Interest Only mortagage Advice

marie1_3

Hi I am a first time buyer looking to buy a flat with a friend upto £200,000

I saw a mortgage advisor today and was advised to get a interest only mortgage as firstly repayments are lower and we are only planning to live in the property for maximum of 5 year.

I was told we could get this mortgage based on credit and wouldnt have to put a deposit etc done.

In order to pay of the mortgage we would use the money we get when we sell the property. With the property prices always increasing seems like a great idea. Also we could switch to a repayment mortgage at a later date.

Does anyone have any suggestions on what we should do? As interest only mortgage does seem very encouraging.

Many Thanks

sammyjammy

I think its a terrible idea, your comment about prices always increasing is so wrong. There is talk of a price crash which I don't personally think will happen but there is likely to be a flattening or slight lowering of prices, if you take out an 100% interest only mortgage and sell it in 5yrs time you need to consider the real possibility of negative equity. If you are considering the interest only because you cannot afford a repayment mortgage then you need to really consider whether you should be buying at all.

It might be an idea to spend a few hours reading around the mortgage and buying and selling property boards, it might help.

wymondham

I agree with last post, terrible idea plus as you're thinking of a flat you are more exposed to price drops than houses as and when the drops start.. - you did'nt say if the flat was new or 'pre-loved' !

carolt

Absolutely! DON'T do it. You may not be (forgive me if I am jumping to conclusions here..) old enough to remember the last crash, but believe me, negative equity, repossession etc are not fun.

You say you only want to live there for a maximum of 5 years - what if prices have gone down and you can only sell at a loss? Even if prices remain stable, you would make a loss just through buying and selling costs - stamp duty, 2 lots of solicitors' fees, mortgage charges, estate agent fees when selling, etc.

And what if you and your friend fall out or one of you wants to sell and the other one doesn't - could you afford to buy them out? How would you resolve this? I wouldn't get into buying on interest only with a spouse I loved, let alone a friend...

Given that renting is so much cheaper than buying in almost every part of the UK at the moment, as much recent research has shown, you are much better off renting (which will also give you the flexibility to move within 5 years) and put the money you will have saved over buying into the bank for when prices have calmed down, your salary has risen, and your long-term plans are more stable...

Remember - your mortgage broker wants your business because s/he gets paid on commission. You don't want to be one of those 2 or 3 years down the line trying to sue the broker for mis-selling....

Don't do it.

poppy10_2

Smells like a HPC troll to me...

dunstonh

With the property prices always increasing

Really?

Property investment funds have seen their first quarterly losses since 1992. The time of the last property price crash. I think out of many of the indicators to property prices (most of which point downwards), that is a telling one.

marie1_3

Thank you for your useful advice, I have decided against the interest only mortgage and definantly going for repayment for the sack of about £50 the risk is not worth it.
Thank you