Stretched - Looking for guidance

firsttimebuyer2012

Hello,

I've read the forums for a few years but this is my first post...

I would be grateful if someone could provide some advice on the best way for my partner and I to proceed financially from our current situation.

I earn a basic salary of £33500 and a bonus (non-guaranteed) of £12,000, paid monthly. I have P60/payslips to evidence that I have earned this consistently for the past 18 months, since I started my current job. My partner earns £30,000.

In December we purchased our first home, a one-bedroom flat in London, for £306,500 with a mortgage of £271,500 over 40 years. The current balance on the mortgage is approximately £269,000. the property we purchased required significant improvements which we have nearly completed. Once completed, we estimate the property to be worth between £360,000 and £400,000. It is a one-bedroom garden (basement) flat in a Georgian townhouse in Camden, listed building, conservation area, very close to the tube station and has 95 years remaining on the lease.

In order to renovate and furnish the property we had £20,000 which has been spent, we then took out a loan for £13,000 over three years (also spent) which has monthly repayments of approximately £440. We also have a credit card balance of approximately £3000.

These payments leave us with not a huge amount of disposable income.

My plan is to apply for a second mortgage after all of the renovation work is complete (i.e. once the value has risen) for enough capital to repay the loan and credit card (both of which have significantly higher interest rates than a mortgage would). However my concern is that in terms of earnings to borrowing ratio we are already close to the limit?

All of our debt is with the same lender, Nationwide.

I would be grateful for some advice. what we are trying to achieve is lower total monthly repayments.

Many Thanks for any advice

Dave_the_Ginger_Cat

Will either of you expect income increases in the nera future?

firsttimebuyer2012

My partner is looking for a new job currently and she may get between £5k and £10k more. She works at a charity currently so salary is low for what she does.

I asked for a pay increase in February and was essentially told 'give it another six months' - by no means guaranteed though and would also likely be an extra £5k - £10k on my base salary plus £2k - £4k in additional bonus.

Because neither of us can count on a pay increase it would be good to know the best course of action in our current situation.

Dave_the_Ginger_Cat

Sorry, I can't see anthing obvious until your wages increase, though some of the brokers on here have good knowledge of who can do enhanced multiples

In the meantime, I would focus on paying down what you can to reduce the interest payable - I imagine the credit card rate is higher, so do what you can with this. You could seek to refinance the unsecured part over a longer term to give you lower repayments.

You've chosen to invest in making your home lovely and more valuable - one of the prices of that may be living frugally for the short term, but do enjoy what you've created

kingstreet

Are you using the term "second mortgage" in context? Are you looking for a secured loan or are you going back to Nationwide for a further advance?

firsttimebuyer2012

Thanks Dave TGC - the last sentence sums up our sentiment really. "It'll be worth it eventually" seems to be the mantra, while we eat cold porridge for dinner.

@kingstreet - I am not sure whether I am using the correct terminology or not to be honest. I would consider all available options to be honest. Any advice much appreciated.

kingstreet

A second mortgage is better known as a secured loan or second charge loan provided by a finance house and it is normally more expensive to go this route because the lender's security ranks behind your mortgage lender's first charge.

Before you consider any further action, have a look at the Nationwide site for "additional borrowing" as this is the term it uses to describe an increase in the amount of your first mortgage with the society.

http://www.nationwide.co.uk/mortgages/existingcustomers/additionalBorrowing.htm

firsttimebuyer2012

Thanks, that's useful. Just ran the details through and (based on our assumptions about the value of the property once fully renovated) we should be able to borrow just about enough to clear the loan and the credit card. If we can increase our income by then we should be in an even better position.

Thanks for your help.

lawriejones1

Why don't you advertise it for £400,000 and sell it when it's renovated, clear your debts and have £100,000 toward a new place? You could get a 2 bed place this time and invite visitors around!