Mortgage Overview?

EnzoMan

I've used a few of these online mortgage calculators and I'm now looking for real feedback from people who are living with paying a mortgage.

I might have had some bad advice but I would like to clarify it on here with you guys. It's been suggested to get an interest only mortgage and get my foot on the ladder with a flat in the range of £90k - 110k, and saving the excess money I have and use it as a down payment for the next property which would be higher and bigger in value and just transfer the capital of the current mortgage over to the new property, where I would switch to repayment mortgage.

I realise switching to repayment mortgage within the same property is possible but if I decide to move is it possible?

If it's possible I assume there are some pitfalls, hidden charges for moving?

I'm in the range of £21k a year gross.
I thank anyone for any advice offered in advance.

_Andy_

OK firstly, how much deposit do you have saved up?

kingstreet

EnzoMan wrote: »

I've used a few of these online mortgage calculators and I'm now looking for real feedback from people who are living with paying a mortgage.

I might have had some bad advice but I would like to clarify it on here with you guys. It's been suggested to get an interest only mortgage and get my foot on the ladder with a flat in the range of £90k - 110k, and saving the excess money I have and use it as a down payment for the next property which would be higher and bigger in value and just transfer the capital of the current mortgage over to the new property, where I would switch to repayment mortgage.

I realise switching to repayment mortgage within the same property is possible but if I decide to move is it possible?

If it's possible I assume there are some pitfalls, hidden charges for moving?

I'm in the range of £21k a year gross.
I thank anyone for any advice offered in advance.

Unless you put down a 25% deposit, you're unlikely to get an interest-only mortgage with no repayment vehicle to pay it back. Lenders will also use affordability based on a repayment mortgage to determine your maximum borrowing power, so you won't get to borrow more because you're opting for Interest-Only.

The big question, is what happens in a couple of years if the flat has fallen in value, or there's been a change in your circumstances preventing you moving the mortgage or selling the flat? Spend some time on here and the number of threads from people trapped into small flats and big interest-only mortgages will dismay you.

hcb42

I personally don't see the merit in the plan.

If you have the mortgage on interest only, there will not be any capital to transfer to the second property....there will be an OS mortgage which might be more than you actually borrowed if you add fees to it, but that will need to be paid off on sale and a new mortgage arranged - subject to lending criteria at that time.

If you are interest only, it is often easier said than done to save in the way you say. If you take a repayment then this way you are reducing the capital, albeit slowly at first, but you will then have that capital to transfer to the new property as it were.

If you are interest only, you dont really have a foot on this ladder at all. People have made a paper profit in a rising market, which has enabled them to get the deposit for house no 2 - but we are not in one at the moment. In fact in some areas it seems to be giong the other way.



charges for moving, if you do it this way, and don't benefit from a rising market, when you move you are effectively paying two sets of legal fees, and the second set will be much higher as you will have selling and buying fees, will have to pay stamp duty on the second purchase, and EA fees most likely. As well as any fees for early redemption of mortgage, (which can be avoided if you are able to port the first deal, or sell after it has finished.)

EnzoMan

Thanks for the quick response, the way you have explained it has helped me see that it doesn't seem feasible, I should just settle for a repayment and then when the time comes hope the property is higher in value and move on then, instead of going down the interest only path and if the property does go up I'd be lucky if it covered all the additional fee's for moving on.

Have I understood what you are saying, with this post? Just to clarify...

PS. my income is 36k gross - very little deposit but some cash could be found if need be.

dimbo61

So if you did want to get on the property ladder and buy a flat for £90-110K your gross income of £36K would mean a mortgage of 3X income which is good BUT you dont have a deposit which is not so good!!!
You need at least 10% Deposit to be even considered by most lenders so get saving.
We know nothing about you other than income and dont know if you are living in a rented property or still at home with parents

EnzoMan

£475 rent + £107 council tax - I think it's wiser to move that money into funding some kind of mortgage.

hcb42

you need to save around £15K for deposit and initial fees etc - set yourself a target and it sounds affordable on your income

EnzoMan

hcb42 wrote: »

you need to save around £15K for deposit and initial fees etc - set yourself a target and it sounds affordable on your income

I was planning on saving £1000 a month with an interest only mortgage as my outgoings are very little, I can afford to live very cheap for 3 years and save to then move onto something bigger if that's what I plan for, even with the rent and council tax i'm paying right now I can still afford to put by £600 month.

As explained to me would need a bit of luck on the market for the value of home no1 to go up in value for me to have extra gains also to cover fees and hopefully a profit.

Again I'm just double checking but is does what I'm saying sound sane or logical or even plausible?

hcb42

I am not sure how you would save significantly more as a home owner, even on interest only......invariably there will be upkeep and improvements etc which will dip into your income.

you will pay significantly more interest over a term by being interest only.

Saving £600-£1000 a month though means you can buy within eighteen months or so

EnzoMan

hcb42 wrote: »

I am not sure how you would save significantly more as a home owner, even on interest only......invariably there will be upkeep and improvements etc which will dip into your income.

you will pay significantly more interest over a term by being interest only.

Saving £600-£1000 a month though means you can buy within eighteen months or so

I understand what your saying, if I'm going to save money I should just sit tight and save. The reason I was trying to get into property now is that, the value of property has fallen a lot in my area and places I would never have had the chance to buy are now going on the market, but I agree with you and understand your point.