Mortgage ponderings.

Naetha

Hello folks...

I am in the lucky position of being married to a homeowner, and having just received a lump sum of cash from my great aunt who recently passed away.

Our current house is a 4 bedroom. 3 storey (and extensive cellars) Victorian corner terrace house, however it is in a bit of a sorry state - no central heating, extensively decorated with artex, patches of damp etc etc. Similar houses in the area in a similar state of repair have sold for approximately £100k to investors, however nicely done-up family oriented houses similar to ours have sold for approximately £120k. It was bought for £32k 10 years ago, and has £25k left to pay, with £5k in an offset bit (i.e. we can withdraw that cash if necessary)

The maximum mortgage I can get (having done an online mortgage check through HSBC where I have a graduate account) is £95k, assuming I have £80k (from my great aunt, less credit card payoffs) as a deposit.

To skip to the end, we have a number of choices in front of us...

Option 1

Buy a house for £175k, pay off two mortgages (which would add up to ~£800/month - reasonably doable as long as we stop food shopping at M&S and interest rates don't rocket in the next 2 years) do up our current house as a family oriented house with our remaining limited funds, and sell it for the greater price, then pay off our current mortgage (either paying early repayment penalties, or putting the cash in a high-interest account until we are not bound to the mortgage any longer)

Pros: At the end of 3 years(ish) we will have a mortgage free home, and probably some cash to spare.
Cons: We won't be able to get as nice a house as we'd like initially. It will take a good few months for the capital from the sale of our current house to be realised as we will have to renovate, and then sell aimed at a family/houseshare. We will be paying off two mortgages for a number of months and cash will be very tight. We'll have to research the buyers market in our area much more.

Option 2:

Sell our current house for below market value due to it looking a bit shoddy, most likely to an investor. Arrange some kind of lease-back, or move into rented accommodation while we find our dream house with a mortgage for ~£70k or less.

Pros: We will be in our new home with a perfectly manageable mortgage in a couple of months. We will get a "better" home, i.e. one we're less likely to want to move out of in the next 5 years. There will be little stress, less fearing a housing market collapse. We will have more cash over the next few months, and be able to live a little (holidays? what are they?!).

Cons: We won't be making as much money as we could from the sale of our current house, potentially with the "loss" of up to £15k.

There's other options as well, like Option 1, then renting the house out rather than selling etc etc.

Any advice on which route we should take? If so, then any specific advice on what mortgages to go for? I'm just in a bit of a quandary at the moment - I want to plum for Option 2 for the easy option, but I can see how Option 1 is better in terms of long term cash.

silvercar

SO your house is worth £20k less due to its current state. How much would it cost to do up? double glazing is expensive! Work out the cost of doing it up, then add 20% for extras. Don't forget things like rewiring and other unseens. If the cost is over £15k forget it, if its under £10k then consider. These days people like to by "projects" and want to build their dream homes so you may find it easier to sell cheaper than doing it up for top price. Remember also that stamp duty will mean it is difficult to get a price over £120k however much work you do.

Personally, on your figures, I would sell now.