Right to buy, first time mortgage, sounds very expensive?

D@rkle

Hello MSE'rs.

I've recently been offered the chance to buy my council home under the Right to buy scheme. Basically for the time that we've been living here we can have a £60k 2 bedroom flat for £18,000. It's too good a chance to pass up to get onto the property ladder.

At this kind of cost, does anyone think it would be better going for a loan rather than a mortgage? Here's what's happened.

I bank with Lloyds TSB, and I realise that Banks are not very competitive on their rates, but I thought for such a small amount, I'd start off by getting a quote from them. I'd be buying Jointly with my mother in Law who is over 75, which meant they had to go to the under writers, they couldn't just do a computer quote.

I decided to ask for £23000, and explained that this would be to buy the house at £18,000 and leave some money for some improvements I wish to make. They finally came back the other day and said that the only one they could offer would be a standard tracker mortgage, which seems fine, and that it would need to be a 25 year mortgage. The total cost came to £48,000 over the full term.

Now please bear with me as I'm new to this, but can anyone who has a mortgage advise if this seems normal? More than double the price, I basically loose any discount I've gained by using Right to buy?

I had already done some investigating and a £15000 loan would cost about the same per month over 10 years, I could put the rest of the money to it out of savings, and this would only cost about £20000 over 10 years.

What I need to know is:

1. Does this seem excessive for such a small mortgage? or is that what you'd expect to pay?

2. Would an unsecured loan perhaps be the more sensible option?

Thanks for your help.

JasonLVC

Very roughly, the interest on a mortgage over 25 years is about double the original loan (ie, if you borrow £20, you owe £40, etc) - although that is a VERY rough calculation.

Try not to see yourself as losing the discount. As an ex-right to buy manager for a council, you cannot lose, so no need for the hard done by sentiment of 'losing the discount to interest' as if you bought the house without the 60% discount, you'd be a borrowing £60k and paying back £120k over 25 years!!.

Unfortunately, that is what mortgages are, they cost a great deal over a long period of time. You may get a better rate by 0.5% or some sort of discount %, but the banks will still get there half share so to speak.

Remember, that these houses are valued around 20-25% true market value (depending upon type of house/condition/location, etc) as the stigma attached to council houses reduces their value at the point the council sell it to you. But, once it becomes 'owned' the value of the house will rise as owners tend to spend a bit more love and money on something they own (like yourself, you intend to make improvements) and so within a few years the house will be easily worth a lot more than you pay for it.

I'd be more inclined to get an unsecured loan myself, provided you have the credit rating/income to support such a loan. Mortgage lenders will have a big problem lending money to a 75 year old joint owner as they will likely be deceased before the 25 year term ends and so they need to guarantee the other person (you) can pay. I assume its a joint tenancy you have, hence the need for a joint mortgage. If so, the council will only sell to 'joint tenants' so the mortgage will have to be in both names.

You can always buy the house jointly then after transfer of deeds, instruct solicitor (about £150) to remove your MIL name off the deeds, then you can get a mortgage/loan in just your name - but depends if your MIL trusts you not to kick her out afterwards as you'd be the sole owner thereafter!!.

By the way. Don't use any 'right to buy company' to help you with your house purchase. The council will provide the valuation for no charge and you can do a personal search for about £6 - all you need is a solicitor to do the legal bit with the council and for you to choose a mortgage/loan provider.

D@rkle

Hi Jason,

you've summed up in a single post exactly what I needed to know.

I think from the sounds of it, I'll go down the unsecured loan route, as it's cheaper at the moment.

Thanks for your advice Jason.