2 bed to 4 bed

alice_kate_2

Hi all

Apologies if this isn’t the appropriate place to post this but I want to share my journey/gain advice on our situation.

My partner (23) and I (22) have recently bought our first house. It’s a new build and we’re due to get the keys in approx. 2 months time.

We have bought a 2 bed, 2 bathrooms + WC house with off road parking for 2 cars for £190k. The builders are now selling the same house for £210k and likely higher when they release the next lot of houses! It’s about a 30 minute drive to London which is why it probably seems quite pricey for a 2 bed to some of you J (myself included I’m from Northants which is much cheaper than this but needed to move closer to London!).

We put a 5% deposit down and used the Help to Buy scheme so our mortgage is for £142k (payments of about £645 a month) over 28 years.

We don’t want to live here for more than 3-5 years, and are hoping to upsize into a 4 bed after this time.

What we want to do is make as many over payments as possible (should be very easy, as OH earns lots of commission – approx. £30k on top of his basic, that the bank refused to use as income when deciding how much we could borrow!) to get as much equity as possible, I’ve worked out we should be able to make £500-£800 a month overpayments so say averagely £650. In 3-5 years (dependant on how much equity we manage to accrue) would sell and use that for a deposit on a bigger house. The area that we’d be living (in the current market) we’d be looking at £350k - £600k dependant on exactly where in the area and what house we settled on. In theory (if all goes to plan) we should be on approx. £85-£95k a year between us by this time.

Do you think this is doable? Or unrealistic? Any tips on how we could make this happen sooner?

Thanks

A

gfplux

You need to look at your mortgage offer. Different offers, different contracts. There are many combinations available. Some will allow any over payment at any time and will credit it to your accounts immediately. Others set a limit, either cash or % and only allow the payment to take place once a year. At the other extreme you may not be allowed to make ANY overpayments.
You need to check this now while you have time to make changes.

Beckyy

You need to check if your mortgage allows overpayments, many do to some extent but not normally unlimited amounts. It's often 10% of the mortgage balance per year, until the fix is finished (assuming you have a fixed rate mortgage?)


There are a lot of factors which may effect your plan, including being able to sell for the right price when you want to move - only time will tell.


You should start a thread/diary in the Mortgage Free Wannabe board, it sound right up your street

pinkteapot

It doesn't matter too much about any limits on your overpaying. If you reach the maximum overpayment for the year, just put the rest of the money into savings. When you come to move, your deposit on the next house can come from a combination of equity in your current house and savings.

Whether or not your plans for your next house are do-able is hard to say. You need to work out how much you'll have in equity and savings in five years. You can then say "We'll have a £150k deposit and want to borrow £350k", for example.

Do factor in the cost of moving. We recently moved from a £250k house to a £470k house. The move cost us £22k, £14k of which was stamp duty. :eek:

One thing to be aware of is that you do usually pay a bit of a premium for a new-build, so if you don't live there long it may not have gone up by much (if at all) from what you paid.

Idiophreak

alice_kate wrote: »

Do you think this is doable? Or unrealistic? Any tips on how we could make this happen sooner?

As close as you are to london, it's likely that prices are rising around 10% PA at the moment.

Plus, you've bought a new build, which will take an initial hit in value (as it's not new anymore)...

So, roughly, today:
Your place = 195
Target house = 350

Next year:
Your place = 195 (recovered from new build hit..if you're lucky)
Target house = 385

Year 2:
Your place = 215
Target house = 425

Year 3:
Your place = 235
Target house = 465

So, in three years' time, you could be faced with paying £465k minimum for the kind of house you want.

Assume you make your £95k earning target...You may get lucky and find someone willing to loan you 4x combined = 380k...So you'd need something like 85k deposit....and by the time you've repayed H2B, you'll be about 10k short from funding this through equity...

So you'll have needed to overpay / save around 10k over the course of the thing to make it possible....you say you can afford that, so that's all good.

Of course, this is all just speculation based on how much the two properties will rise/fall in value.

Extrapolate the numbers out to 5 years in the same way and I think you'll really struggle to make that leap, even to the cheapest of your target properties.

Personally, I went from 2 to 4 last month - because I could just about afford it - and felt I'd really struggle to afford it in a year or two if things keep going as they are....

So I'd advocate jumping as soon as you think you can afford it.
Just my opinion, of course

jojo_1982

I live in London so £190k for a 2 bed seems ridiculously cheap unfortunately!
I'm guessing the interest rate is around 3.3%?
Something to consider is saving the extra money instead of making overpayments. I know you won't get savings interest at that amount but there are accounts paying not far off that. If you have a huge chunk of cash in 3-5 years then your options are much more open than if all your cash is tied up in one house.

alice_kate_2

Interest rate is currently fixed at 3.19%.

We're allowed to make over payments of 10% of the balance per year.

I think our biggest issue would be finding a lender that will accept the commission as income?

alice_kate_2

Just looking at my old post and wanted to update that after 18 months in our 2 bed we have just exchanged on our 4 bed!

It definitely is possible to upsize if you give yourself a goal!

seven-day-weekend

Well done!!