Do mortgages make sense to anyone!?

16hm

Hi all,

Sorry for the informal title of this thread but having virtually no financial savvy and having spent two days trying to work things out my brain is in meltdown

Could I kindly impose on this forum of experts for some help please:

I currently own a house worth around £108000 (valued around 9 months ago), purchased around 7 1/2 years ago as a single man starting out in life with his new job.

Became a married man around 2 years ago and frankly we want to move. We don’t necessarily need somewhere bigger only better, a nicer area should we decide to have kids.

I have had several substantial pay rises since getting the house and my wife works part time. Having a quick look at the Northern Rock online calculator, they may lend me and my wife 198000.

I have through my own savvy overpaid my mortgage when finances allow and currently owe 78000 on my 108000 house giving me a deposit of around 30000.

This will enable us to buy a house worth around 225000 and would suit us down to the ground.

All plain sailing until we get to the rub of this post.

General advice seems to be that it is not a sellers market at present and also that having money in property is a good investment.

After looking into this I foresee the following costs which will have to be met before contemplating this:

Electric re-wiring (inc plastering and painting) : £4000
Minor cosmetic changes: £500
Furniture for new house: £1500
3 months mortgage (in case of nonpayment by tenant): £1500
Deposit for new house: £22000.

This means borrowing another £30000 and loan payments (with Sainsbury bank) of around £500.

This will mean total loan and mortgage payments of around £1900.

Now this is extremely high and to be honest would leave us stretched every month.

Is there any way mortgage products would allow us to incorporate the extra items into the total figure?

I am due a pay rise next year 2013 but even then we wouldn’t have a lot left over.

Is this a pipe dream? Should I just sell and walk away? Have I bored you enough by now?

Thanks for any advice that anyone has

Thrugelmir

If you can afford a mortgage of twice what you are paying now. Then you should be able to pay down your existing mortgage or save at a reasonable rate.

Why do you still have a mortgage of £78k after owning the property for 7 and half years. Is the mortgage interest only? Ideally you should switch to a repayment mortgage in order to repay the capital.

beecher2

Not sure I understand - are you planning on renting your property out? If so, where does your deposit come from as you won't be able to take the equity out.

dunstonh

General advice seems to be that it is not a sellers market at present and also that having money in property is a good investment.

Residential property (i.e. the one you live in) is not really an investment as you always need somewhere to live. The last 20 or so years have seen property prices fed by a credit boom. That credit has gone now. So, the next 20 years are unlikely to be the same as the last 20. Although builders and experienced landlords who can spot opportunities will always continue to do well. The blind monkey who could make a profit standing on its head in the last 20 years will not be able to do so in future.

hcb42

you missed out your intention to rent the existing house out I think. If so, you will then need to factor in some rental income some of the time.

What the bank say they will lend, and what you feel comfortable with borrowing can be two very different figures. A quick calc on here suggests we could borrow £250k, there is no way on earth I could afford that repayment level and live my life etc!!

apart from the fact you wont have a deposit for the new house if you rent out the old (and you cannot borrow it, as they will want to know source of funds, which will affect your borrowing anyway), you need to look at this letting aspect as a business transaction. Do you really want to borrow all this extra money just to then become a landlord? Are you happy with the return you will receive from the rent? You are in a reasonable position compared to many if you do sell, reasonable deposit - although you probably want to aim for at least 15% of your purchase price as a deposit, if not more.

Without more savings in the bank, I think it is a non starter.

BobQ

16hm wrote: »

Hi all,

Sorry for the informal title of this thread but having virtually no financial savvy and having spent two days trying to work things out my brain is in meltdown

Only you can judge if your job prospects and job security warrants taking on more debts.

My impression is that you are seeking to borrow the maximum that the lenders will allow you at a time when house prices could still fall over the next 12 months. Have you considered if your pay rises are likely to keep pace with rises in mortgage repayments as interest rates rise in perhaps a year's time?

Seems to me that if you paid down your existing mortgage for a year or two and made sure the house you own was in good condition you would be in a much better position to buy another house at a good price based on a higher income. But its just an opinion!

16hm

beecher2 wrote: »

Not sure I understand - are you planning on renting your property out? If so, where does your deposit come from as you won't be able to take the equity out.

Beecher, thanks for your reply. My apologies. Yes I mean to rent out my current house with a buy to let mortgage and get an entirely new residential mortgage, with my wife on a new house.

I was planning to get a loan to cover the deposit, is this ok? My father has alos offered to lend me the money on a repayment plan as well. Is this ok?

dunstonh wrote: »

Residential property (i.e. the one you live in) is not really an investment as you always need somewhere to live. The last 20 or so years have seen property prices fed by a credit boom. That credit has gone now. So, the next 20 years are unlikely to be the same as the last 20. Although builders and experienced landlords who can spot opportunities will always continue to do well. The blind monkey who could make a profit standing on its head in the last 20 years will not be able to do so in future.

Yes, I would not be in to make a fast buck. To be honest, if I could cover my mortgage or near bouts then I would be happy. I have 20 years left before my retirement so I suppose I am thinking of having additional income once the grey hair comes.

hcb42 wrote: »

you missed out your intention to rent the existing house out I think. If so, you will then need to factor in some rental income some of the time.

What the bank say they will lend, and what you feel comfortable with borrowing can be two very different figures. A quick calc on here suggests we could borrow £250k, there is no way on earth I could afford that repayment level and live my life etc!!

apart from the fact you wont have a deposit for the new house if you rent out the old (and you cannot borrow it, as they will want to know source of funds, which will affect your borrowing anyway), you need to look at this letting aspect as a business transaction. Do you really want to borrow all this extra money just to then become a landlord? Are you happy with the return you will receive from the rent? You are in a reasonable position compared to many if you do sell, reasonable deposit - although you probably want to aim for at least 15% of your purchase price as a deposit, if not more.

Without more savings in the bank, I think it is a non starter.

I have, albeit briefly researched the rental market and it does seem that houses rent here, like I say I would be happy to just cover the mortgage payment on it.

Thanks all for your advice. I was very keen to rent out my house, just to have a pension pot of sorts but if we are living hand to mouth in the interim then it simply isn’t worth it.

Fiddlestick

They will not lend if you take out a loan for the deposit, as it's not "your" money - it's a loan.

Yorkie1

You will have to declare the 2 loans for the deposit (it's fraudulent not to do so) and they will significantly impact on the amount the mortgage company will give you, if they will allow it at all.

16hm

Fraud! The thought hadnt occurred to me. If course I would have declared that and not have wished to deceive. It goes to show my lack of knowledge in this area.

If it helps I have a good credit rating. Is there any way in which my father may be able to help? He is. Is retired and has told me he is willing to help. He paid off his mortgage years ago and leaving aside any affordability issues is there anything he could do?

Thanks once again for all your help.

opinions4u

In the end, you want to do the following:

1) Borrow the maximum you can possibly get your hands on for a mortgage on a new property.

2) Borrow against your existing property to fund the deposit required for the new propery.

3) Turn your existing property in to an investment built on debt.

So (1) overstretches you, espeically when children come along; (2) doesn't look great to the new lender and (3) is an "all eggs in one basket" risk that falls apart with a tricky tenant or, worse still, no tenant at all.

I'd suggest, very strongly, that this is not a foundation for a secure future for you, your wife and future children.