Preparing to buy a house please

makingbetter

Firstly, I apologise for this question because it strikes me as one thats probably asked regularly but I can't find a thread right now to help

Situation is,my husband owns a house which is rented. We bought it 7 years ago and in that time, like many, we've seen our wages plumit and can no longer afford the repayment. in january we will come out of our fixed rate and the mortgage will reduce to a third of what it is now. Right now the mortgage cosst us £1k on top of the rent- In jan we will make about £1k profit monthly.

We rent a house ourselves to live in. Most of my wages go on the rent and bills associaed with this, and my husbands go on making up the mortgage shortfall.

My husband is going to court towards the end of the year to resolve a potential debt which is likely to cost him 1k a month for the next few years. In turn, he is taking our old mortgage company to court, and if they pay out (we have a judgement which they are contesting) the two debts will ideally offset eachother (of course we are unlikley to be that lucky!)

My question is, I would like us to buy our family home ASAP, but hopefully within 2 years. I would like to sell property A to do this,but presently there is not enough for a deposit in property A.

My husband has a v bad credit rating (not as bad an a bankrupt person but not far off) and mine is average- I have never had a mortgage.

What can I start doing now to prepare for buying the house? my main concerns are:

Finding out whether we can get another mortgage at all,and if so how much we could borrow

finding out how big the deposit would have to be, allowing for the risk associated with husbands rating

anything I can do now to imporve credit ratings in prerparation for this.I can also look at moving jobs if I have an idea how much I will have to earn to borrow what we need,IYKWIM. Do mortgage lenders even use credit ratings anymore?
There is a possibility, due to these debt issues, there will be a charge on property A. How badly will this effect our chances of another mortgage?
Thanks in advance.

Arthritic_Toe

Sell property A and the do the old-fashioned thing - save. Its unlikely to be worth significantly more in 2 years time anyway, and variable rates might be on the way up again by the end of the year.

makingbetter

We can't sell until the fixed rate is out as there is a redemption penalty. If we sell it now we will miss the oportunity to have income from the rental, which will obviously boost savings far more quickly.

Having had a think, I think we need to maintain things as they are for at least ayear, but I would like to start the process of making us attractive to a new mortgage lender now,IYKWIM, so we have a head start and it can all fall into place when we actually do have the deposit (and I would also liek an idea as to how much that deposit willbe)

makingbetter

Actually, having replied I'm not sure I'm sure I understood your answer- save for a house or a deposit? I'm not saving to buy a house outright! we have a deposit,we put a very large deposit down on property A. Selling right now means its possible we will not recover this.

Cannon_Fodder

If you bought 7 years ago, "with a very large deposit", Property A should have plenty of equity in addition to the original deposit, in it.

Unless you have been re-mortgaging to take equity out, and spent it?

And, except for if you are in NI, you shouldn't have lost equity versus 7 years ago. It might not be as high as 2 to 3 years ago, perhaps, but not actually lost any of the original or the gains until 2005/6.

As you need to avoid the redemption penalty, you are going to have to wait until nearer January to know what sort of interest rate you might be faced with. It might be a major saving if rates stay as they are, or it might not as rates are due to rise sometime - maybe soon.

In the meantime, save to boost whatever deposit/equity is in Property A. Check and improve your credit history using the guide here; http://www.moneysavingexpert.com/loans/credit-rating-credit-score

Make sure you don't have any accidents with payments/cards/overdrafts, that might worsen your credit.

How big the deposit might need to be, will depend on the price range of the house type you will be looking for...

Arthritic_Toe

Surely what you put into it vs what you recover is not important. Aren't you just looking to maximise your financial position?
So compare
- the total of payments you will make on A vs the redemption penalty if you sell now
- the income you will receive on A after Jan, but take into account that this is dependant on the base rates in a years time, which may be higher than they are now.
- the possible increase/decrease in the value of A over the next year.

makingbetter

Thanks for your replies.
We did remortgage, and take some money out which I would deduct from what I expect to recover deposit wise from the sale. We will be buying a cheaper house this time (the aim was always to strech ourselves on the first property to have a larger deposit next time,as unrealistic as this now turned out to be) but whereas I had a 11% deposit on the first house I would like this to be 20% on the second, IYKWIM? No point starting again if we don't need to. I also think we will need this because from what I can gather even those with good ratings are looking at putting down 15% ish...

I will check out the credit score links, thanks.

I don't want to maxminise my position AT_ I'm not bothered about making money on property A, but I would like a deposit in 2nd house from it (since I've been through the saving like a dog for the deposit thing and don't want to repeat it, as you'd expect)

Its v hard to predict house prices in the area (central London) they go up and down v quickly,mainly in correlation with city bonus'... which makes it harder.If I was sitting in Luton, (which is just a town I've pulled out of thin air as an example!) I'd not be expecting decent increase in value for god, 10 years I guess. But its harder where we are (prices have actually gone up then down then up in the last 8 months by the looks of things!)

I will try plugging some figures into the formula you've suggested now...