Mortgage chances

dwsjarcmcd

I'm struggling to see what the benefits of retaining the flat are, with the possible exception of avoiding ERC's which you could avoid by porting.

In essence what you are doing by switching to Interest only is renting the flat from Nationwide and sub-leting it on to someone else for a lesser amount for an indeterminite period and the only thing you can be assured of is that you will lose money, each and every month. It could be a very, very long time before you see any meaningful capital appreciation, IMHO.

There must be another reason to hang on to the flat rather than as an investment?

getmore4less

I think the fatal flaw in all this is the rental is making a loss on an interest only basis.

You say £101500 is £510pm interest only so 6.03% is this with the 1.5% loading?

What's the rent.

Then you have costs,voids etc to add on and they will start to add up.

IF the cycle follows last time then it could be 10years before the prices restore back to the highs thats a lot of potential losses to make up.

I think you are being overly optimistic if you think this will be a break even in 2 years.

you are also at hte wim of nationwide, look how many got caught out when they said tough t***y you are paying us another 1.5% or you can take your debt elsewhere and pay the fees.

spitz83

dwsjarcmcd wrote: »

I'm struggling to see what the benefits of retaining the flat are, with the possible exception of avoiding ERC's which you could avoid by porting.

In essence what you are doing by switching to Interest only is renting the flat from Nationwide and sub-leting it on to someone else for a lesser amount for an indeterminite period and the only thing you can be assured of is that you will lose money, each and every month. It could be a very, very long time before you see any meaningful capital appreciation, IMHO.

There must be another reason to hang on to the flat rather than as an investment?

I take on board what you are saying but selling could take a long time, at least 6 months or more as the flat above us did. By that point we would have missed out on the house. Incidently there are discounts and other incentives worth around £15K on the house being offered by the builder. Porting a mortgage at 6.03% would cost c£180 more per month than a new mortgage at 3.99%. So instead of making a loss each month on my flat I would be making a bigger loss by porting my higher rate mortgage. I dont see the sense in that.

At the end of the day, and with the greatest respect to everyone who has posted a reply, I didn't start the thread to ask peoples approval on whether i should do this or not, my questions were about mortgages and thats why it is on this board. Only 'somethingcorporate' has given some feedback on this. We are moving due to my partners new job and sometimes there is more to life than arguing the toss over a couple of hundred pounds.

dwsjarcmcd

spitz83 wrote: »

I take on board what you are saying but selling could take a long time, at least 6 months or more as the flat above us did. By that point we would have missed out on the house. Incidently there are discounts and other incentives worth around £15K on the house being offered by the builder. Porting a mortgage at 6.03% would cost c£180 more per month than a new mortgage at 3.99%. So instead of making a loss each month on my flat I would be making a bigger loss by porting my higher rate mortgage. I dont see the sense in that.

At the end of the day, and with the greatest respect to everyone who has posted a reply, I didn't start the thread to ask peoples approval on whether i should do this or not, my questions were about mortgages and thats why it is on this board. Only 'somethingcorporate' has given some feedback on this. We are moving due to my partners new job and sometimes there is more to life than arguing the toss over a couple of hundred pounds.

Firstly I absolutely respect your point about the reasons for doing this being yours and accept your point about arguing over money, which is yours to do with what you wish.

Having said that, you wouldn't make a bigger loss by porting because you would either have to keep the loan on the flat as you propose or pay ERC's, which presumibly are more, also you wouldn't be charged an increased rate for getting Nationwide to agree to a consent to let.

spitz83

dwsjarcmcd wrote: »

Firstly I absolutely respect your point about the reasons for doing this being yours and accept your point about arguing over money, which is yours to do with what you wish.

Having said that, you wouldn't make a bigger loss by porting because you would either have to keep the loan on the flat as you propose or pay ERC's, which presumibly are more, also you wouldn't be charged an increased rate for getting Nationwide to agree to a consent to let.

Thanks dws. I am probably being stupid then but i still cant see how i would be better off by porting. As i see it:

If i did have the two mortgages repayments would be roughly £790 (new mortgage at 3.99%) and £600 (this includes the 1.5% loaded rate for letting averged over 22 months until the end of the fixed deal. The 1.5% kicks i after 6 months letting). Total payments £1390. For arguments sake lets ignore letting overheads and say rental income is £500 per month. This makes net monthly repayments of £890 on two mortgages. If i sold and port my mortgage at 6.03% to the new house at £150K. This makes monthly repayments of £970. This is £80 more per month.

In addition to this, if i ported the higher rate of 6.03% means i would only repay capital of £5500 over the 2 years. With 2 mortgages i would repay capital of £7400.

I'm obviously missing something???

dwsjarcmcd

I think you are missing something. If you port then you transfer the existing mortgage balance, so say £100k. The other £50k would be on a different rate, not sure of the T & C's on the 3.99% deal, but it could be that.

spitz83

dwsjarcmcd wrote: »

I think you are missing something. If you port then you transfer the existing mortgage balance, so say £100k. The other £50k would be on a different rate, not sure of the T & C's on the 3.99% deal, but it could be that.

I didn't realise the extra borrowing would be at a different rate. Someone suggested in an earlier reply to contact Nationwide and see what the score is. I think thats the best way forward here. Thanks for pointing that out, much appreciated. By my reckoning though 101K at 6.03% and 50K at 3.99% still makes for a mortgage of over £920 so not sure that i am in fact still not worse off. So many variables!

getmore4less

spitz83 wrote: »

I didn't realise the extra borrowing would be at a different rate. Someone suggested in an earlier reply to contact Nationwide and see what the score is. I think thats the best way forward here. Thanks for pointing that out, much appreciated. By my reckoning though 101K at 6.03% and 50K at 3.99% still makes for a mortgage of over £920 so not sure that i am in fact still not worse off. So many variables!

Part of that payment is capital to compare like for like you need to look at the start and end point with the same inputs

As I see it you have, on a 2 year plan,

Option 1
Rent £500
interest only £101k @ £600pm (average with loading)
buy with £150k @ 3.99% 25 years £791.

Total payment £891pm

After 2 years £101k + £142713 = £243713 +/- the rise or fall in the value of the flat, if it stays the same £142713.

option 2 sell and port

£49k @ 3.99% £122pm (interst only, is best overpay the higher rate)
£101k @ 6.03 with £769 left after the above payment

After 2 years £49k + £94912 = £143912

Renting wins by £1200 which is £50 per month over 2 years before the costs of renting.

Have you talked to the builder about a part exchange?
Those £15k incentives just mean the new house is overpriced.

spitz83

getmore4less wrote: »

Part of that payment is capital to compare like for like you need to look at the start and end point with the same inputs

As I see it you have, on a 2 year plan,

Option 1
Rent £500
interest only £101k @ £600pm (average with loading)
buy with £150k @ 3.99% 25 years £791.

Total payment £891pm

After 2 years £101k + £142713 = £243713 +/- the rise or fall in the value of the flat, if it stays the same £142713.

option 2 sell and port

£49k @ 3.99% £122pm (interst only, is best overpay the higher rate)
£101k @ 6.03 with £769 left after the above payment

After 2 years £49k + £94912 = £143912

Renting wins by £1200 which is £50 per month over 2 years before the costs of renting.

Have you talked to the builder about a part exchange?
Those £15k incentives just mean the new house is overpriced.

So we seem to be in agreement that over 2 years, renting the flat makes better financial sense than selling and porting. A part ex would mean either porting the mortgage (which doesnt appear to make sense) or paying the ERC (an option but, for me, I dont think makes sense either).

I totally agree, before the dealer incentives the house is overpriced. At £187K it is overpriced by £7k based on what one 'used' house (exact same type) has sold for. With 5% discount the price seems about right. The other £6k of incentives are full carpeting, tiling, applicances and fixtures and fittings which i would have to spend on. I think it seems like a good price.

In terms of a part ex, apart from the reasons above, the builder wont do this as they only have about 5 plots left to sell. It may work or some people but from my sole experience of a family member who part exchanged, they did not get a competitive price for their property.

getmore4less

Remember that £50pm is before any costs.

Next step is to get to grips with the legal obligations of becoming a landlord.

http://www.landlordzone.co.uk/ seems to be the place to go

Good luck.