Please help - can't get new mortgage, should we rent?

HWoody1983

Please can anyone offer me any advice...

Me and my partner are almost 30 and finally growing up! I bought a house on my own almost five years ago and it is only worth the same as I bought it for now even though I gutted it and spent a small fortune improving it which couldn't be avoided as it was in a bad way!

It is a lovely little 1 bed house but we are getting married next year and want to try for a baby after the wedding. We are both working really hard to ensure we have paid off loans and credit cards by the Summer and we are almost there! However we can't save due to the wedding and paying off debt and as there is no equity in my house, we have no deposit for a new house.

Should we rent out my house after the wedding, therefore enabling us to remain on the property ladder and rent out a bigger house for ourselves so that we can have a family? (I have done the sums and we could afford to cover the rent for a 2 bed house and the mortgage on my own if it was ever vacant)

That way, we could be still reducing the amount we owe on my property yet would be able to have a baby, then once we have some equity we could hpefully afford to buy a bigger house.

Please if anyone can help or offer advice, it would be much appreciated

tbs624

Presumably your current mortgage is a residential one so you would need lender consent to let. Some lenders wont grant it at all, some do for a limited period, and most will charge a fee of several hundred quid plus a possible rise in interest rate. However, you would be expected to have a sizeable chunk of equity in your property and you say that you haven't.

Have you done any research in to becoming a LL - would you be able to have a contingency fund in place for emergency repairs etc? You need to remember that you are only able to set the interest part of a mortgage down against the rental income for tax purposes.

Lots of people manage to start off their family life in one bedroomed accommodation and many would view it a preferable to be a bit short on space for a year or so than to have the possibility of needing to meet two lots of mortgage payments from one salary, in the event of a tenant void or a difficult T

19lottie82

Seems a good idea in principle OP BUT you need to consider....

- As people will be dying to tell you on here, legally you need to have consent to let from your lender. This will more than likely mean moving to a BTL mortgage with a higher interest rate and a large fee.

- Rental income isn't guaranteed. You may not be able to rent out your house straight away or you may get a tenant who doesn't want to pay their rent. (This board is full of threads describing such scenarios).

- Depending on how long you have left on your mortgage, you may be unlikely to build up a reasonable chunk of equity on the property in the next, say 5 years. plus the housing market MAY get even worse, no body knows.


There are so many people in similar situations to yourself (stuck in properties with negative equity / cant sell, that they have outgrown). Renting could be a solution, but just be aware that there could be hiccups along the way when it comes to renting out your house.

Perhaps it would be a more sensible option to put off the baby for a year or 2, stay in the smaller house and knuckle down to save up for a house deposit?

lazer

19lottie82 wrote: »

Seems a good idea in principle OP BUT you need to consider....

- As people will be dying to tell you on here, legally you need to have consent to let from your lender. This will more than likely mean moving to a BTL mortgage with a higher interest rate and a large fee.

- Rental income isn't guaranteed. You may not be able to rent out your house straight away or you may get a tenant who doesn't want to pay their rent. (This board is full of threads describing such scenarios).

- Depending on how long you have left on your mortgage, you may be unlikely to build up a reasonable chunk of equity on the property in the next, say 5 years. plus the housing market MAY get even worse, no body knows.


There are so many people in similar situations to yourself (stuck in properties with negative equity / cant sell, that they have outgrown). Renting could be a solution, but just be aware that there could be hiccups along the way when it comes to renting out your house.

Perhaps it would be a more sensible option to put off the baby for a year or 2, stay in the smaller house and knuckle down to save up for a house deposit?

Please do not put off having a baby if that is what you want and can afford it. (although no one can ever fully afford a child)
Until the baby is about 3 years old you will be able to manage fine in the one bed if you needed too, this would enable you to continue to save and maybe by the time you need to move you would have enough to afford the bigger house without the hassles of renting.

Rememeber renting is also insecure - do you really want to be at the whim of a landlord and have to move every 6 months with a young child?

19lottie82

lazer wrote: »

Please do not put off having a baby if that is what you want and can afford it. (although no one can ever fully afford a child)
Until the baby is about 3 years old you will be able to manage fine in the one bed if you needed too, this would enable you to continue to save and maybe by the time you need to move you would have enough to afford the bigger house without the hassles of renting.

Rememeber renting is also insecure - do you really want to be at the whim of a landlord and have to move every 6 months with a young child?

yes Lazer you're right. Sorry, what i meant to say was, perhaps you would be better staying put for the next few years (with child if your plans work out), making do with what you've got (OK it's not ideal, but it is liveable) and saving for a deposit?

hazyjo

Personally, I would wait and save as much as I could. Try not to let the wedding become the be all and end all. Trust me, it's about who's there and how much fun you have. Nobody will remember the table decorations, chairs or whether you had favours or not... you can make it spectacular on a small budget.

A wedding's stressful enough without moving house and having a baby soon after. One at a time...

Everyone thinks it's gonna be instant... women are generally pregnant for 9 months - that's nearly a year! I think the average time is still several months to fall pregnant - if you're lucky enough for it to happen naturally, it could take years. Don't mean to be pessimistic (I prefer 'realist' to 'pessimist', but there you go...) but also something like 1 in 3 miscarry, or you might end up with twins like my sister. A baby will probably be in with you anyway for the first few months... If you buy a 2 bed house, do you really think it'll be big enough for years to come? Are you likely to want to move again in another couple of years' time? You'll lose far more by doing that than if you buy something that will suit you both for longer. Prices generally do not look like they're going up any time soon so that's going to be a lot of money down the pan if you outgrow it quickly.

Try and see it as a good thing that it's not gone up. I know people see property as a way to make money, but if it had gone up even say 20%, whatever you're trying to buy would have gone up by 20%, maybe more. I imagine that would then be totally unaffordable and you'd find yourself stuck for many moons in a one bed house without the ability to move 'up'.

If you could afford to rent a 2 bed house and deal with voids if you rented yours out, can't you save that money instead? Concentrate on paying off those debts and saving for a deposit. I know you want to plan it all out and start your future together, but, really, there's no rush yet.

Good luck, hope it all works out well for you

Jx

PS agree with lazer - don't put off having a baby! But don't think you need a bigger house first...

HWoody1983

Thank you all so much for your comments and advice :T, I have two work friends going through IVF at the moment (thus they are all telling me not to put it off any longer, assuming that it is my choice to make) so yes I suppose it does make sense to wait until I am actually pregnant before stressing about finding somewhere bigger to live but not to put it off any longer than planned.

As for the wedding, we are only spending £4000 maximum and that is pretty much sorted, no sit-down meal, hiring dress, bridesmaids buying own dresses etc, so I am not using any money for the day that could have otherwise gone on the house. It's impossible to do the wedding any cheaper as I have a huge family and we are all close so no-one wants to miss the big day...irish catholics!!!!

It's annoying being stuck as I have worked so hard in my career and earn a fantastic wage but unfortunately it would take sooooo long to save a big enough deposit (£10,000 minimum and that is only for mortgages with high interest rates) and I have put off the wedding and baby for four years already whilst I did up my current house and paid off debts etc from doing so.

We're not doing any of this lightly, hence why we're considering our options now so hopefully we make the best decision for us. I do have some family members who are looking for rental properties for approx 2 years so maybe if we were approved by our lender, these would be the safer option as tenants.

Gosh, it's so hard trying to decide! I think I will definitely follow the advice to hang fire though and not do anything until I am actually pregnant but if and when I do get pregnant, I will try to move somehow as after all my hardowrk to establish a secure home financially, it seems ridiculous that we would all be cramped in a tiny bedroom and a house with no storage space whatsoever. I know people have to do it, but hopefully we would be able to work something out.

Thanks again though, you have all been very helpful

AFK_Matrix

Hi there,

I am no expert as I have just become a property owner myself. But I would consider heading on over tot he Debt free wannabe section if you haven't already done so and post a SOA. I say this because if you both work and i am assuming your not paying a stupid amount on the mortgage then you should be able to save quite a bit, or at least put this towards your debt repayment. And if say you fall pregnant the night of the wedding (hehe :P) then you still have 9 months and you then have what 1-2 years of the baby being in a cot in your bedroom. So if you can pay off all your debts asap then that money can go towards a deposit.

Just some ideas as you sound like you are paying of a lot of debt and the guys in the debt section are great at looking at your monthly expenses and suggesting ways to save money.

zzzLazyDaisy

Sorry if this has already been said - but do check what your lender's arrangements are for overpaying on the mortgage. Some have no restrictions, and even where there are restrictions, many will allow 10% overpayments. Head over to the mortgage free board and pick up some tips there. You will be amazed how fast your mortgage goes down when you overpay, as the knock on effect on the interest soon builds up. In this way you will soon build equity in your house.

Unless you have a really good mortgage deal, this is better route than saving for a deposit, as interest on savings accounts is taxable, and is normally at a lower rate than the compounded interest saving on paying down the mortgage.

I also echo the suggestion to visit the DFW board, as they have lots of tips for cutting your outgoings, which will free up money to pay down the mortgage.

However, do pay off of all your debts and overdrafts etc first before you start saving/paying down the mortgage.

HWoody1983

Thanks lazydaisy and matrix! Great advice and I will check the other forums that you recommended.

I'm now thinking then that we will make overpayments on our current mortgage once all my other debts are paid (June this year) :j

That way, even if we were really lucky and got pregnant just after the wedding, we have a couple of years where we can continue to over pay and will have already been doing so for the year before the wedding.

We're lucky at the moment as we are both still in work but it's unsettling as I have survived three lots of redundancies within my team! :T It's been so scary as I am the main earner.

I know that I can definitely make overpayments on my mortgage but will be sure to double check the amount and/or any restrictions.

Thanks again :rotfl:

BitterAndTwisted

In my opinion you'd be much better off delaying starting a family for a year or two, both of you continue working and over-paying on that mortgage. Then once you've got a chunk of equity, sell up and buy a family home. Your wife to-be has yonks of child-bearing years ahead, ten years as an absolute minimum.

My own feeling is that as prices are falling, and will most likely continue to do so, why expose yourselves to double the risk by having two mortgages rather than one.