Catch 22

andys15

Hi all.

I believe this to be a mortgage enquiry as opposed to a debt free wannabe one. I have been a frequent member of DFW.

Anyhow a bit of background. I earn £65000 and generally get a 8% payrise per year. My wife is on £30000. We have a mortgage of £218000 which is due to come to the end of a fixed deal in April. As you can see from my signature, my debt is around the £38000 level, well £36000 come Oct 01. Of this debt £21000 is visible to credit agency, the other is from family. In Apr when fixed deal ends, £13000 is visible. £242 per month to a personal loan and about £5000 0% CC.

My aim is Apr is to get my 27 year mortgage to 10 year mortgage and I was hoping to get a 10 year fix, adding £1000 p/m to my present mortgage.
Here lays the problems. I currently have around 88% LTV, basing my house on the sale price of £250000. It is definatley worth around £260000, but I know it would be lowered based on stamp duty. Smaller 3 bedroom houses have sold recently for £250000 and I have the advantage of a conservatory. In order to get a decent 10 year fixed I am going to need a LTV of 80%, which mean I need a valuation of £275000 ish.
I have recently had a kitchen fitter round and with a new kitchen, wall knocked down into the dining room, and entry into the integral garage which will be also 3/4 converted, I will have to get a £25000 loan, which I was going to do over 5 years.
The Catch 22 situation. I was hoping the new kitchen would push my house value to the 80%LTV( I am not interested in selling, just a paper exercise), but if I do the work before APR(kitchen fitter could do it by xmas), I would need to get a £25000 loan. I know the £25000 loan would look bad on my credit file and maybe not get a re-mortgage. if I dont do the kitchen I would not get my valuation and not get my 10year fixed. Knocking 17 years of my mortgage will save over £100000, and the loan over 5 years will cost me £5000. On our outgoings and incomings, we would have over £2000 to live on..
Anyone any opinions. I know I am also a DFW, so part of me thinks getting a £25000 loan is mad. The other part of me says my job is secure, my salary is guaranteed and we will still have more money to live on than we do now, with me paying over £2000 a month towards debt.

andys15

Any mortgage advisors out there?

blueberrypie

What rate does your mortgage go onto when your fixed-rate period ends? It will quite possibly be lower than the rate you have at the minute, which will mean a drop in your monthly payments - at which point you can start overpaying as much as possible. That would be a far more sensible way to get your LTV down to the point where better deals are available to you. And I agree with the part of you that thinks you'd be mad to take on more debt in the form of a loan for home improvements.

andys15

Just want to know if the numbers would add up. Perfect credit file, so far

andys15

The main reason for this post is to see wether I should get my loan for kitchen now, or when I remortgage. Another consideration, apart from on paper adding value is VAT increases after the year.

On my income and outgoings am I likely to get a remortgage with the new loan???

gggareth

andys15 wrote: »

The main reason for this post is to see wether I should get my loan for kitchen now, or when I remortgage. Another consideration, apart from on paper adding value is VAT increases after the year.

On my income and outgoings am I likely to get a remortgage with the new loan???

You probably dont want to hear this but pay your debts off first.Reduce your Mortgage down by over paying, before you even think about refurbishment.

you earn 4 x avg wage have large loans to repay and service a flippin

large mortgage.You may be secure now but trust me things change.

Annisele

Home improvements don't always add as much to your property's value as they cost to do. You could end up spending £25k on the kitchen etc, only to find that your lender values the place at £250k regardless.

How much would the loan cost you? Even if you could improve the property's value such that it's worth £275k, and if could then get a mortgage based on 80% LTV, I'd be astonished if the cost of the loan didn't wipe out any savings you might make due to the LTV.

Thrugelmir

Your catch 22 could be attempting to improve your property value into a falling market.

Conservatories rarely add the same value as the cost.

Pay down your debts rather than gamble even more.

andys15

I dont really think it is a gamble as such. The conservatory was already on the house when I purchased it. I am going to be knocking 17 years of my mortgage in April and I obviously want to get the best deal I can. Having a kitchen/dining room open plan and going into the garage is a lifestyle choice, which will obviously add value to the house,(by how much is anyones guess). The loan will over the term cost me 5k and knocking 17 years will save me 120k plus(depending on interest rate). I can afford to service both. Debt is not wrong in my opinion aslong as its serviceable, and having 2k left after all outgoings is serviceable in my opinion, and although circumstance can change, you cannot live your life on unforseen circumstances, plus isn't that what insurances are for.

My only reason for asking the original question is to see wether my circumstances will allow for a 218k mortgage and what will be if I get the loan 33k debt(visble), on by Apr will be 97k joint income, or should I wait until I get the new mortgage before I take on 25K more debt, but pay more VAT on the kitchen and my house valued slightly less.

Annisele

andys15 wrote: »

Having a kitchen/dining room open plan and going into the garage is a lifestyle choice, which will obviously add value to the house,(by how much is anyones guess).

I don't think it's obvious that your plan will add value to your house, though I agree that it probably will. Losing the garage might be really offputting to some buyers.

You could ask a couple of local estate agents for their opinions as to what your plans would do to the value of your house. (I know their opinions would also be guesses, but they'd be educated ones).

Your lender's surveyor won't necessarily care about the inside of your house other than to say that yes, it does have a kitchen.

I think that borrowing the £25k now would increase the risk that your mortgage application would be rejected, and (subject to what the estate agents say) I'd be very surprised indeed if spending £25k on your house would add £25k to its value.

(I agree with the people who think that borrowing £25k given your current situation is madness - but it's not my money and I don't have to pay it back!)

g_attrill

I don't think spending lots of money largely to be able to get a certain LTV is a good idea.

As mentioned can you overpay the current mortgage to achieve the same effect of reducing the term? It would also mean you aren't tied to paying such a large amount, although I appreciate it might be your intention to force yourself into paying down the house rather than spending it elsewhere.