What would be the best way for us to finance buying a house?

Kite86

Hi everyone, I've been using this site for a while and have found it very useful, but this my first post on here. I'd like to get some advice on the best way for my partner and I to finance buying a house - all opinions would be much appreciated!

This is likely to be a long post sorry - I'll try and stick to the relevant points though!

Our current situation is that we're renting privately in a really nice area where we'd like to buy a house. The sort of house we would be looking to buy would be around £140,000 - £150,000. We could save up a 10% deposit for a house of this value in just over a year, could meet the monthly payments and would be granted a mortgage for this amount.

However we plan to have children in the next few years and would then both work part-time. We have worked out that the maximum mortgage payments we would be able to afford while both working part-time would be around £600 per month. In order to keep the monthly mortgage payments below £600 we could only take out a mortgage on a £120k house, with a 10% deposit (and that's at the current interest rates), but there are no houses in this area for less than about £140k.


Our current assets:

• We have no savings at the moment as we have just finished off paying off debts, but can now save around £1,000 per month.
• I own a house valued recently at £74k (although houses in the area are generally not selling for that), which I have rented out since we moved out of it. We get £450 in rent per month, which covers the mortgage and gives us £100 on top. I currently owe £51k on this house.

We have had a think about what our options are and would appreciate any advice/feedback on what would be best for us to do financially.


As we see it we could:

1. Save for 3 years and put a bigger deposit down to keep the monthly payments low (we'd be prepared to do this but would prefer not to save for this long, as we have been saving or paying off debts since we got together 10 years ago!)
2. Stay in the private rented sector (really don't want to do this)
3. Have the mortgage for a longer term (e.g. 35-40 years) so that repayments would be lower.
4. Sell the house I own and use any equity to put towards the deposit.
5. Somehow use the equity in the house I own to put towards the deposit (e.g. by adding to the mortgage/increasing the term?).

Having an interest only mortgage wouldn't be an option as we wouldn't be in a position to make regular savings while working part-time to meet the shortfall at the end.

So which option do people think would make the most financial sense for us?

Please feel free to throw any other options/ideas at us (obviously I know we could not have kids / buy a house in a cheaper area / stay working full time - so apart from this )

Thank you

ACG

Those are your options, its difficult for an outsider to answer as you probably already have a preference and only you know which would be the best.

I dont want to go through discounting the other options as i could write an essay on it and its Sunday night.
Personally though, i would go down the route of extending the term. Its the easiest (other than renting) and allows you to own your house. You can still overpay in the meantime whilst you can afford it so in theory its bringing the term down anyway.

Kite86

Thanks, that's helpful. I didn't think of overpaying to bring the term down - I would feel better doing that rather than just keeping it to 35/40 years and paying loads of extra interest.

kidmugsy

"I own a house valued recently at £74k (although houses in the area are generally not selling for that) ...": suppose you can sell it for about 10% less, say £67k. Subtract the £51k and you get £16k, which is more than you think you can save in a year. So if you look to buy in a year's time, you'll have approx £26k. It would then be worth saving for another year so that you have enough to (i) cover costs, and (ii) get a mortgage at less than 80% loan to value, at which point their interest charges fall quite a bit. To insure yourself against a rise in the market you might want to delay selling the present house until the couple of years are up, or you might like to gamble on the likelihood of the market falling and realise your equity now before it vanishes. That's a gamble I might well take, but each to his own. If you were really lucky the prices of your desired houses might fall below £125k and save you a pretty penny on stamp duty too. Combined with the longer term, does that solve your problem?

dimbo61

Please be aware of AGE! now you have been with your partner for 10 years and have at best £20K equity in your rental property which would be a good deposit towards the £140/150K dream home.
If you can save £1000 a month by the time you sell your existing property and buy a bigger home you will have another £4/5/6K in savings.
Agree with ACG about taking a longer term and overpaying from day ONE
The more you can overpay while both of you working full time the less debt and OVERPAYMENT pot builds up ( In case you need mortgage holiday)
Good Luck