Save up bigger deposit or get a new mortgage?

californiagirl

Looking for some advice from all you moneysavingexperts please...

My builder husband and I are currently renovating and splitting our house into two, with the plan being to sell one half and clear the mortgage. That will leave us with a perfectly fine 3 bed house on the other side with no mortgage.

HOWEVER, we want to move to a different location for our next home (our "forever" home). Our plan is to either buy a ramshackle bungalow to knock down and rebuild, or alternatively put a decent extension on.

We are currently trying to decide which of the following options would be better for us:

a) sell up instantly; take the 100% equity in what will be our current home (after the split & half is sold), combine it with a mortgage to purchase said bungalow/plot and then start paying off the mortgage
nb. the 100% equity from the sold house = approx £250k, and - depending on the property we decide to purchase & how much work is required - the mortgage we will add to it will be for approx £150k, so a decent LTV of about 40% (=good rates!).

or...

b) spend a couple of years living in our mortgage-free (perfectly adequate yet-not-where-we-want-to-stay) house, save up £1k per month for extra deposit/renovation costs etc, THEN sell and get a slightly smaller mortgage.

It may well be that there is no "right" answer here. Some of you reading this may well be thinking this is a stupid scenario and it makes no difference either way (say if so!), but I feel as if we need a fresh perspective on it... We have been debating this for months now and it feels as if we can't see the wood for the trees. Is there anything glaringly obvious that we are missing? Anything we should be taking into account when making our decision?

Whatever happens we will have to be all settled in three years time due to the dreaded applying for schools....

Thrugelmir

californiagirl wrote: »

My builder husband and I are currently renovating and splitting our house into two, with the plan being to sell one half and clear the mortgage.

Do you have your current lenders permission?

californiagirl

Yes, we remortgaged last year with a new lender who was happy for us to do the works.

Quimoi

Just a couple of thoughts:

Assuming you were to move immediately - is the £1k you have 'spare' each month enough to cover your new mortgage payments and refurbishment materials/labour each month?

Would you want a break between one project and the next?

californiagirl

Yes - the £1000 would either be saved each month with option b), or used to pay the mortgage/overpay with option a).

Does it make sense to do it now and get the mortgage whilst interest rates are so low? That is what I'm thinking, but I'm just wondering if there is anything I have overlooked with either scenario...

Thanks!

getmore4less

Start looking for the forever home,

When you find it that will be the time to move.

If you put £250k down and get a mortgage for £150k where is the renovation cash?

Ma77hew

There probably is no right answer, I would be asking myself the following questions.

Is there a penalty for paying the mortgage off early seeing as you just remortgaged I would imagine there is.

Lets says it takes 6 months to complete a sale (might be too long just and estimate), 6 months to get planning permission on the new place, and then 12 months to get the work done, that 2 years potentially, and you want everything sorted in 3 years, I would be thinking that could be close.

Where would you live while the work is being done, is it an option to keep existing house while new one is being worked on. Would you have to rent somewhere otherwise? Guessing if you knocked new one down you would.

How easy will it be to find the forever house, would you be a more attractive buyer/move quicker if you sold first.

Then there is the none financial type thoughts, your eventually buying your dream home, the sooner the better I would have thought, so you can start enjoying it.

amnblog

One curve ball on the schools is that some education authorities are setting longer periods when families have to be resident before they can be considered in catchment.

californiagirl

@getmore4less The £150k mortgage would include money for the renovation - obv I know this means we may have to get a specialised kind of mortgage depending on the state of them property, but the good thing about being married to a builder is that doing works doesn't cost the same as it does for most people (but takes ten times as long...).

@Ma77hew You're right about timescales. Makes me think we should get on with it. Luckily we have family close by we could live with whilst the works are done.

getmore4less

If you are keeping cash back then you won't be 40%LTV.