Leaving a 125% mortgage and wanting to buy a new house....

foreversummer

I think we are all routing for blueelephanttrunk to have her lightbulb moment . . . . .

I really hope so. I think you could really turn things around. I wish you well.

pinkteapot

I'm making the assumption that the mortgage is interest-only, since it sounds like you haven't paid off any capital since buying (?).

It's natural to have dreams of moving to a bigger place, especially if you're thinking about having kids. As others have said, the problem is that you have no equity in your house and house prices aren't going up any time soon. Don't fool yourself into thinking that you have some money in the house because you don't. Your net worth is simply what you have in savings, other investments etc.

If you had taken out your mortgage as capital repayment instead of interest only you would by now have repaid around £10k of the capital. That's approximate as it assumed you borrowed £96k initially(where in fact you added to it later on) and also that your mortgage term was 25 years and you're now 5 years into it.

In other words, if you'd been on capital repayment paying £160 more per month, you would now owe Northern Rock around £85k. If you sold your house for £95k you would have about £10k equity. Since you would need a 10% deposit to move to a £160k house (£16k), you would only need £6k in savings to add to your existing equity. Not the full £16k that you do as things stand. (Obviously you'd still need the fees on top of that).

As I said at the start, it's natural to want to move to a bigger/nicer place as time goes on but you need to start working out how you're going to do that financially, or you could end up stuck where you are for a long time to come. Money will also get substantially tighter as and when you have kids. You're on a good joint income at the moment so it's the time to be really knocking down the mortgage capital owed or adding to your savings for the future. We're at a similar stage (married last June, no kids yet, good monthly income until we do) and just made an £18k overpayment on our mortgage. I like to think of that as we now own our lounge, not HSBC.

blueelephanttrunk

Thank you everyone, you have certainly made me realise that my lovely new house in the new year is going to take a lot more saving up than I initially expected

Those who said living beyond our means are pretty spot on

We've only both quite recently had quite large salary increases, for the first 3.5 years of the mortgage our joint income was 29k - So have perhaps got a little bit excited / had a warped view of what we could and couldn't afford.....

With regards to the £1000 we will be putting towards the mortgage after the honeymoon, am I best to just pay that straight to Northern Rock, or save it up as part of a deposit?

You have all inspired me anyway, I'm taking some clothes back that I bought over the weekend - was sat in bed last night thinking about silly purchses and frivolous spending. Feel like I've been told off a bit - but is good!

blueelephanttrunk

pinkteapot wrote: »

I'm making the assumption that the mortgage is interest-only, since it sounds like you haven't paid off any capital since buying (?).

It's natural to have dreams of moving to a bigger place, especially if you're thinking about having kids. As others have said, the problem is that you have no equity in your house and house prices aren't going up any time soon. Don't fool yourself into thinking that you have some money in the house because you don't. Your net worth is simply what you have in savings, other investments etc.

If you had taken out your mortgage as capital repayment instead of interest only you would by now have repaid around £10k of the capital. That's approximate as it assumed you borrowed £96k initially(where in fact you added to it later on) and also that your mortgage term was 25 years and you're now 5 years into it.

In other words, if you'd been on capital repayment paying £160 more per month, you would now owe Northern Rock around £85k. If you sold your house for £95k you would have about £10k equity. Since you would need a 10% deposit to move to a £160k house (£16k), you would only need £6k in savings to add to your existing equity. Not the full £16k that you do as things stand. (Obviously you'd still need the fees on top of that).

As I said at the start, it's natural to want to move to a bigger/nicer place as time goes on but you need to start working out how you're going to do that financially, or you could end up stuck where you are for a long time to come. Money will also get substantially tighter as and when you have kids. You're on a good joint income at the moment so it's the time to be really knocking down the mortgage capital owed or adding to your savings for the future.

The mortgage is over 35 years :eek:

We also have taken a few payment holidays over the time we've had the mortgage, which is why it hasn't gone down.

What a silly mess

pinkteapot

It's not really a mess. There are people, particularly on the DFW board in much bigger messes. You can easily turn your situation around on your salaries. The only thing it really means is you can't move as soon as you hoped.

Since it's over 35 years, you only would have repaid about £6k of capital by now.

Do you have other debts? E.g. credit cards? If so, paying those off should be the first priority, then saving for the new house.

Is the mortgage interest-only or capital repayment? If it's capital repayment you should owe less than what you borrowed by now, even having taken payment holidays.

I am now seeing why Northern Rock got into trouble though!

saverjustice

pinkteapot wrote: »

I am now seeing why Northern Rock got into trouble though!

The regulators took almost as long to work that out!

blueelephanttrunk

pinkteapot wrote: »

Do you have other debts? E.g. credit cards? If so, paying those off should be the first priority, then saving for the new house.

Is the mortgage interest-only or capital repayment? If it's capital repayment you should owe less than what you borrowed by now, even having taken payment holidays.

I am now seeing why Northern Rock got into trouble though!

We've got £8k other debts, one loan and one credit card. The mortgage is replayment, the last statement I had I'm sure we'd only paid about £500 off the balance in total - I will double check tonight though. Think I'm going to go chat to the DFW board too......

pinkteapot

Definitely check that statement - unless you've taken payment holidays almost every month I'm sure you should have paid off more than that by now.

Have a look at the DFW board and the advice there for prioritising debts - i.e. which you pay off first etc.

Get a picture in your mind of the dream house you want to move to next. Think of that whenever you're tempted to buy something frivolous. On the other hand, leave a little bit of room in your budget for spending on fun things or you'll get disillusioned with the whole thing pretty fast.

pinkteapot

Just one thing I've noticed about your figures - you said you bought for £89k but had a 125% mortgage for £89k. If you bought for £89k, a 125% mortgage would have been £111,250.

So, you either took a 100% mortgage (not 125%), or bought for £89k with a £111k mortgage, or bought for £71k with an £89k mortgage...

It doesn't really matter too much. What really matters is what you owe now (balance outstanding) and what the house could sell for.

blueelephanttrunk

It was a 125 % for £89,000 - but the house cost us £89,000 - so the initial mortgage was made up of £86,000 with a £5000 secured personal loan.

We then had our house valued a couple of years later and managed to borrow another £5000 as our house was worth more than £96,000 then. That part is unsecured though.