Advice on downsizing needed

abroun

Hi there,

My financial circumstances have changed somewhat over the last year and I'd like to sell my current property and move into somewhere smaller.

I'm currently in the second year of a 3 year fixed mortgage with Leeds Building Society. The property was bought at the end of 2006 for £153,000 and there's approximately £132,000 left to pay on the mortgage, unfortunately it looks as if I'll have to settle for about £140,000 if I want to sell now.

That's not such a bad thing though as the properties I'm looking at are in the range of £125,000 and due to a range of factors downsizing would allow me to save about £200 a month.

Now, my mortgage is 'portable', and I understand that I'm going to have to pay an Early Repayment Charge on the amount that I don't re-borrow from the mortgage company. However, I've had a quick chat with a mortgage advisor from Leeds Building Society and from what I understand, the transfer to a lower value property would be like applying for a new mortgage in that they'd have to assess my current financial situation.

So the thing I'm worried about is that they might not let me move to a smaller mortgage as my financial situation is pretty rubbish, and my 'deposit' i.e. the equity I have left over from my current property is well short of the deposits that are currently being asked for.

Does anyone have any experience with moving to a smaller property due to loss of income? And if so, is it an easy or hard thing to do?

Any advice is much appreciated.

Regards

Alan

beecher2

Once you've paid fees I can't see you having much of a deposit left, and certainly not enough for the £12,500 you'd need to keep your LTV below 90%. Maybe selling up and renting would be a better option while you save up the new deposit.

abroun

Unfortunately, if I had to pay the early repayment charge on the entire mortgage (as opposed to just the difference in value) then that would completely wipe out my equity. So selling isn't really an option unless I get desperate.

It just seems a bit silly that I might be stopped from taking a seemingly sensible step to reduce my monthly outgoings by downsizing and therefore presumably the risk of me defaulting.

happybroker

the porting aspect of this is the fact that they will allow you to take your interest rate package to a new mortgage provided that you fit their current lending criteria. It may well be that you will not be able to do this but the only way to find out for sure is to speak at length with your adviser.

getmore4less

Is this financial problem permanent or temporary

Selling and buying is going to cost you £3k+ thats 15motnth of £200pm gone, add in any ERC for reducing the loan and posibly higher rates if you have to renew completely and it could be 2years+ before you see any real savings..

Are you sure there is no other solution.

What about a lodger to make up the £200pm.

abroun

Erm, my financial situation is tricky, and mainly of my own making unfortunately. :P

Basically I'm in the process of moving careers from computer programming (fairly well paying) to academia (not so well paying but hopefully more rewarding). This involves doing an MSc to begin with (no income) followed by a PHD for 3 years (small amount of tax free income) followed by a researcher or lecturer job. So the upshot is that it's going to be a while before I'm seen as a reasonable risk for a mortgage again. Hence the hope that I would be able to move to a smaller mortgage without being re-assessed financially.

The reason for wanting to to move as opposed to just renting out a room is that my course is in Bristol whereas my flat is 2 hours away in Aldershot. I'm currently renting the flat out, but the rent doesn't totally cover the mortgage (although it does at least cover the cost of renting a place in Bristol). My projection of saving £200 a month is therefore based on getting rid of the place in Aldershot and then getting a lodger into my new place in Bristol (if that makes sense?).

Thanks for your advice so far. It's a good point that even if I was able to sell and buy somewhere cheaper it'd be about 2 years before I saw any real savings. It's just that I know I'm going to have to sell the place eventually, but it'd be nice to be able to do it whilst maintaining a foot on the property ladder...

Anyway, I think that I need to have a longer chat with my mortgage advisor, although it's looking like my best option may be just to hold out until my fixed period ends in 2012 and then hope that when I sell I'm left with some equity to start rebuilding a deposit again.