First Time Buyer advice

sarcher_3

Hi,

looking for some advice/recommendations.

I have been offered a house by my uncle (3 bedroom, ex council house) for between 90,00- 100,000.

the likely value of the house is around 110,000 but he is willing to let family have it cheaper.

any way financial figures are below:

Income - me 14,000
partner 8,800 (part time)

debts - partner 8,000 loan (payed at 127 a month)


savings -10,000

we have been advised that an interest only mortgage maybe the best option for the first few years as we have a low income.

is a interest only mortgage a good idea? how much extra will we pay in interest compared to a repayment. we have also had mentioned a split mortgage e.g. 75% interest only, 25% repayment.


any other advive e.g which lenders to approach etc greatly appreciated.

should we even buy the house or is it too risky? we currently rent a two bedroom house and pay 400 a month.

thanks


steven

LittlePiskey

Hiya,

That's really nice of your uncle!

In general i'd say its always better to go for a repayment mortgage as with interest only you're not actually getting any stake in the property for your money.

I've recently bought a house with my partner and we went with northern rock - they seem to be quite good for people who need to borrow large income multiples. Having said that, you do need to make sure you can afford the repayments.

Its great that you have such a large deposit but is there any way that you could boost your income a bit as this would not only help with affordability but also getting a mortgage in the first place.

x

Lavendyr

If you go for an interest-only mortgage, you will need to make sure that you set up a repayment vehicle so that you can actually pay off the capital at the end.

Say you have a 10% deposit, you need to borrow at least £81,000 on an income of just under £23,000. You will be borrowing nearly 4x your joint income. In the current climate you may not be able to do this as lenders may refuse to extend so much credit to you, so I would find a whole-of-market mortgage advisor as soon as possible, if you are serious about this, and get an idea of whether it is even possible. Then work out what the monthly payments would be, both interest-only and repayment, and see if you could still afford to pay if interest rates went up again.

To give you an idea, on £81k over 25 years at 7% you would be paying £472 a month interest-only, and £579 as repayment.

Remember you will also have to pay solicitors fees, survey if you want one, and probably you have to buy furnishings as well, so that £10k savings can be very easily eaten into.

Badger_Lady

Interest-only is higher risk and doesn't pay the mortgage off, but there's nothing wrong with doing it for the first 2-3 years.

Because you're buying for the first time and have to stretch your income, interest-only will be a good way to start off. When you have extra money available (even if only a little bit), you can overpay to help build up equity in your first few years (up to overpayment limits).

Then, when you remortgage, you may find that you are earning more or equity has built up in your home (after all, you will effectively be starting out with £25k equity), and you can review your situation.

You can then switch to repayment, shorten the mortgage term, or set up a separate savings 'vehicle' to sit alongside your interest-only mortgage.

You have a long time until your mortgage term ends - don't worry too much about paying it off now, just make sure you start when you can afford to.