Loan or Mortgage

Muella2

Hello All,

My partner and I are looking into buying our first home. We have some money saved for a deposit but are planning to purchase a very cheap studio flat to renovate to a 1 bed and eventually sell on after travelling.

We are planning to have a very short term mortgage and so need to borrow £40,000 to be paid off over 5 years... well that's the PLAN.

I was hoping you savvy folk might help me out with my expectations, would it be better to get a short term mortgage OR a large personal loan?

Some info;
> We have budgeted to be paying £750-£1000 a month to cover the mortgage/loan
> The flat itself is worth £50,000 and we have enough for a £10,000 deposit and £6,000 for additional fees/starter renovation costs.

ANY advice/feedback welcome!
Thank you

Thrugelmir

Read the lease fully prior to making any alterations.

HappyMJ

Muella2 wrote: »

Hello All,

My partner and I are looking into buying our first home. We have some money saved for a deposit but are planning to purchase a very cheap studio flat to renovate to a 1 bed and eventually sell on after travelling.

We are planning to have a very short term mortgage and so need to borrow £40,000 to be paid off over 5 years... well that's the PLAN.

I was hoping you savvy folk might help me out with my expectations, would it be better to get a short term mortgage OR a large personal loan?

Some info;
> We have budgeted to be paying £750-£1000 a month to cover the mortgage/loan
> The flat itself is worth £50,000 and we have enough for a £10,000 deposit and £6,000 for additional fees/starter renovation costs.

ANY advice/feedback welcome!
Thank you

To be able to borrow £40,000 as a personal loan you're going to need quite a large salary. Someone earning enough to be able to be able to borrow £40,000 as a personal loan wouldn't be considering buying a £50,000 studio apartment so I'd forget about that one and just consider a mortgage.

You should if you both work full time and earn a bit above minimum wage should easily be able to borrow £40,000 over 25 years (£211 per month at 4%). If you make overpayments of an extra £526 per month you could clear the balance in 5 years.

AdrianC

A "very cheap" studio flat is unlikely to have enough floor space to convert into any kind of satisfactory one-bed flat. In addition, you will probably find that the lease will forbid such a conversion without the freeholder's permission, and the freeholder will probably request a sizable percentage of any value uplift in order to grant permission.

I presume you'd be doing this conversion before travelling, then rent the flat out while you're away? What will you be doing about managing the let while you're away? What if the tenant doesn't leave when you return? What if the tenant trashes the place and does a runner owing you a large amount of back rent?

Strikes me that your plan is a great way to bring a lot of headaches and hassles upon yourselves, for a not particularly great return on investment.

hazyjo

You also may not get permission to rent it out (presuming that's the plan).


Jx

MortgageMamma

Make sure you get the square footage of the studio flat prior to mortgage application. Some lenders won't lend on studios and those that do will usually want a minimum square footage to consider lending on it, there are some exceptions in London. Make sure you stress the size of the studio to whichever broker you use to obtain a mortgage.

benjus

Quite a lot of personal loan providers (maybe all, I haven't checked) specify that the loan cannot be used to buy property.

tlc678910

Lots of mortgages limit overpayments and early repayment, often specifying overpayments of up to 10% before charges. Make sure you check any overpayment terms and conditions if you are choosing a mortgage.
Tlc