Mortgage Question

abbie_4

Hope someone can help.....I am currently selling my house which I shared with my partner.....we are now splitting up and have to sell our home.....I am due to make around a £18,000 profit for myself.....would you advise me to use some of this money to pay off a large loan that I have (approx £10,000 which will not be paid off for another 3 years - monthly payments are £336.00) then use the rest of the money for deposit etc.....I earn around £21/22k per year and wondered how much of a mortgage I could get for myself - would you reccommend co-ownership? Also do you know of any good deals at the minute for 100% mortgages?

Joe_Bloggs

@Abbie
Your strategy seems fine. But the £18000 is just a projection at the moment.
If you can clear your debts without excessive early repayment charges then do it. The lending to earnings ratio is around 3.2 to 3.5 for a single person. Top this value up with savings. You are elligible for more deals at lower rates if you can get past 5% loan to value. The 100% mortgage is often not the best value.
J_B. (Only my view, I am not a financial advisor).

Munki_2

Hi, I would definately look to pay off any existing debts and put some of the remainder aside for a deposit toward a new house (but not all of it, as you will no doubt need some to do basic decorating of the new house!)

It might also be worth considering what type of property you are going to be buying, and how much for, and decide whether you really need to get a 100% mortgage. As you will have a small deposit, you may be able to get a 95% mortgage which will probably give you a better range of options, and lower interest rates. Not being a financial adviser, I can't say for sure, nor can I suggest any lenders either, I'm afraid.

To sum it up (in my view) :

1. Clear off any debt - it will look better to the lenders and will definately help you when they do affordability checks on your finances.

2. Don't be too keen on getting as big a mortgage as you can, and try to avoid 100% mortgages - especially when you have some money to put down as a deposit. This will be your safety buffer if markets drop.

3. Kind of linked with 2, look around for a comfortable sized property. Think about what you really need and stick to that. E.g. If there's just you, perhaps a 1, or 2 bedroom flat would be acceptable... look around in all the surrounding areas for those types only... don't be tempted to up-size, just because you MIGHT be able to stretch yourself to it. I may be pointing out the obvious, but you'll be amazed how many people get caught in the big house, big mortgage trap, when they don't really need to be.

Co-ownership mortgages are fine, but you will probably run the greater risk of having to go through what you're doing at the moment if you or the other person gets itchy feet or you fall out, or simply if you them find someone else and decide either of you want their other halfs living there, or decide to move out... erghh.. the possibilities of problems are endless, but don't let it deter you if you think you can make it work. That will certainly help with the mortgage affordability.

At 22k a year, you might be able to stretch to approx 100k mortgage, as most lenders these days don't use mutiples of salary any more (correct me if I'm wrong someone), but instead base the lend amount on affordability - hence why I said to clear off the debt. £336 a month is probably half of what a 100k mortgage will cost you each month... so they will take that into consideration.

When I sold my last house (a small 1 bedroom house) I sold it for 100k. I made 36k, but had 8k of debt. I cleared that and still had 28k towards the new house. Granted I needed to borrow slightly more, but I needed to do this as the monthly payments on the loan were affecting me getting the mortgage I needed for the new house. In some ways this can be seen as consolidating my loans, however I offset this in reality (at least I like to think I did) buy finding a cheaper property and therefor actually required a smaller mortgage than I original was looking for (10k less actually). This is why I would suggest being realistic with what property you REALLY need to get. Don't get carried away...

Anyway, I'm rambling as it's the end of the day at work. ;-) Hope I haven't sent you to sleep... :-)

Munki.

Joe_Bloggs

I could have selected the thanks button but I have chosen to write this message of thanks to Munki for the insight that personal experience brings to a complex topic . Any thoughts Abbie ?
J_B.