Doing my sums

rammster

I need help with this one , as someone out there would have gone through something very similar i believe

I have an 82k pa income

i have a mortgage of 1,72,000 on my property in dorset - but am contemplating a move to swindon . The mortgage is with HSBC at 5.89% interest only at 95% LTV. it was a 3 year fixed and am reverting to repayment in June Next year.

the house was bought at the peak of market at 182000 with a 5% deposit.

its an ex local authority house in dorchester , Dorset , and it will generate an income of near 675 pounds if let out (3 bed room) although this may have changed to 650 considering current market conditions.

the house will currently value at 165 k if you go with Zoopla , but I believe a figure around 155k is more practical, considering drop in house prices.

I am moving to Swindon next month and will be initially renting.

My question is what happens in July next year. Now no one has a crystal ball out there.

but lets contemplate the worst case scenario

the mortgage needs to be changed to 80% LTV as the interest rates may have gone up again.

house valuation by new mortagagor 155k

80% LTV = 124k

shortfall of 48k!!!!

Am I right in assuming that the new valuers will value the house at the new rates rather than assume the cost of the house to remain constant at 182k and give me 80% LTV

BTW I would have to feed in 27k into the house if it was valued at 182k and was getting an 80% LTV.

Also if I am renting the house out 675 , I would either need a rental mortage or a consent to let. I have been able to get a consent to let from hsbc. But that would mean me pumping 300£ per month into the property (or meeting its interest rate)

Move to swindon would involve renting at 600 pcm + council tax + bills = 1000 pcm

The best scenario would be that I go onto a suitable variable base rate. say around 3.5% or so on a repayment mortgage , but even then my repayment would be 950£ pcm or so! on a 22 year mortgage. (initially 25 yr mortgage )

Do you see a similar storm

beecher

Yes they will value the house at new rates so you'd be looking at a shortfall of £48k.

Selling might be the best option if you have a spare £30,000 in savings to pay off the negative equity. With your wages that should be a possibility. Your rental income is nowhere near to covering the costs that you'll incur - remember it isn't just the mortgage, but you also have to cover maintenance and voids.

rammster

what is hsbc svr anyway right now

beecher

3.94% but don't do your sums using this figure as this is as low as it'll get. Only 9 months ago their SVR was above 6%

begbeer

My sister lives in Dorchester and says that house prices their have remained constant and didn't drop at all or just a small amount., don't know how true this is

rammster

I think the drop hasnt been as much, but it would be wrong to say that there hasn't been a drop in prices. I bought another flat in march which was 2 bedroom centre of town with parking etc at 96K which i have let out. This would be unheard of 2 yrs ago where this property would sell for atleast 140k with competition.

I did get a great deal though as even now on right move nothing like this at all. mind you things have defo picked up in last 3/12.

I think I will hold on to this one for the next 5 years till prices match up again.

It will be -ve cash flow but atleast its a nice place to live. Should I decide to return from Swindon. I will be easily let out . its better to pay 300 - 400 pounds -ve cash flow a month for 3-5years then to write off 47 big ones.

beecher

rammster wrote: »

It will be -ve cash flow but atleast its a nice place to live. Should I decide to return from Swindon. I will be easily let out . its better to pay 300 - 400 pounds -ve cash flow a month for 3-5years then to write off 47 big ones.

I don't understand your sums. You'll still be paying 5.89% for another year, and have no guarantee that the SVR will be as low as it is just now. 47k wouldn't be 'written off' - it'd be paid off your mortgage.

If you sold for £155k, you'd need £17,000 to walk away. If you have a shortfall of £400/month for 5 years (that's conservative, particularly as you're presently paying 5.89%) then you lose £24,000.