Moving up the property ladder

rachie29

Hello,

Please forgive me if I'm being a bit stupid, some things i've ready on the house buying forum have set me wondering and I thought this may be the best place to ask my questions!

My fiance and I are currently living in our first bought property. In 2010 we took out a mortgage on our 1 bedroom property. We paid £115,000 for the house and the mortgage was at 95% LTV. We were fixed for the first two years, and are now on a variable and overpaying the mortgage by about £150 a month (basically we've kept up the original payment)

My question is this, as we will need to move up the ladder when we have children, will we be in the same situation with the deposit as we were initially? i.e if we buy a house worth £200,00 and need a 10% deposit we will need £20,000 cash either from what we've saved or equity (doubt there will be much!) from the house to give to the mortgage providers?

It might seem very obvious but I just thought i'd ask as something set me wondering that I read in another thread!

Thank you in advance

Rachael

Dave_the_Ginger_Cat

Yes, you're right, you'll need to fund the difference between what you borrow and the house price by way of savings or the proceeds of your existing house sale.

It might be worth looking at your rate today - many lenders will fix a rate for a couple of years and still allow you to make up to 10% overpayment each year extra. This may save you more money and allow even more to accumulate against your future purchase

kingstreet

On completion of the sale of your property, your solicitor gets the money in, repays the mortgage and whatever is left over is put towards the money from your new mortgage and any savings you inject and this is paid over to the solicitor of the vendor of the property you are purchasing.

Wow, that's a big sentence.

rachie29

kingstreet wrote: »

On completion of the sale of your property, your solicitor gets the money in, repays the mortgage and whatever is left over is put towards the money from your new mortgage and any savings you inject and this is paid over to the solicitor of the vendor of the property you are purchasing.

Wow, that's a big sentence.

It sure is! But a LTV rate would have to be agreed and any shortfall would have to be made up, am I right in thinking that?

kingstreet

LTV rate?

You'll be able to borrow whatever maximum your lender sets for the product you are using. If it's 90%, you'll need a 10% deposit, however that is made up, savings, equity or a mixture of the two.

Shortfall?

Are you guessing you won't sell for enough to repay the mortgage?

rachie29

Sorry kingstreet, i'm confused and very new to this! I am imagining we will sell the house for roughly what we bought it for, but may only have a very small amount of equity. I was thinking we would need say £20,000 equity if we need a 20% deposit for the new house and the new house is £200,000, does that make sense? I think we might only have enough money for say a 5% deposit mortgage but i'm worried we won't get or find one of these again! Sorry if i'm confusing, as you can see I really don't have a clue!!

kingstreet

You need to consider what you are prepared to sell for, then compare that to the mortgage to be repaid and the costs of selling.

What you have left over is your equity. If this isn't enough for the deposit for your next home, you'll need to put savings to that to get to the amount you need.

If you need a 95% mortgage, you'll have to research the market for such products at the time, as you will if you need 90%, or 85%. Don't forget in January 2014, the HTB-Mortgage Guarantee scheme starts, so there should be more 95% lending about for second-hand properties.

rachie29

kingstreet wrote: »

You need to consider what you are prepared to sell for, then compare that to the mortgage to be repaid and the costs of selling.

What you have left over is your equity. If this isn't enough for the deposit for your next home, you'll need to put savings to that to get to the amount you need.

If you need a 95% mortgage, you'll have to research the market for such products at the time, as you will if you need 90%, or 85%. Don't forget in January 2014, the HTB-Mortgage Guarantee scheme starts, so there should be more 95% lending about for second-hand properties.

Thank you for help Kingstreet, much appreciated.

notanewuser

rachie29 wrote: »

Sorry kingstreet, i'm confused and very new to this! I am imagining we will sell the house for roughly what we bought it for, but may only have a very small amount of equity. I was thinking we would need say £20,000 equity if we need a 20% deposit for the new house and the new house is £200,000, does that make sense? I think we might only have enough money for say a 5% deposit mortgage but i'm worried we won't get or find one of these again! Sorry if i'm confusing, as you can see I really don't have a clue!!

20% of £200,000 is £40,000.........

rachie29

notanewuser wrote: »

20% of £200,000 is £40,000.........

You're right it is. I was initially talking about 10%, hence the confusion.