Mortgage question

beccatron

Hi, have a bit of a question so need so wise brains to pick.

Basic situation is that I am ftb with boyf.
We have a deposit of 40k with a little (lot!) help from parents, and already know we can get up to £220k joint mortgage. This leaves us looking for a 260k flat in London.

We have an offer of more parental help. We have been offered up to 40k by my parents as a loan which would be paid back only when we move on to another property. This would be mighty helpful right now, but would leave us with a huuuuge debt owing to parents, and also we'd then have a big shortfall to make up when we move (unless we were moving into somewhere cheaper - unlikely). I also don't know what the implications are for the mortgage if there is another interest in the property. Would this be some kind of guarantor mortgage?
Then my parents came up with another possibility, that they would be guarantors allowing us to get a higher mortgage, and not put any money upfront, but give (rather than loan) up to £400 per month to cover the extra mortgage payments beyond what we could afford. We would get less in total than the lump sum they would have loaned us and as soon as our income rose we could stop taking the money (we have a fairly clear idea of future income rises at the moment).

So my question is basically is there anything I am missing in which would be the best option? I know it depends on how various amounts of money affect rates etc but is there anything major that would influence the decision?
Obviously pretty good situation all told but just too confusing for me!

kingstreet

If your parents stand guarantor, they would have to be able to evidence to the lender that they can cover all your mortgage and all their own costs as well, otherwise the plan won't work.

If I were you I would concentrate on finding a place within your capital and monthly affordability abilities. If it's £260k with a £220k mortgage, stick to that. You cannot possibly guarantee that your parents will be able to make £400 per month payments for as long as you might need them. You never know what's around the corner. Neither do they.

moesasji

beccatron wrote: »

Hi, have a bit of a question so need so wise brains to pick.

Basic situation is that I am ftb with boyf.
We have a deposit of 40k with a little (lot!) help from parents, and already know we can get up to £220k joint mortgage. This leaves us looking for a 260k flat in London.

We have an offer of more parental help. We have been offered up to 40k by my parents as a loan which would be paid back only when we move on to another property. This would be mighty helpful right now, but would leave us with a huuuuge debt owing to parents, and also we'd then have a big shortfall to make up when we move (unless we were moving into somewhere cheaper - unlikely). I also don't know what the implications are for the mortgage if there is another interest in the property. Would this be some kind of guarantor mortgage?

...snip..

So my question is basically is there anything I am missing in which would be the best option? I know it depends on how various amounts of money affect rates etc but is there anything major that would influence the decision?
Obviously pretty good situation all told but just too confusing for me!

I find your post worrying....you only talk about a (mostly) gifted deposit and the mortgage you can get. However not about how you are able to afford this mortgage. The fact that most of the deposit is gifted to me implies that the two of you don't have a massive take-home pay. Questions to ask yourself (assuming both of you work): What if one of you two loses their jobs (or wants to have children)? Can you still afford the mortgage if the BoE interest base rates go up to 5-6% (long term average) and above?

My suggestion would be to do some reading on here and in particular to realize that property is not a one way bet that can only increase in price. Look for example at some of the topics on here where people wish to start a family but are "stuck" in a one-bed flat as prices have dropped below their mortgage making it impossible for them to sell.

hazyjo

Don't add to your debt - most properties between £250k-300k are being dragged down to below or on that £250k stamp duty threshold. Personally, I think you'd be mad to stretch to £300k by borrowing yet more money. Chances are in 6 months, it could find itself taking a huge fall back to that £250k mark. Happened to my last 2 bed house - and now the 3 beds have fallen suddenly to that £250k mark. Cheaper than when I bought there in 2006, and the 3 beds were sometimes selling for over £300k just a couple of years ago.

Do you homework as to what things are actually selling for... many are still putting their houses up for £280k-300k so it looks like they're worth more than they are so people don't try dropping them to the stamp duty level. If anything's up for say £260k, there's no way you'd be paying more than £250k. When you say 'This leaves us looking for a 260k flat in London' - what you mean is £250k (cos of the stamp duty).

Also, re the help from parents towards your current £40k deposit - is that a gift, or will you be paying any of it back?

Don't stretch for every penny you can scrape together. You'll never afford to pay it all back. Also, if you do split up, it could get very messy if other parties are involved. Just get what you can between you.

What areas are you looking in?

Jx

beccatron

Thanks guys

Just for a bit more detail if you're interested, our original plan was to look at max £250k flats, the 40k deposit is all ours outright now, plus we have enough extra to cover costs of moving. Take home pay is around £3400 between us after tax. At a mortage of say £210k we are looking at a monthly repayment of around £1200 on a 2 year fix, we would be prepared to go up to £1300 which would still give us a (smallish) amount extra every month to (re)build up savings.
For the reasons that some of you have said I was not entirely comfortable taking such a big loan off parents which is why this other idea was suggested but as you say, this relies on parents being able to keep paying this at least until our incomes rise (for both of us these amounts are specified in contracts so fairly certain). Although nothing is for certain these days, in our two cases I am not particularly worried about redundancy, of course we would still make sure we were properly covered for all worst case scenarios.

Thanks for all the input, especially the scepticism, I think my parents especially are a bit overenthusiastic, taking the view that they never had any help and lived in crap places for ages and want to avoid that, but obviously it still needs to be financially sensible!

moesasji

beccatron wrote: »

Take home pay is around £3400 between us after tax. At a mortage of say £210k we are looking at a monthly repayment of around £1200 on a 2 year fix, we would be prepared to go up to £1300 which would still give us a (smallish) amount extra every month to (re)build up savings.

Do your numbers assuming what can happen as based on this I would say that you are already stretching yourself when interest rates are at a record low as you've used 4.5% to get to £1200p/m.

If interest rates go up to the level that they have been in the long run you need to add 4 or 5% to the interest you would be paying now. Do you really think you could afford this as that would be ~£1700 p/m?

princeofpounds

Don't look at the first month's (or year's) payments alone!

2 years will be over in a snap and for all you know you could be looking to remortgage at 7% or more...

There is a reason long term fixed mortgages are more expensive than variable- rates are expected to rise. With some level of simplification, rates on a fixed mortgage are an estimate of the average variable rate over that time period. So if you can't afford the 5 or 10 year fixed rates the mortgage mkt is telling you something.

Unfortunately the vast majority of the population don't have a clue and think only about initial affordability. It's like trying to figure out if you can overcome drug addiction by testing yourself on a mild spliff.