good idea or financial suicide ?

saunaboy

Hi,

I'm buying a 3 bed maisonette (very nice place) with a 100% mortgage in the north east. In a place that hasn't shown huge rises historically but sits next to a ludicrously overpriced area.

If it were 500m down the road it would be 250k but it's valued at 150k and I've offered the asking price. The vendor says he's disappointed with the valuation compared with prices up the road. I'm getting a 100% mortgage. Our income is about 60k so I guess we've borrowed maybe 2.4x our income.

If this house price crash comes...

1) reckon we'll be affected ?
2) opionion here says it's a good investment. do you agree. prices for similar properties rose 11% last year.

amcluesent

My recollection from the 88-92 crash was that it was properties in the 'dodgy' areas (low income, ex-council, houses in poor repair, graffiti, yoofs hanging about etc.) that fell farthest (in percentage terms) and were slowest to recover.

A crash really sorts out the dross, a good house in a good area will weather the storm best but with a 100% mortgage you could be in -tive equity territory for up to 5 years.

saunaboy

i would say that the area is pretty reliable.

it's 500 m to 1km outside of a postcode where there's 500k plus properties. Our area is virtually identical apart from the fact it happend to be on the wrong side of a dene. The area I'm buying into seems to be a mix of families established in three floor houses that are worth 300k and first time buyers snapping up converted properties such as 2 bed flats from 120-150k.

We are worried about the negative equity situation to be honest.

owner

How long do you plan to live there ? If house prices fall this year and you have a 100% mortgage then you WILL be in -ne no matter where or what you buy.

Guy_Montag

You seem to be buying well within your means. Overpaying your mortgage will help avoid negative equity. Judging by your salaries you could pay down the mortgage to 90% pretty quickly.

There's two of you too (I guess, by the "we've") so if one of you loses your job, the other will hopefully be able to pay the mortgage.

If you're settled, then negative equity won't be a problem, except perhaps re-mortgaging onto a better rate.

I think if you overpay hard in the first year or two, you're going to be pretty safe.

Good luck.

saunaboy

thanks for the advice,

all the signs for the area point to good sales figures etc-lots of agent activity & many house sale signs about. We were planning to make pretty hard overpayments in the first two years to counterbalance any loss in house value. Not an ideal scenario though.

get the impression that it's a pretty poor time to be taking the plunge though.

what about borrowing above the property price ? We have a bank loan as well that's about 4k and are looking at a Northern Rock Together package that bundles everything in. Monthly payments are pretty much unaffected and as I understand the unsecured loan does not affect the 100% nature of the property.

epz_2

i am assuming that it isnt some junkie infestined crack den so will be livable for the forceable future. in that case it doesnt matter what the market does since you will be able to easily afford the repayments although with a 100% morgage i would get a 3-5 year deal since if negative equity does happen you woulnt be stuck on the standard variable rate.

think on it like this, say there is a big(30%) correction in the market, your house would go down by 45k but the ones higher up the chain would go down by more and with a 60K anual income you will be able to afford an even better place. nobody wants to overpay and while you may end up kicking yourself for buying at the top of the market its not sucide in the same way as many buyers getting 5-6 times thier salary.

Ms_Piggy_2

saunaboy wrote: »

Hi,

I'm buying a 3 bed maisonette (very nice place) with a 100% mortgage in the north east. In a place that hasn't shown huge rises historically but sits next to a ludicrously overpriced area.

If it were 500m down the road it would be 250k but it's valued at 150k and I've offered the asking price. The vendor says he's disappointed with the valuation compared with prices up the road. I'm getting a 100% mortgage. Our income is about 60k so I guess we've borrowed maybe 2.4x our income.

If this house price crash comes...

1) reckon we'll be affected ?
2) opionion here says it's a good investment. do you agree. prices for similar properties rose 11% last year.

You could be describing the house I am selling!

I reckon you've made a good choice FWIW. Falls in house prices are a %age, so obviously you will 'lose' less in a cheaper house IYSWIM.

saunaboy

it's a lovely place to be honest. I was gobsmacked when we saw the inside - it looks like a 150k property from the street but inside it's enormous & very well fitted out. Upstairs 3 bed maisonette with a reliable set of similar neighbours.

I'm currently paying 280 as half of our rent plus 250/month loan. My net monthly income is 1800. With this mortgage my half of the payments is 500 quid so I'm no worse off. 1300 spending money per month after mortgage so a decent safety net if rates go up. We're currently thinking about making up to 400/month overpayment to reduce the mortgage to a level where we'll be able to remortgage at 95% rates. Of course of there's a crash were !!!!!!ed in this respect.

Our major worry is that if in 3-5 years we might have to move, will the house prices allow us ???

BilboBaggins_3

If you'r buying to live in, I can't see what a crash is going to do. On the other hand if you have a 3-5year plan then yes you are taking a fair risk. Buying any property for the short term involves great risk.

If a crash materialises and wipes out say 50k off yr house, and you are living there and can comfortably make the payments, theres nothing to worry about, you ride out the dip and prices pick up again. If you have plans on moving up the property ladder after 3-5 years, the worst case will be you have to stay put for a while, but as its a nice property thats not a problem.
From what I can see you are taking very LITTLE risk on board.

matto

How long is the lease?