Anyone downsized?

jpbeautybabe

Hi everyone just wondering if anyone had downsized and regretted it? Don't know whether to downsize or release equity from house. I read thread about not being a good idea to release equity, why so bad? My house is worth about 320k and have mortgage for 70k. Also does anyone know of any good self cert mortgages that don't need any proof of income?
Thanks.

UK007BullDog

Hi There,

Going by your previous post
http://forums.moneysavingexpert.com/showthread.html?t=457160 you really are pushing your outgoings to the max if you try to release more money by going self cert.

Your joint income is £19,000 after tax as you told us which means you have an income of around £1583 per month. Interest only on £70,000 means £350 per month mortgage payments on interest only (cannot give exact figure as I dont know the rate you are currently on, if repayment or interest only). You still have all the other household costs. Can you still afford a higher mortgage?

What is the cost of a £170,000 mortgage? As you want to release £100,000 equity on your property? It is per month on interest only: £921 on a middlish 6.5% rate. Can you still afford that? Plus all your other expenses to make it possible to LIVE? I dont think so and you were told so in your other post.

Then you have to consider the property you want to buy. What if the tennants do not pay? What if the property gets vandalised whilst empty? How are you going to pay for that cost?

I guess that you want to buy a holiday home which means you will not have a tennant in it every week of the year which means you might highly likely to supplement that mortgage as well. On your £19k joint income it will not be possible.

But if you do not heed our warnings then you are willing to risk you present home as if you cannot meet the mortgage payments you would be repossessed.

Also if you go interest only you will still owe the money at the end of the mortgage term. If your property has dropped in value selling might not give you any extra and you will have to rent or continue paying a mortgage. Have you sorted out your pension? Using a holiday let as a pension supplement is high risk.

Downgrading is Ok, but again its all about how much downgrading you can take personally to fund that holiday home in Cyprus. To downgrade you might have to look at less favourable areas or leave the area completely.

Personally I would only do what you have planned if you both earned at least £25K each a year.

You do not say how long you have traded, what you do and if you have any kids or if your business is growing. In the end you have to make up your own mind but I think your plans are too optimistic and you are going to risk your property here and abroad from reposession.

You would also need to consider paying back the loan, you need to consider any credit cards or hire purchases you have done, and include those in your outgoings. A lot of lenders work now on affordability.

If you find a broker who supports your idea then he is thinking about his bank account and not your welfare. I would not do this for if you sat in front of me.

Sorry to be so negative but this is my honest opinion.

jpbeautybabe

Sorry I think I have not put that across very well. I have taken heed from post yesterday and am now considering 30k equity release instead of 100k. This would then give me a mortgage of 100k which on interset only is about 470 ish a month. I know all this sounds like I'm taking to much of risk, but do you not think sometimes you have to? How does everyone else manage when investing in property? I'm 29 2 kids 6 & 8 live in 320k house no debt/credit problems, 70k repayment mortgage and vehicles worth about 21k. I feel like my hands are tied as there is 250k tied up in house.

JoeK_3

jpbeautybabe wrote: »

Hi everyone just wondering if anyone had downsized and regretted it? Don't know whether to downsize or release equity from house. I read thread about not being a good idea to release equity, why so bad? My house is worth about 320k and have mortgage for 70k. Also does anyone know of any good self cert mortgages that don't need any proof of income?
Thanks.

Releasing equity is fine if you can afford it!

If you want to get a self cert remortgage google for a self cert remortgage and take your pick. We help our clients obtain a self cert remortgage all the time.

Unfortunately, there is no such thing as a self cert remortgage in Cyprus, so the only way to buy the holiday home is buying one for cash or getting a foreign mortgage but you have to be able to provide proof of income.

The property value and existing mortgage is fine and lenders will allow you to self cert your income up to 95% of the property value, providing that you earn enough to support the loan.

Do you get paid in cash?

JoeK

UK007BullDog

You have two kids!!!! Two very young kids!!!!!

Kids cost money. £19,000 a year for 2 adults and 2 kids and you want to invest in a holiday home in Cyprus?????

Please!!! Do not believe all the hype on the internet about high returns etc. It is a big risk and should only be done if you have plenty of residual income which you do not have.

I get those emails all the time and flyers & letters sent through my postbox offering me huge returns and buying a property anywhere in the world. I have travelled the world and some of the places they are building so many properties at are not going to be sustainable unless they get tourists to visit every day. Some places they have built more flats than there are people and they are empty. The rental is guaranteed, which means the next buyers are paying for the first purchasers rental income. I am just watching and thinking the bubble has to pop eventually and then a lot of people are going to be very poor and the taxpayer might have to pick up the slack. Just my opinion and others might not agree.

The equity is not tied up in your house, it is not dead money. What if the property market were to crash next week and your property value falls to £80,000? You would be in negative equity, I know its a very drastic example, but what counts is that you have a roof over your head which you can afford and still have a good standard of living. If your mortgage were interest only you would not reduce the loan so you can compare it to paying rent (which some people also class as dead money). Over a long term having an interest only mortgage means you pay more for the loan than if you had a repayment mortgage. So once you are a pensioner you have to consider how you are going to live. Again if at the time of retirement and the lender wants their money back and a crash occured you could even be out of pocket and be a very poor pensioner indeed.

You mentioned a repayment vehicle of some sort. Have you checked lately to see it is still on track to pay off your mortgage? Most endowments (if that is what you have) are not on track and people have shortfalls. That also is a risk and should be looked at.

I wished people would stop thinking of their home as a cash dispension machine. If your income was much higher where you could afford 2 mortgages and a possible housing crash then yes, go for it, but you are already on a very tight budget. You just asked for a £5K loan. Why did you do that? Whats it for?

The housing market in the US, New Zealand & Australia and Spain are currently not performing. In most areas in the UK the market is slowing and some even falling. Interest rates are going up. Yes self cert are not as "expensive" but do have high fees and if you go up to 95% then you are risking it all, mainly due to your income to support it all.

Cyprus, Malta, Poland, Germany and the Balkans are the new hipp places to buy and are being touted. All I can say is buyer beware. Read up on the countries, their social and economical stability, how are foreigners treated in their countries if you were to move there in your old age to enjoy a nice retirement? What is the housing market like and the rents? I wished people would educate themselves and not believe all the hype of the developers flogging their international properties over here.

Anyway this is all I am going to say. You will have to make up your own mind. You might be lucky and it could work out for you, but I think and all the other brokers have told you its VERY RISKY on your current income.

Whatever you do I wish you good luck!

jpbeautybabe

ok perphaps it was a bit ambitious. My other strategy is sell up and have no mortgage at all therefore lower council tax at bills or would that be a bad move? I know the house I'm in will go up more than a smaller one but we'll be saving £622 a month on mortgage and about £50/£60 a month on council tax. Would you rather have bigger better house or no mortgage? Anyone?

UK007BullDog

I would settle for the middle. Affordable mortgage and a reasonable comfortable house.

But main aim is to be mortgage free as soon as possible.

it'smeinit

Hi,
I down sized 3 years ago. I walked away with a good lump sum and no Mortgage, The house we lived in was a very large 4 bed 3 reception with a very large garden, that would take an age to clean and the garden was a full time job. We now have a 3 bed semi in a nice area, a nice garden it's easly managed. I have never been happier. Yes we would have made more money if we had stayed in the bigger house, but money isn't everything, some times quality of life is worth much more.

jpbeautybabe

it'smeinit did you not miss the space? My house is the same as your old one and yes it does take an age to clean! The only thing is we need a study for hubby and don't usually get those with 3 beds. I don't know perphaps we could extend.My husband has his own removal firm and what with this new HIPS coming in people may put off for a while putting their house on the market until they get used to the idea! Therefore loss of money for us bit of a worry. By the way your not from west mids are you?

it'smeinit

Hi jp
There are a lot of people in our area who have converted their garage into a study. We have a drive that takes 3 cars, and only use our own garage for storage, Would you not be able to do like wise?, we live in the south east.
I must add that what made us down size was the death of a good friend at a young age. We realised that we were working to keep a life style that was taking a lot of money, that could be better used to live life to the full.

jpbeautybabe

Hi it'smeinit couldn't convert garage into study as we need garage for boxes/crates for hubbys work.Sorry about your friend I can see something like that happening would make you take stock of your life.How has your life changed now with moving? What do you do differently to how you lived before? Do you save or do you go all out and treat yourselves?
Jane.