Bigger mortgage or bridge?

jonbca

I’m in Scotland.

I have a mortgage offer from HSBC for a 5 year fix over 15 years of £150,000 on a £330,000 property. I was going to fund £160,000 (est) out of the sale of my current property and the remainder plus costs out of savings.

My current property isn’t selling as quickly as we had hoped and the dates of entry may not line up. I’m told that I could qualify for a much higher mortgage (250k) which would allow me to complete before selling my flat. In this situation I would want a mortgage that would allow me to pay down once I sell.

Do I have to go through the whole process again to switch to a £250,000 2 year flexible tracker? Or would HSBC just vary the offer? Or should I investigate a bridging loan? How close to the date of entry should I start to worry? Any other creative solutions to this problem?

Thanks!

dimbo61

Consider offset mortgage.
Can you get a 250K mortgage ? Where will you find the extra £80K from ?

jonbca

I can dip deeper into savings that I was going to use for some renovations and repairs. I can postpone those until I get back money from the sale. I’ll look into Offset. Thanks for the tip!

LRmortgage

The problem you will have here is that HSBC will have calculated that 250k maximum borrowing based on you funding only one property. Now you are going to ask them to increase borrowing but keep two properties (I know for hopefully only a short period of time) so they will need to assess affordability on that basis and the maximum borrowing figure is likely to be lower.

If you went through a broker, ask them to do the sums and advise you accordingly.

If you bridge, likewise HSBC will probably still want to check affordability of bridging finance + second property on affordability.

minimike2

dimbo61 wrote: »

Consider offset mortgage.
Can you get a 250K mortgage ? Where will you find the extra £80K from ?

Dimbo, I am not being rude, but your Go-To response always seems to be "Consider and offset mortgage". The last time a couple of weeks ago it was made inappropriately.

Again in this situation, there is nothing to suggest that the OP should be considering an offset mortgage.

I am assuming you have, or have had, an offset mortgage yourself, but just because it worked/works for you, it doesn't mean that everyone else should be considering having one.

I am sure people appreciate you trying to be helpful, but your same stock answer of "consider an offset mortgage" could make people do something which is going to cost them a lot of money in the long run. Leave the product recommendations to the advisor executing the business - The specific product is not yet the issue that the OP needs to consider in terms of what they are looking to achieve in this scenario (proposition first, then the product can be established) and bringing that into the equation at this point could then mask other options in terms of proposition if they decide to become fixated on going for an offset.

jonbca

How would keeping my current property affect the mortgage offer?

I’m going through a broker, so I’m hoping she can give me good advice on this regard. I do own my current property mortgage-free with a home report valuation of £160,000. Our combined salaries are £84,000 with no CC debt or loans. Our advisor said that our credit was good and there shouldn’t be a problem with a £250,000 80% LTV.

LRmortgage

Your current offer would be effected because presumably when you applied (through your broker) you told HSBC that you were selling your currently property and using the equity towards the new purchase.

If you keep the first property and get bridging finance you will have two very large additional costs. These being the running of property 1 (as well as property 2) and the interest on the bridging finance.

These would I’m sure be classed as a material change and therefore HSBC would want to look again at your original offer as your circumstances have

dimbo61

The poster used the words " I would like to pay down the mortgage once we sell "
Now most mortgages only allow 10% overpayment each year.
However having an offset mortgage allows the poster to put the money from the sale of his current home into an offset account until the ERC period is over.
Lots of people on the Mortgage Free board love offset mortgages.
I have already had 2 offset mortgages with YBS and Barclays and we are getting another soon.
I can't understand why they are not more popular with the public and Mortgage brokers.
It is an option the poster could look at.

minimike2

There are plenty of mortgages which are not offset which allow much larger over payments than 10% of the balance.

Offset mortgages come at a premium. For those with the capital to offset against the balance they are indeed a fantastic product, but that doesn't mean they are right for everyone. Someone looking to quickly pay down a mortgage has many more options, which in many cases would likely work out cheaper than an offset.

Yes, it is indeed an option they could look at, which may, or may not be the best option (The previous one appeared inappropriate which is why I brought it up).

getmore4less

The offset is a very reasonable option to put into the mix for consideration with the additional information that the OP will be doing renovations as having draw down funds in the offset could work.

The premium(higher rate) are not always that high against another appropriate product from same lender, at one point they were very small but those days are long gone.

With the current property mortgage free that reduces the impact of the second property on affordability.

It changes
£330 LTV 45.5% from £150+£160+£20
£330 LTV 75.8% from £250+£80

depending on lender going under 75%(£247.5) or up to 80%(£264) is another consideration


With £84k income, multiple around 3.2, no howlers on the outgoings £250k looks in range.

Was probably going for the £150k on the 5y

60% LTV 1.94% no fee(£400 cheaper than the 1.84% £999 fee)

The new borrowing(~£250k) staying with HSBC would give these options

75%LTV 1.89% £999fee
80%LTV 2.09% £999fee

Given there will be cash flow requirements from the sale and renovations a 2y time frame might be better and the cost of money sitting in a savings account for part of that will be very low.

that would give rates of(again using HSBS as the example)

75%LTV 1.54% £999fee
80%LTV 1.64% £999fee


Other lenders have flexible(more than 10%) overpayment products.
eg FD on their 2y products
75%LTV 1.64% £490fee
80%LTV 1.89% £490fee


AT these rates it will be hard to find an offset that will compete won't need much from a savings account to make it worth keeping the higher borrowing and just save any surplus

Post office have 1.7% on a 1y fix savings bond that covers these lower rates on 2y fix and gets very close on a 5y.
and if rates are on the rise savings will follow so probably overtake any fixed borrowing product.

The monthly payment will change from ~£1kpm to ~£1.6kpm with the increased borrowing over same term.

dwsjarcmcd

If you can, I would explore increasing you mortgage before considering a bridging loan. These are not nearly as expensive as they were but you will still be paying about 0.5% per month and will pay a fee of between 2% & 3% to set it up as well as increased legal fees. I don’t think that having a bridging loan will impact your affordability because you will only repay on redemption of the loan, not during the term.

Remember to factor in the increased Stamp Duty in your calculations as you will effectively have a second property if your current house doesn’t sell by the time you complete on your new property. You can reclaim this additional tax if you sell your current house within 18 months