2nd Mortgage Question

Super_Ally9

hey guys, just looking for a bit of advice. i bought my 1st flat a few years ago now with a nationwide fixed rate mortgage which has now reverted to the 2.5%BMR which is obviously great due to the low interest rate. the thing is that we are planning on moving to a house once we can afford it. when we do move we want to keep the mortgage we have (as once you change it you can never get this rate again as they've now changed it) and just take out a 2nd mortgage on the difference in property value.

at the moment we are paying overpayments each month to try and bring what we owe on it down while the rate is low, at the same time giving us more equity on our current flat. what i'm wondering is will i need to also save money for a deposit on the new mortgage or will a deposit be seen as the money we've made on our flat which is effectively in the current mortgage, therefore no deposit required on 2nd mortgage?

hope that makes sense.

thanks for any help!

kingstreet

Stop making overpayments!

Save the money into an ISA instead.

You aren't going to have a second mortgage, that's something completely different.

When you sell your property, your current mortgage is repaid. If you can qualify for a new mortgage with your current lender for the amount you need, you can "port" the rate from your old mortgage to the first part of your new one. Any extra money can be borrowed on one of the lender's new products.

You'll have one mortgage, split into two sub-accounts.

The equity you have in your current home, the difference between your selling price and your outstanding mortgage is the deposit you have for your next home. You can use that alone, or you can add the cash savings from the ISA I recommended earlier. As it stands, you are reducing the amount you can port on the old rate and increasing the amount you'll need on a higher rate, hence my instruction to cease overpayments.

Nationwide does have a "redraw" facility on some old mortgages which may permit you to return to the amount you owed previously. This may be another way of getting more of your next mortgage on the lower rate.

sjlou

Keep overpaying, reduces your interest.

We're doing the same, on the nationwides 2.5% rate, and have significantly overpaid in the last year.

Speaking to the nationwide only this week they said that we can withdraw the overpayments at any time. Only then can we apply to port the remaining mortgage and take out a second product on the remainder.

You just have to request this is writing and they deposit your o/p reserve into any account you want.

kingstreet

What if the ISA rate is higher than 2.5%?

sjlou

Good point, could be worth it if you get a good ISA rate, but how many good rates can you get out there that will cancel out the interest your paying your mortgage?
Also you'd want a flexible ISA if youre looking to move soon, all the good rate ISAs seem to be fixed term, no withdrawals.

How about fill an ISA each and then start overpaying the mortgage?

Super_Ally9

kingstreet wrote: »

Stop making overpayments!

Save the money into an ISA instead.

You aren't going to have a second mortgage, that's something completely different.

When you sell your property, your current mortgage is repaid. If you can qualify for a new mortgage with your current lender for the amount you need, you can "port" the rate from your old mortgage to the first part of your new one. Any extra money can be borrowed on one of the lender's new products.

You'll have one mortgage, split into two sub-accounts.

The equity you have in your current home, the difference between your selling price and your outstanding mortgage is the deposit you have for your next home. You can use that alone, or you can add the cash savings from the ISA I recommended earlier. As it stands, you are reducing the amount you can port on the old rate and increasing the amount you'll need on a higher rate, hence my instruction to cease overpayments.

Nationwide does have a "redraw" facility on some old mortgages which may permit you to return to the amount you owed previously. This may be another way of getting more of your next mortgage on the lower rate.

thanks for the info. it has been very helpful! i've been on the phone to nationwide and they have confirmed i'll be able to take out overpayments i've made which would be ideal as you say. more money towards deposit for any additional amount i need to borrow and also allowing me to maximise the amount i'm borrowing against the base rate of 2.5%!

only worry now is that theres a good chance i might be in negative equity due to the market slump so not sure how that would effect me!

Super_Ally9

guys, a bit more info on this as we look to have found the house we would like to move to. just wondering if anyone knows if this would be a goer.

• once we withdraw our overpayments on our current 2.5% BMR we will owe £125K on our flat. after discussing part exchange with the home company today it looks like we would just break even selling at the same price.
• the house we want to move to costs £280k meaning we will need a further £155K (minus deposit) in mortgage at a new rate.
• we would be able to put at least 10% of the 155K down as a deposit.
• if this is not enough we could maybe just stretch to 10% of the full property value of £280K

does anyone know if this would be possible to do or would nationwide expect an even bigger deposit?

louisewght

You need a deposit for the full purchase price, from a quick look at Nationwides web site products available for exciting customers moving need a 15% deposit, so you would need £42000 deposit.

louisewght

May have got this LTV part wrong, had another look and products are available over 85%, up to 95%. So would mean only £14000 deposit, but the lowest rate at this loan to value is 6.14 for a 3 year fixed!!!!

Thrugelmir

Super_Ally9 wrote: »

does anyone know if this would be possible to do or would nationwide expect an even bigger deposit?

I would continue to make hay while the sun shines and continue to pay down your mortgage. If you can afford to fund a £252,000 mortgage and have no concerns over interest rates rising. Then you should be able to build up equity very quickly in your existing property.

sjlou

Since i posted last week we have been to see an mortgage broker.

when we actually looked into it, the porting option wasnt a lot cheaper overall than a new product for the whole new mortgage.
Plus nationwide are being very strict on who they lend too atm.

so would be worth you speaking to a whole of market broker now you have all the detailed info from nationwide.