Cheaper than 100% Mortgage??????

andyse13

I am a first time buyer and interested in a property valued at £139995.

I have around £8,000 savings (not much I know which I ideally need for furnishings & Fees)

I have been looking around for a mortgage with no or low deposit requirements.

Mann & Country wide estate agency have come up with what seems to be the perfect money saving idea for my situation but would apreciate some feedback from you guys.

They advise going for a mortgage that require's a 10% deposit to get a lower rate and avoid MIG. (they have recommended abby national)

Then to raise the 10% deposit take out a loan over 5 years.

I ideally wanted a repayment mortgage from the onset but thay assure me if I go for interest only until the 10% loan is paid then switch to repayment I would save loads than going for a 100% from the start. It seems like a viable option.

Any warnings or points to consider would be greatly apreciated.

Regards

Andy

Joe_Bloggs

This seems a not too subtle alternative of borrowing money from your parents.
What are your earnings? Have you considered a shared ownership approach ?
Where did you get the £8000 from ? It's a very impressive rung towards the property ladder, up or down !
J_B.

andyse13

Thanks for the response.

I only earn £29200 with potential 20% Bonus

I have saved long & hard over the past 2 years to get the £8k.

I have been on as many shared ownership waiting lists for the same amount of time to no avail.

If I go for the mortgage & loan my total repayment would be close to £850-£900 per month - This is the absouloute top end of my budget (unless I stick to a strict diet of cat food for the next 5 years :rotfl: )

MarkyMarkD

You don't really earn enough to get a mortgage of that size based on your income.

The idea of borrowing the deposit from a LENDER is a particularly duff one. Nearly all mortgage lenders will deduct the interest payments on the loan from your income, before evaluating the amount you can borrow. So given that you are already looking for over 4 times your basic income, that wouldn't seem at all a good idea to me.

The repayments on an unsecured loan will necessarily be far higher than those on a mortgage, because the term is so much shorter. So you'll be far shorter of cash - even if you do the "interest only" thing, which doesn't make all that much difference on the mortgage payments in the early years in any case.

I think you should price up 100% mortgages - not all lenders charge MIG, and even if they do it may be better value to pay MIG than to pay a higher rate.

But, overall, I am concerned that you really don't have the income to buy a house for £140k.

Debt_Free_Chick

andyse13 wrote:

If I go for the mortgage & loan my total repayment would be close to £850-£900 per month - This is the absouloute top end of my budget (unless I stick to a strict diet of cat food for the next 5 years :rotfl: )

And what if interest rates go up? What if you have other unexpected expenses?

You need to think very hard about whether you can really, really afford to squeeze your budget that hard.

And funding debt (mortgage) with debt (loan) is generally not a good idea.

You may have to save for longer, to accumulate the deposit and/or look for a cheaper property.

Sorry to sound negative, but it sounds as though the slightest unexpected expense could see you struggling to meet your mortgage repayments - and then your home is on the line.

Fairdo_2

I'd agree with MarkyMarkD & DebtFreeChick on their comments.

If you were borrowing within your reasonable level, I would be recommending that you went for 100% mortgage, as there are some reasonable rates at that level of borrowing, compared to taking a short term personal loan and going Interest Only on the secured mortgage. But I would say that it is highly likely that you leave yourself exposed if you do buy at this level on your own at the income multiples assumed here.

There are some lenders that may do a 95% mortgage for you and add the Higher Lending Charge and possible Arrangement Fee on top. They may do this on affordability if your monthly expenditure is extremely low (aside from the mortgage), but you would need to save like mad during the process in order to save enough for purchase fees and I'd assume you'd have to beg for old furniture or sit on crates for a while. In the meantime, I would strongly consider lowering your sights, going Shared Ownership, or taking on a Mortgage with someone you could trust and live comfortably with in the same situation if you are that desperate to get on the ladder now.

If you cannot afford to cover the mortgage and protect it adequately with room for possible interest rate increases, I would say to keep saving like you have, as you have done well with that. Asking for a pay rise might also help you a bit aswell.

Good luck

andyse13

Hi

My salary stated above does not include other benefits - I recieve other benefits including generous car allowance And mileage. This brings my total income to £35,400 - Does this sound more realistic based on the amount of borrowing??

The mortgage would be on a fixed rate basis to give me some payment stability while the loan for deposit is repaid (which will be on a "no early redemption fee" basis) As I am quite good at paying things off early I feel this would be a benefit to me - If I go for the 100% mortgage yes my payments may be lower but I will be repaying interest on the whole amount so longer term I do not see the saving.

I also said that the repayments were at the top end of my budget. I assume you realise I have also budgeted for all the other expenses & day to day living costs etc etc and ensured I have an element of "spare cash" at the end of each month. I am also very lucky in terms of outstanding debt which is basically zero as I have set my sights on this for a number of years and realise additional debt can cause problems.

Thanks for all your comments - You have all given me some very strong points to consider against my plans which I am thinking about long and hard!!!

Compensationitis

Cut down on 'living' and concentrate on getting a house. You can get furnishings on the never never or buy now pay in four years time.

Having said that it seems house prices are top heavy.

We (my better half and I) are planning to build 50 or more 'affordable' houses for local people. It's a nightmare for kids these days but our five will be OK as will the others on the list.

Fairdo_2

andyse13

That seems a lot better.

On your point of being able to pay things off earlier, historically. That still does not take away the options for a 100% mortgage.

Yes it would look like it would take longer to pay it off, if you take the right mortgage, you could still pay off the additional borrowing earlier.

It just means that, based on what you were planning to overpay on your Mortgage and other borrowing, you could put towards overpaying on your 100% mortgage. It would then really be down to the overall total rate and what could allow you to do this if you have that discipline.

It sounds as you have given it more thought than I gave you credit for. Apologies for that. It is sometimes safer to assume the worst in our posts back.

Joe_Bloggs

A few estimated Bills to consider.
Stamp duty at 1% £1400
Solicitors conveyancing etc £ 800
Survey fees mortgage fees £ 500 often added to mge
Total £2700
Annual Bills
Council Tax Approx £ 950 research this.
Water Approx £ 160
Gas/Elec Approx £ 300
Service charges/Insurance £ Research these.
(different for freehold or leasehold).

You may be paying many of these annual bills anyway.
Also you could be stuck in a property chain. This could cause you problems in when to time the leaving of your existing property. Check the terms of existing lease if appropriate. The worst case is you may have to pay rent for where you no longer live ?
You may be able to knock down the price of the property but your actions could ripple through a chain and break it.
J_B.

dougk_2

andyse13

For what it is worth I think you are doing the right thing. A friend did the same thing as you and all in all his financial situation was similar (£130k house - £29k salary). He used a 0% card for some of the deposit (8k) and made the minimum repayments moving the balance from card to card for 2 years. It was cheaper for him on a repayment mortgage and paying the minimum credit card payments than renting in the area (South East).

I earn less than you but could afford up to £1k a month for the house mortgage if I wanted because I don't go out spending on other things (secondhand car worth 1k is fine, don't go out boozing etc).

Affordibilty should be how all mortgages are done , based on you as an individual. If you don't smoke and drink and are not into designer clothes and cars then you can afford £200+ extra a month to those that do!