retired, pension only income, could he get a mortgage?

evei_2

A friend is selling his house for £160,000 and wants to buy a house for £150,000 fixed price.

The £160,000 house is mortgage free.

My friends have a joint income of £17,000 a year made up from pensions, both retired and are saving £700 a month and have £30,000 in the bank.

They are downsizing, selling a 3 bed semi and have the chance to buy a 2 bed retirement bungalow from a friend for £150,000.

It has been valued a lot more (similar went last year for £165,000) but their friend will take £150,000 for a quick sale.

It does need some work new kitchen, bathroom etc. but not immediate, it is livable in

What are their options, as their house is not selling?

Would they be able to get a mortgage for £120,000 with collateral of £310,000 and are able to repay £700 per month even although the two of them are over 66 years old and not working, or are they dreaming?

There is nothing funny about the friend who is selling the house, he is the sole beneficiery after his mother, who was a good friend of my friends, died and he inherited the house, he wants it to go to a good home if you see what I mean.

Annisele

evei wrote: »

Would they be able to get a mortgage for £147,000 with collateral of £310,000 and are able to repay £700 per month even although the two of them are over 66 years old and not working, or are they dreaming?

Why on earth would they want to, even if they could?

There's nothing inherently wrong with retired people taking out a mortgage. There's a very great deal wrong with people taking out mortgages that they can't afford.

A loan of £147k is more than eight times their annual income of £17k. Three to four times income is more normal; you can certainly get a little higher but for a standard mortgage I think they're pushing it *far* too far. (And would they still be saving £700 a month whilst they were doing up a new place?).

I'd say equity release/lifetime mortgages etc are not a realistic option given that they are planning to sell the first house.

If their house isn't selling at £160k, then there's a very good chance that it isn't actually worth £160k. If they reduce the price, I suspect that they'll find it sells - and then they won't have to expose themselves to a scarily high mortgage debt.

evei_2

taking out mortgages that they can't afford

A £120,000 interest only mortgage at 5% would have a repayment of £500 per month, They can afford to repay £700 per month.

If they buy the retirement bungalow at £150,000 with an interest only mortgage of £120,000 plus £30,000 deposit, when their house sells, and they would be able to reduce it substantially, they would have no mortgage, no repayments and £500 a month to save again.

They have an endowment maturing in six months time for £26,000 so that will replenish their depleted savings.

I should say that this is all my idea, I am looking for suggestions to help them to move as their friend wants to sell the bungalow as soon as possible as he doesn't want it to stand empty through the winter. And he doesn't want to rent it out either.

evei_2

Oh! the house was valued at £165,000.

sonastin

I don't understand the maths... £147,000 mortgage + £30,000 deposit = £177,000 but the house is only £150,000?

evei_2

I don't understand the maths...

Neither do I they are totally wrong, my mistake

£150,000 less £30,000 is £120,000, I missed out a zero so they only need to borrow £120,000 if they used their £30,000 savings.

Catblue

Even if they could get a mortgage for that amount (and they won't be able to), then this plan is full of pitfalls.

Imagine that they get a mortgage for the new place and buy it before Christmas. In January they get an offer on their old house. The survey comes back and states that the house has rising damp and has subsidence. The buyer walks away. Your friends contact their insurance company who don't want to know.

What happens then? Even if the insurance company will pay for the works, it will take months for the works to be done and in the meantime they're paying off a £120K mortgage on £17K per year. Madness.

And what if the council decides to build an incinerator round the back of their old house? Or the neighbour sells up and an ASBO family from hell moves in next door, making it impossible to sell the old house?

Add all that to the fact that they will have ZERO savings and an income of £17K and a £120K mortgage. You say that they can afford £500 per month for the mortgage, so that leaves them £11K per year between the two of them to pay bills for two houses, council tax for two houses, insurance for two houses and maintenance for two houses. Oh, and then food and petrol and car insurance and all those things.

evei_2

In January they get an offer on their old house. The survey comes back and states that the house has rising damp and has subsidence

This is in Scotland and the house has had a survey for the home report. The house is only 20 years old.

And what if the council decides to build an incinerator round the back of their old house?

That will definitely never happen, not where they live.

It was an idea thought up when the booze was flowing freely.

Back to thinking up other daft schemes.

princeofpounds

The short answer is yes, kind of.

Almost certainly they will not be able to get a 'normal' 25 year mortgage. However, they could almost certainly get some kind of financing secured on the property, which is more or less the same thing by another name. It is likely to be capped in amount, over a much shorter term and perhaps a bit more expensive.

They will probably have to buy the property for cash and then apply for a loan, so there would be a risk that they can actually secure the financing on the terms they hope for.

That's all an equity-release product is essentially - a mortgage on a house that is already owned. Loads of old people get them, although to be honest it's not an industry with the greatest reputation.