Help; in a dilemma!

BenC_2

I am 2 years into my first mortgage on a typical '1st time buyer' small ex-council Semi-detatched house. The mortgage is fixed rate and was 100% at the time so I owe quite alot on it. After doing some calculations it works out that my repayment part is only paying off around £400 every 3 months so over the 5 years fixed term its works out that ive hardly made a dint into the balance.

Me and my partner were planning to upscale to a bigger house in a better area in 3-4 years time, we were hoping to put down a substantial deposit (made up of savings, plus profit from the sale of our current property) but it now looks as though there won't be any profit from our house sale. We would be looking to sell the house in 3 years regardless of our financial position as we would be looking to have another child (our first is 4 weeks old!)

I am looking for some advice as to what the best course of action would be:

- shall I continue paying the high monthly payments (with high interest) to northern rock while trying to save some money up over the years?
- shall I sell the house, pay the £4500 early repayment fund, break even financially then rent somewhere cheap for a couple of years whilst saving up a substantial deposit?

Or is there another solution? Any advise is gratefully recieved.
Many thanks,
Ben

Cannon_Fodder

Rentals are usually designed to at least pay the Landlords interest, so suppose we say a similar house to yours, on rental, will cost the interest portion of your mortgage...

It will then take 11 quarters of not paying the repayment portion of your mortgage to "recoup" the £4,500 ERC...nearly 3 years.

Unless the mortgage is actually at levels that you consider to be unsustainable, which would presumably put the whole idea of somewhere bigger at risk etc, then why give NR £4,500 when you could be putting a £4,500 dent into the capital owed in those 3 years...?

If you are able to save, whilst paying the mortgage, and its more a case of "it feels expensive, but its not crippling us", then its one of those things where you are usually best to stick out with the course you have set.

You will not only incur the ERC, but also EA selling fees, solicitors fees, moving costs, finding a deposit for a rental, etc etc, so it will take additional years to re-save such amounts.

On a side issue, perhaps not setting your child-rearing plans in stone, and making the children fit the finances, instead of the finances failing to fit the children, might be a consideration...

magpiecottage

Think about this.

You currently pay an amount each month to Northern Rock. That amount will be the same for the next three years. You are paying £1,600 per year capital back. That is the equivalent of, roughly, £8,000 over the five years (I say roughly because the amount of capital repaid each month will be slightly more than the month before and the amount of interest will be slightly less).

So when you sell, that will be £8,000 ish towards the cost of moving and a deposit on a new home.

If you sell now, you will have to pay, say, 2% of the value to an Estate Agent. You will have to pay for a HIP and a solicitor.

The mortgage is 100% of what you paid at the time. After two years, because you pay mainly interest in the early years, you still owe perhaps 99%. But the value at present is, if you are lucky, 90% of what you paid.

So you must pay £99 to the Northern Rock for every £90 you sell it for plus £4,500. You will then have to pay £1.80 to the Estate agent for every £90 you get and maybe another £1,000 in HIPS, fees and other expenses.

Once you have done all that paid a deposit on a place to rent and all your removal expenses, you can start saving towards your new home.

It is possible that, in the meantime, property prices will fall but they could also go up and leave you behind.

I am sorry to sound so negative - but the "nice" answer won't really do you any favours.

Anyway, adapting to life with a little one is stressful enough without adding moving house to your worries.

Joe_Bloggs

You do not say what your original mortgage amount was for and the interest rate that you pay. This will allow others to confirm your calculations. I am guessing that you got a good deal on the purchase price of your council house and perhaps the open market value will improve with time. I have seen zoopla mentioned on this site a few times.
J_B.

BenC_2

Hi, thanks for the input so far its helping open my eyes a bit more on the situation.

My current mortgage amount is 119000 with a rate of 6.99% fixed over another 3 years which is £790PCM. I am on a repayment mortgage but the interest takes most of the payment per month only just over £100 actually comes off the final mortgage price which is why I came up with the idea of moving to somewhere cheaper and saving up. I was hoping by the time the 3 years were up that I would be able to sell the house, gain a bit of profit and also have the savings to put a BIG deposit down for another house but thats not going to be the case anymore.

Knowing the figures now would it still be the better idea to stick here or move to a £500PCM rented place saving £290PCM from the mortgage payment plus the rest of the money I am planning on saving?

LilacPixie

how much realistically is your home worth??

Joe_Bloggs

I take it that you have approx 30 years left on the term of the mortgage as £119000 @ 6.99% interest gives a repayment of £791 per month. I agree with your interest figures per month. I now realise my mistake from when you said 'ex council'. Clearly someone else has walked away with the profit from their initial council rental status. A good local council, good schools , good police force, good transport links can drive up house prices.
J_B.

BenC_2

Hi, homes probably worth arounf 125k once its all complete. Yes I have 28 years left on the mortgage, the seller walked away with the profit but 125k is the average price on the road and my house has the biggest garden, driveway etc so im hoping it wont be a problem gettigng the full amount.

If I did get the 125k then that would leave me with around 2k profit after the early repayment figure is paid off which would hopefully cover any selling costs and leave me back to square one only having lost what money i put into the house over the past 2 years to restore it.

Im really stuck as to what to do, I dont think I will ever get anymore than 125k on the house and was hoping the repayment term mortgage would have driven the amount owed down but its not going to. I would like to have 50k to put down for another house in 5 years time, money from my business will be going into a savings account every month along with whatever else I can save which would be more if I rent somewhere.

Gorgeous_George

Assuming you borrowed £119K at 6.99%...

Pay on time and after 3 years you will owe £115,097.98.

If the rate stays the same when the fixed period ends, you will owe £112,004.61 after 5 years.

To change mortgages you need to know the likely value that a loan company valuer will place on the property. Then, you need 5% or better still 10% of the cost of the property before you will find a new deal. Alternatively, do you have a wealthy family member who can gift you the money or who will offer to offset their savings against your mortgage?

Otherwise, overpay if you can. At 6.99%, overpaying is the same as saving at 8.7375% for a basic rate taxpayer.

GG

BenC_2

Hi that sounds about right yes and unfortunatley no I dont have a family member who could offer any money all I have are my wages and profit from my business I have on the side.

I had not thought about overpaying the mortgage and if you say its the same as saving at 8.7% then that would be a better option than saving into a high interest savings account. What happens after the 3 years is fixed if I still had to live in the same property for another 2 years, if the interest rate drops would that have any effect on the overall profit or is it just best to plough as much as I can into the mortgage regardless?

Joe_Bloggs

MSE Martin has some thoughts regarding mortgage overpayments versus savings here.
Many self employed people, on this forum, are complaining that they can't get a mortgage or a re-mortgage due to stricter lending practices and far fewer lenders.
J_B.