"Should" I be mortgage free?

Jox

Hi, just would like a bit of input and opinion from you good people please

I've got just over 109k outstanding on the mortgage, it's at 2.5% and I pay about 460 a month. I could probably afford to pay another 300 on top of that. There's 28 years left on the mortgage.

But there is only about 60 years left on the lease and it will cost 12k to extend to 99 years.

I don't want to stay in my one bed flat forever, I've been there since 2005 and paid quite a high price for it - 145k and not sure that I would get anything near that if I sold it now.

The freeholder put in a useless lift in the building and it's always breaking down and the communal areas look awful so that would put people off anyway.

I really want a house and garden or at least a ground floor 2 bed flat with a garden...one day.

"Should I" save any extra money I have in a higher interest savings account to get a deposit for a bigger flat, extend the lease or put any spare cash towards paying off the mortgage?

Can I rent out my flat and buy another place? Only have around 5k savings so probably not for a long while.

Really not sure what to do...

Please help me to decide... thanks

VoucherMan

Since no-one else has commented yet I'll put my two pence worth in, which are strictly my own views. I've no real knowledge on any of it.

Since your mortgage is only 2.5% you should be able to get a better savings rate. So long as you've no penalties for making a lump sum payment if/when rates change I'd work on savings for now regardless of whether you plan to stay or move.

I know even less about leaseholds. My house still has just under 900 years left on it so I didn't take much notice. My first thought was that many would consider a flat to be a short term living arrangement so would not be too bothered about a short lease. A quick Google suggests the banks think otherwise.

Would you still be able to extend the lease when you decide to sell? You might get someone who's not bothered, if not you could extend it then. At least you'd have a full 99 years left if you left it till later.

My search brought up a lot of other threads on this site and it seems some aren't, or weren't when the market was good, too bothered about the length of lease. A look through some of the threads might help anyway.

Also posting in one of the other forums possibly House Buying, Renting & Selling would get some replies from people who don't read this forum.

Jox

Thanks so much for replying!

I will have a look at the other threads.

Probably if I try to sell then the issue of the length of the lease will come up and may mean that I have to extend or knock off more than 12k off the asking price which may be lower than I want to get anyway.

Cheers for taking the time to respond.

Sepa74

Hi Jox,

I am afraid that you MUST do something about your lease asap. Every year you delay, the value of your flat will continue to decrease - the cost to extend the lease will be way above £12K when you decide to sell.

MSE recently published this guide: http://www.moneysavingexpert.com/mortgages/extend-your-lease

Read it, and if you don't understand anything, feel free to pm me.

I have renewed my lease, but fortunately I did it before the 80 year threshold, so it was a very straightforward process. Unfortunately yours won't be, but please don't delay in getting on top of it.

If you do extend, try and get it longer than 99 years. 125 yrs is pretty standard in London at least. The additional cost of the extra years will be minimal.

Good luck with it, and please, please, please, for your own sake, deal with this now!

beachie

It might be worth asking about buying the freehold. Obviously this will require the other flats to have some input but the owners might be thinking of doing this soon anyway. Worth asking.

Jox

Thanks all, arrrggghhh panicking a bit now!

I read the guide Sepa74 and see what my next steps are to be, it's going to be pricey! Thanks for advice.

Cheers

Sepa74

If the flat is a conversion and there are only two or three of you, then buying the freehold is definitely something to consider. It's roughly the same process, and the same rules around marriage value apply, so it won't be any cheaper and maybe slightly more.

If there are any more than three of you, it's probably not worth it. There are seven of us in our block, and the freeholder offered us first refusal on the freehold, but when I looked into what would be required of me (rent collection, insurance renewals etc) I decided it just wasn't worth it, and I was very happy to have some other sucker look after it!

Glad you're getting on to it... the costs associated with renewing leases are literally exponential, really low for years and years and years and suddenly they shoot up! I can't believe the importance of sorting it before 80 years is up isn't advertised more widely, but a lot of people think the minimum lease you should purchase is 70 years, but that's too late!

Jox

I had no idea about the 80 year thing, I wish I had known, I was a first time buyer, left it all to my mum and dad to sort out for me, they didn't have a clue about anything either and I think there was only 77 years on the lease when I bought it 7 years ago so probably only got 70 or even 69 years left!!

At least I can probably add the cost to my mortgage...will have to call them to check.

Not sure about getting quotes from solicitors, guess I'll just call around when I find my paperwork telling me exactly how many years I have left!

I live in a purpose built block of flats, there's probably about 20 flats and I don't think any us want the responsibility of organising window washing and cleaners for the communal area, though they do a rubbish job!

Thanks again

edinburgher

While you might do better saving than overpaying, the difference wouldn't be significant. If you're looking to make regular payments into a savings account (say £450/mth into an ISA), the best ISA you could drip feed into would be c. 3%.

0.5% of a difference between mortgage and savings isn't that much in the grand scheme of things, even when you're talking about the full ISA allowance (£30 a year if you had £6k saved).

You'd do better with a fixed rate ISA, of course, but you may not be able to make additional payments into these and the money would be tied up.