Help Needed! Not sure if this should be in Loans or Mortgages

darloboy1978

I am in the process of purchasing my first house, and am getting an unsecured consolidation loan over the lifespan of the mortgage to cover off existing debts etc.

Purchase price of the house is £68,500, the current deal I have (applied for circa 2 months ago) is 95% Mortgage (£65,075) at 6.49% fixed for 3 years, total term of mortgage 35 years, monthly payment £390.60.

The balance of the 5% house cost, plus £12,500 for existing debt, I have provisionally earmarked to spread over the 35 year duration of the mortgage – this equates to an additional borrowing of £15,925 again at 6.49% fixed for 3 years, then guaranteed below lender’s base rate over the remaining 32 years, monthly payment of £96.11. Total payment per month for both is £486.71. The lender for both mortgage and loan is Northern Rock.

A friend suggested it would be much more favourable to reduce my borrowing from Northern Rock to just the 95% value, thereby vastly reducing the interest rate (he thought at present to 5.3%) and trying to get a loan for the other amount with a lender over 10-15 years, and the difference between what I would previously have paid and a new solution would not be so much due to the reduced mortgage interest rate.

I have a maximum monthly repayment budget of £550, and was after suggestions or advice as to the best outlets for both loan and mortgage. Any help available would be very much appreciated to stop me committing myself to disaster!!

MarkyMarkD

I think your friend is probably giving you bad advice.

Most lenders will not be happy with lending you 95% if you have other loans which you are not going to clear. Consolidating them with another lender isn't clearing them!

The "Together" type deal works very well for people in your situation. The extra interest on the whole deal is rather painful, but it's the best you are probably going to get on an aggregate basis.

Whatever period you schedule the >95% part of the loan over, your sensible objective is to get rid of that part of the loan after the 3 year tie-in (presumably) is over.

This could be as a result of house prices rising (if you are lucky) meaning that you can remortgage and get 95% of the increased value on a secured, normal rate, basis.

In the current housing market, though, that may be wishful thinking.

brummybloke

or you could tell the lender that you need the extra £15 k for extra work on the house and you want it added to the mortgage you will get the same interest rate you may for your mortgage.

MarkyMarkD

No, brummy. Most lenders won't give you a further advance for more than 95% of the value, which is what the OP would need.

brummybloke

coventry building society did for me, i explained that i wanted to re plaster half the house, install double glazing and central heating, they were only too happy to give me the extra money, although they did try and make me have it as a 'loan', i held my ground pointing out that i was adding value to the property and hey presto they gave me an extra 15k, mind you, when i got my house it was only 47k ( 6 years ago) and my deposit was only 3 k

they were wise to do this as the house is now worth 165k

MarkyMarkD

The difference is that you DID want it for the house, whereas the OP wants it to consolidate existing debt.

I can understand a lender lending £105,000 (say) on a house you are buying for £100,000, but which needs £10,000 of work to make it worth (say) £115,000. That means that the ultimate LTV is less than 95%. But it doesn't work if the money is being used for non-value adding things like clearing other debts.

meanmachine_2

This all seems like folly to me. Sorry.

I'd feel VERY uncomfortable in the present climate taking on such debts.

I come over all Victorian when reading posts like this one.

To the OP I say you have no right to buy anything UNTIL you have paid off your debts and SAVED for your deposit. Worry not. House prices are probably not going to keep soaring, so don't think you've missed the boat. You haven't.

You say you can afford to pay back £550 a month. Pay this back on your existing debt. DON'T take on any more debt in the form of a mortgage.

Does no one else agree with me? Do I need to start thinking like the buy now, pay never brigade? Or am I just being sensible?

I don't know. But you've posted asking for advice, so... I don't have debts. I have money in the bank and even in my position I wouldn't touch the current housing market with a barge pole.

But that's just my two cents. Good luck.

EDIT: By the way, 6.49% is a TERRIBLE loan rate. Really awful. If your finances were in a better positon you could fix for less than 5% at the moment.