Looking for some basic mortgage advice

The_Walker

Hi all, I wonder if any of you want to chime in with opinions on how my wife and I should proceed with our move? We’re going to talk with our bank soon, but I want to research a bit before that. My knowledge of mortgages is zero.

We have a flat worth about £185K completely paid off with no mortgage, which we’re going to sell. We plan to buy a small house for up to £280K, using a mortgage. With other money coming in we’d be able to pay off the mortgage within a few years, but we don't have it right now. So obviously we’d need one that doesn’t crucify us for paying it off early. We could put down a £60K deposit. Would we be able to get one fairly easily?


For convenience we’d like to buy the new house, move into it in our time, and then sell the flat as a vacant property. This way we’d avoid being in a chain, or being desperate to buy a place once a buyer for the flat is found. So for a short while we’d still be in the flat but owning another house at the same time. Any thoughts on that? Are we wasting money or does it sound reasonable to make our lives easier?


Apart from other investments, my income is £2K per month after tax. This isn’t a huge amount, so for a mortgage of £280K (maximum) we were thinking an interest only mortgage might be ideal? That keeps the payments low until our other investments pay off with a few years and we can then pay off the whole mortgage?




So, am I on the right track here or missing something important?



Maybe we shouldn’t even sell the flat, and rent it out to pay off the mortgage??

Thanks in advance for advice.

ACG

Speak to a broker.
There is a lot of questions and answers that will probably need some back and forth conversation.

There are various ways to do it, interest only probably wont be an option but potentially could be.

haras_nosirrah

A 2k per month income (so 24k a year) isn't going to get you a 280k mortgage.

Lenders lend around 4.5x salary (less if you have children and debt) so 110 is more realistic

Jmaho

You won't meet interest only criteria as your income is too low and most lenders only allow low ltv lending and want a min equity level also
On a net income of 2k a month you are not going to be able to borrow anywhere near the amount you are looking for. Based on the info provided you need a mortgage of around 220k on a house worth 280k. Not going to happen I'm afraid. You'd need to sell your current property before or at the same time as buying another

SouthLondonUser

I'd be very reluctant to buy a new property before selling the old one, unless you can be reasonably confident that you would still make ends meet even if the property sells for less than you hope.

How confident are you on this valuation? What if that house sells for £150k? What if it takes you 12 months to sell?

Moving into a rented accommodation while selling may be potentially more expensive, but it's also a much safer option, because you will only buy after having sold, ie no uncertainty on how much the other property was worth.

If you really wanted to buy before selling, which I don't recommend, you might want to speak to a broker to see if any lender would be willing to lend against both the old and the new property. Say they lend at 50% LTV against the old property, this raises 92.5 You can add another 60, that's 152.5. So you'd have a loan of 127.5 against 280 of value on the new property, and a loan of 92.5 vs 185 of value on the old one. Combined LTV = 220 /465 = 47%

If you sell the old property at 185, your new LTV will be 127.5/280 = 46%.

However, you won't be able to service that debt on a salary of £2k per month. That's about £30k gross per year. No one will lend you more than 7x your salary (£220k) and, in fact, even the 127.5k would be a stretch.

if you really expect significant income over the next few years (inheritance? business investments?) wait till it materialises and buy your new property then.

ChrisKenny

Good Afternoon,

As one of the other posts states, your borrowing power is around about 4.5x your gross annual income. With a net monthly of £2k I'd estimate your gross annual income as around £30k. This means a mortgage of around £135k is obtainable for you. This would be reduced if you have any debts or dependents.

Based on your explanation you may be able to look at a bridging loan or something similar to utilize the equity in your existing property or to do as you say, rent it out and obtain a Buy to Let mortgage.

Whichever will be the right option for you would need a more thorough review of your income and circumstances so I'd echo some of the messages in the other posts in that you speak to a broker for advice.