though we are a bit stuck even though we could have made the repayments.

pebblespop

will you be able to get a mortgage for such a high amount on your wages. banks are only lending 3-3.5 times your salary so you would need to be earning around £100k between you.

a few years ago the would give you 5 times ++ but they seem to have really tightened up on this.

i wanted to move up the ladder in the next few years but it seems i am at the max of what i can borrow already. luckily i have a career which will see my salary increase a lot but i am still going to have to try and overpay my mortgage to reduce what i owe so i can borrow it back in future IYSWIM!

dimbo61

mahdlo it is all about the money !!!

If the op had a £180k deposit and earned £75k a year I am sure lots of lenders would be only too happy to lend the op the money to buy her dream £375k house.
A £300,000 mortgage over 25 years at say 5% will cost about £1800 a month and what about the extra gas/elec/council tax/ running costs etc
Then you only have one income once the baby arrives.
I live in my dream house with plenty of room for all the kids so I am not trying to stop the op from having her big house but she needs to understand the whole costs
and what a big decision she and her husband are taking on.
I have overpaid my mortgage by £1000 every month over the last 3 years and now worry less about the hugh debt I once had ( its a little smaller now ) GOOD LUCK

Trying_to_be_good

pebblespop wrote: »

will you be able to get a mortgage for such a high amount on your wages. banks are only lending 3-3.5 times your salary...

I've been researching taking out a large new mortgage, and have been offered (only over the phone, but as ball park figures) 4.5 times salary, even up to 5 times - some lenders offer greater mulitples for 'higher' salaries, e.g. over £50,000.

But as the OP has found out, you need the equity/savings to make the LTV work, too.