Interest only mortgages

Phil_rich

Evening all,

Im currently looking at my options as i am going to move out of my parents house in a few months and get a place of my own. m not sure whether to rent of buy. If i rent the current average price for a flat or small house it £340pcm. but as everyone knows renting is dead money so i am looking at possibly buying a house. The main problem is i only earn £12k per year but am due a pay rise soon and also overtime will then be available for me.

I know this is not enough to get a 'proper' mortgage but do the same multipliers apply when its an interest only mortgage?? i looked on Northen Rock and they do one for £70k at about £280pcm. so would i be able to apply for this or are my wages to low?? by my calculations i can afford the repayments but would they agree??

To me it makes more sense to buy with an interest only mortgage than rent as there is a possibility for a return on my money and the monthly payments are less.

if any one can help me out i would be very greatful.

Thanks, Phil

MarkyMarkD

Most lenders don't use a different affordability calculation for interest only mortgages.

I don't personally think you should be thinking of buying on £12k a year. Friends of mine on a slightly higher income than that weren't able to sustain payments on a £35k mortgage, because of their other spending - if you think you need to spend £70k to get a decent place, you really won't be able to afford the mortgage (if anyone's daft enough to lend it to you).

Just my opinion - feel free to disagree!

MMD

Phil_rich

i cant see why you would say that as an interest only mortgage would cost less than a rented property and i will have to rent somewhere before july. My point is a mortgage should be based on what you can afford to pay back.

stuwilky

There actually wont be much difference in the payments once things like buildings and life insurance are added to the equation, you wouldnt need if you rented.

I would guess youd be highly unlikely to be granted a mortgage with those figures until your pay rise.

Perhaps you should save the £340 a month until your pay rise to give you either a decent deposit, or some money for diy/furnishings when you do buy. It would also prepare you for the financial jolt buying a house is!!

MarkyMarkD

Phil

I think what you mean is that an interest only mortgage, at a discounted rate, based on today's low base rates, is cheaper than renting.

And the lender doesn't care if it's cheaper than renting - they care if you can meet the repayments. Paying the level of rent you are paying, on your income, must also be a stretch surely?

dougk_2

I agree with MMD on this. at £12k a year after tax etc you must only take home around about £700 a month (especially if paying into a pension - which is important!). The rent, council tax, general bills (including contents insurance) will add up to I'm guessing estimating £550.... £150 a month free to pay for everything else isn't much.

If I were in your shoes either stay at home or rent a single room (as a lodger in effect) or rent with other friends , whilst you save up for a deposit for the future. Realistically I think you need to earn at leat £15k before purchasing a house pref. nearer £20k..... believe me once you leave home you will see how much things cost!

Phil_rich

yeah i see where you are coming from but i do have other incomes which amount to about £4k pre annum aswel, however i dont think these can be taken into account for the mortgage thats why i believe i can afford it. i have used the money spreadsheet thing off this site and with all incomes and ALL expenditures it leaves me with £150 per month.

But thanks for your input, i might rent until i get my pay rise.

budgetflyer

or is there someone you could do a joint mortgage with. Ie good friend,brother,sister etc.Even your parents going halfers and using it is an investment.

Phil_rich

yeah thats a good thought i didnt have that idea, my father has payed him mortgage off so he might be willing, i will have to ask him nicely i think.

Thanks for your input.