Getting a mortgage for uninhabitable property with no work or credit history?

monetxchange

chilswelluk said:

monetxchange said:

I'm being asked for £52k to get a £200k mortgage just because I'm self employed (highish income and perfect credit too). 

So your 52k deposit for 200k is actually a worse ratio than my 30k deposit for 70k. 

It is, yeah, but what I was trying to put across was I'm being asked for that with almost 20 years strong work record, extensive positive credit management and yet still I'm not seen as an ideal candidate either. It really isn't just about what cash you have at the initial stage. It's the long term risk for the lender - for example, the risk that your job wouldn't last beyond probation period of a couple of months, etc. On the positive side, you could have so much saved up in a couple of years living frugally and could easily buy in cash. The recession may work in your favour in terms of house prices not sky rocketing at the moment.

I'm not saying it's a fair system at all, just that it's the reality that lenders are lending on the strength of the property being of value to them if it all goes belly up, not on the strength of what your income might be.

Buying a cheap place and refusing to pay more than £100k is not your only viable option; it's a choice. If you can face living in a less than ideal house share with 20 year olds for several years, surely you could manage getting a mortgage on a habitable property, you could then work like mad to pay off, sell up and then buy your dream fixer upper in cash?

chilswelluk

monetxchange said:

Buying a cheap place and refusing to pay more than £100k is not your only viable option; it's a choice. If you can face living in a less than ideal house share with 20 year olds for several years, surely you could manage getting a mortgage on a habitable property, you could then work like mad to pay off, sell up and then buy your dream fixer upper in cash?

If I get a mortgage on a habitable property, it will cost significantly more than borrowing 70k for a derelict property (approx 150k).  I will also be buying something I have no  long term interest in and don't want to buy.  We are also in uncertain times and the housing market may tank.  That may leave me stuck in a property that I never wanted to buy with negative equity.  If I can't borrow the 70k I need for a derelict property, I think it's a much safer bet to take the cheap house share.  It's far from ideal sharing a dumpy house with 20 year olds when you are 40 and have been used to living in a nice 3 bedroom house, but I have to be sensible if I want to save money.  The rent from the house share would be cheaper than a 150k mortgage that I would need for a habitable property.  With a bit of luck the property market may crash, by which time I will have built up some more savings.  I may become a cash buyer quicker than thought.  There is a prospect of more money as well, since last year I was involved in a bad car accident requiring hospital treatment.  The other driver was prosecuted by the police.  I just have to get my teeth into claiming some compensation, it's just I have had other things on my mind.  In any case I have 3 years to do it, but it may help boost my savings.

yksi

chilswelluk said:

yksi said:

The banks don't know you, they can't trust complete strangers, and they are looking for the evidence before they hand you their proverbial minibus keys. You think it's silly, they think, "Pfft I won't lend my very expensive large vehicle to a guy who hasn't shown me that he knows how to drive a small hatchback."

My grandparents and parents never had a personal loan / credit card in their life and all got mortgages.  In the history of banking, it's a relatively recent hoop that people have to jump through.

Yes but times have changed. In the 70s when my parents were buying, they didn't need any credit history either. But back then nobody lived on credit, credit wasn't the normal way to live, people didn't go on expensive holidays via a MasterCard, they didn't charge a house full of furniture to their Amex, and it wasn't widespread for people to end up with CCJs and or to go bankrupt. It is now endemic because society on the whole has very poor personal financial skills and has "unlearned" to take personal responsibility for repaying what they owe. If you talk to older generations they'll tell you how they saved for things they wanted and would go without and make sacrifices. That isn't how life is anymore. You're arguing hard and fast with everything you're told but it still comes back to the same thing. Banks look at their risks, and you are too big a risk to a bank. It isn't personal or an attack from us when we keep pointing it out, but it is something you need to learn to accept and to work with rather than to fight against.

yksi

chilswelluk said:

se2020 said:

If you take 10yrs+ to do the build the interest on the £70k might well cost you more than borrowing £200k for a livable house in the first place.

I certainly would not take 10yrs+ to pay off the 70k mortgage.  My plan would be to live on site in a caravan and not start any major building work until I had paid the 70k mortgage in full.  living on site in a caravan and earing 38k, I should be able to clear 70k quite quickly.  I would then be mortgage free and could start using my salary to fund the renovation.  

This is an illustration in a nutshell. We only have your word to say on it. Your credit history makes no such guarantees. In the eyes of a black and white computer machine making a decision, you might lose/quit your job in a month's time because you have no stable work history for it to believe in. This is what you're fighting - a machine which has looked at thousands of people in your situation and knows that statistically they will NOT stay in their jobs and they WILL be unable to pay the mortgage and they WILL default and the bank WILL lose money. It's what usually happens to someone who is your age and who hasn't held down a fulltime job for many years. I get that you're different and you have a reason, but everyone thinks they are special (hint: none of us are, as a species, we really do behave in very predictable ways). Banks don't care about special, they care about whether they will lose money.

Give up on the idea of a mortgage for what you want to do because it's just going to torment you.

Your dream is a hobby-dream, like retiring to Spain or owning a B&B. Most other people understand that to get what they want will require intermediate steps that aren't so ideal, but are needed in order to get where they want. I'll say it again (and others have told you before), buy an intermediate modest property on a traditional mortgage, improve it, make a small profit, you will then have equity to use on your fixer-upper-farm and in that time you will also have proved your credit-worthiness and job stability and will have more options and choice on the place you buy second.

chilswelluk

yksi said:

I'll say it again (and others have told you before), buy an intermediate modest property on a traditional mortgage, improve it, make a small profit, you will then have equity to use on your fixer-upper-farm and in that time you will also have proved your credit-worthiness and job stability and will have more options and choice on the place you buy second.

I am sorry, but there is no way anyone can guarantee that buying an "intermediate property" will result in a "small profit".  Many people are forecasting a property crash on the horizon.  If there is a crash, I am stuck with the "intermediate property" in negative equity and it may take years to get out of it.  To top it all off, I will also have a mortgage more than double the mortgage of a derelict property - how is that more "affordable "? 

Serious question, how is buying an intermediate (and more expensive) property any better than renting a cheap house share?  I can rent a cheap house share, see what the market is doing and aim to become a cash buyer.  In these economic times, I think the advice of taking out a higher mortgage on an intermediate property in the hope of making a "small profit" is equivalent to playing Russian roulette.  Not good advice unless you have a crystal ball.  

If I can't get a mortgage for a derelict property, I will rent a cheap house share and aim to become a cash buyer at some point.  It's the only sensible option right now.  

DCFC79

Speak to a mortgage advisor, it will at least give you an idea where you stand.
Use the credit card and pay it off In Full every month.

se2020

Comparing 2 properties priced at £70k and £150k then obviously the 70k is more affordable. 
You can not compare a 150k useable house to a 70k building plot though.
Even if the shell of the existing building still has planning you would need planning consent to live in a caravan on site for a start.
You can look up the figures yourself if you like but from what I have found out it will probably cost you just as much to borrow 70k for what you want to do as to borrow 120k to buy a normal house.
Even if you could borrow the 70k at the same rates as normal affordability would not be any better as you have a derelict house that needs a load of money chucking at it.
The bank (and indeed me) would question why you would want to borrow money and pay interest on it for a property when you did not plan to do any work on the property and just live in a caravan on site. This gives you no benefit of owning the property so you may as well just live in the caravan (or room rent) and save up. Saves you paying the interest.

Buying a more expensive intermediate property potentially helps because the money you put in as a deposit and the repayments you make towards the mortgage all become linked to property prices. That way if prices go up you see a linked increase in the money you.have put in plus a return on the value of the property you have borrowed money against.
If you use the £30k as a deposit and take a £150k mortgage and buy a £180k house.
If in 2 years prices have gone up 10% you sell the house for £198k, pay back the £150k to the bank and now have £48k yourself.
Although the house only increases by 10% your original £30k has increased by over 50%.
That's not even taking into account the capital you would have paid off and you could buy a place that needed a bit of work and add even more value to it while you were living there.
Obviously the place you actually want to buy will have gone up to 110k as well but you would have over 40% towards it compared to the under 30% you have now.

In fact, on a wage of 38k you could potentially buy a place for 200k. 
Say mortgage payments and all bills come to 24k a year you could still save up 14k a year.
If in 4 years prices have only risen by 5% you would have gained 10k on the house and saved up 56k. Add on what you have paid off the mortgage over that time and you would be in a position to purchase the dream for 105k in cash and been able to live somewhere half decent while waiting.

You would have to put up some figures of what you think you could save up living in a single room. If you can save 30k a year by living with 20yr olds and prices do go up 5% it's going to take you 2 and a half years to get there. It's up to you if you would rather spend the extra year and a half living in a better place that you could potentially add some value to during that time.
In fact if you could find the right type of place and crack on with modernising it you may even be out of there in the same 2.5yr time frame.

monetxchange

In terms of renting seeming cheaper, that's not always the reality. First off, it's money thrown away instead of money invested into a mortgage.

I've lived in many rental properties where owners have decided to sell up on a whim, meaning you're left to find a new place, get the deposit together for the new place, pay for all the "damage" they decide you've done (ie random things like a missing screw in a chair), it takes ages for the deposit to come back. And to be honest, I know of a few older people (I say that as I'm a similar age!) who have not been massively successful in living in a house share with younger people who want to party. Can you factor in having to pay extra rent if someone leaves or if the housemates would prefer if you moved on etc?

se2020

If he's earning 38k a year and only paying £70 a week to rent a room I would think he could afford to move out on the day somebody upsets him and just keep paying the rent until the end of the term if he wanted

chilswelluk

I just spoke with a couple of mortgage brokers and it seems it's a non starter with an uninhabitable property.  The only products available seem to be geared towards the self build market, however all seem to have time limits of just a few years for completion.  So no good for me.

I have therefore accepted the cheap house share.  The place is not ideal, as it's a tiny box room and a bit of a dive, but it allows me to add quickly to my 30k savings.  I will revaluate my options next year.  I have thought about this at length and I must be pragmatic.  It's not a sensible option trying to get a larger mortgage on a habitable property, when a property crash may be round the corner.  I could be stuck in any such property for years in negative equity.  I listened to what se2020 said, but all of this depends on property prices continuing to rise and not crashing. This is different to a lot of financial opinion that I have read predicting a crash.  As it's not going to be possible to get a mortgage on an uninhabitable property, it's just too much risk at the moment to consider any other option but the house share.  It's not the outcome I wanted, but I have to be sensible.