Where are the holes in this idea?

lookstraightahead

Mulling over an idea ...
My OH and I are in our early fifties. We are in the process (after having a shambles of an experience with potentially buying a do-er upper) of thinking of buying a property with a small mortgage (our income streams are varied so we've just gone on the 'secure' ones for mortgage purposes).  We have a 40% deposit.

We are renting at the moment.
we are going to be left with about £30000 savings after deposit,  and mortgage payments of about £500 a month, for the next 5 years. 

My plan is to save save save to pay off the mortgage ASAP (or at least put it in an account). Then in a few years sell the house, use all of that as a deposit and take out a small mortgage again, thus being able to buy a bigger property (not much bigger but one a bit bigger that the small one we are buying).

Our issue is really our multiples, not our income, and at the moment we are throwing away money on rent. Twice the mortgage in fact.
We have OK pensions, not brilliant but both contributory from our secure incomes.

How does this all sound? And where should we put the saved money if it goes over 10% of the mortgage overpayments each year? 

eskbanker

It sounds potentially ambitious to plan on two consecutive mortgages starting from your early fifties, but what mortgage terms do you envisage and what are your plans for continuing to remain in full-time employment before retiring?

lookstraightahead

The mortgages will be based on 5 years for the first one (23 years accepted and already have a mortgage agreed but it was for a different property) and maybe 10 for the second. The jobs we are basing the mortgage on are both part time and we have both been in them for quite a long time. So by 65 the mortgage paid off. But having the savings at the same time just in case we can't work til then.

lookstraightahead

Ah so eskbanker, if we say moved again in 5 years which makes us 55/57, we might struggle to remortgage / take out a new one? 

Thrugelmir

Buying and selling properties in a such time window will incur a lot of cost and waste cash. 

eskbanker

lookstraightahead said:

Ah so eskbanker, if we say moved again in 5 years which makes us 55/57, we might struggle to remortgage / take out a new one? 

Quite possibly - obviously there comes a point at which it's too risky for a mortgage lender to be advancing significant funds to folk whose earning capacity and health will statistically be weaker than those who are younger.  As to when that point is reached, it will depend on circumstances - you've shared some figures but omit many others that would be part of the analysis, in terms of income, property prices/mortgage sizes, etc, so I'm not saying it would be a problem but just flagging it as a potential hole if you're looking for flaws in your plan....

lookstraightahead

eskbanker said:

lookstraightahead said:

Ah so eskbanker, if we say moved again in 5 years which makes us 55/57, we might struggle to remortgage / take out a new one? 

Quite possibly - obviously there comes a point at which it's too risky for a mortgage lender to be advancing significant funds to folk whose earning capacity and health will statistically be weaker than those who are younger.  As to when that point is reached, it will depend on circumstances - you've shared some figures but omit many others that would be part of the analysis, in terms of income, property prices/mortgage sizes, etc, so I'm not saying it would be a problem but just flagging it as a potential hole if you're looking for flaws in your plan....

Thank you that's really helpful. 

BuildTheWall

eskbanker said:

lookstraightahead said:

Ah so eskbanker, if we say moved again in 5 years which makes us 55/57, we might struggle to remortgage / take out a new one? 

Quite possibly - obviously there comes a point at which it's too risky for a mortgage lender to be advancing significant funds to folk whose earning capacity and health will statistically be weaker than those who are younger.  As to when that point is reached, it will depend on circumstances - you've shared some figures but omit many others that would be part of the analysis, in terms of income, property prices/mortgage sizes, etc, so I'm not saying it would be a problem but just flagging it as a potential hole if you're looking for flaws in your plan....

If I read it correctly, OP might have 40% towards the second property, so lenders wouldn’t be too concerned on that front. But the constraint then could be your regular incomes - would your part time jobs still be solid enough? 

Personally I would save the money in an ISA first and invest it rather than repay mortgage immediately. You might change plans and decide to stay where you buy first. 

Get the first property ASAP to stop wasting money on rent and later think about your future plans. 

DireEmblem

Your mortgage interest is probably more than you will pay on having your cash in bank, so why bother paying fees to arrange for a mortgage plus interest?

On the plus side, if you can live in the 'do-er up er' and are happy with the area, then if it all goes tits up, then you have somewhere you are happy to stay.  Similarly you are renting, so compare the rent to the interest/costs to do up the new property.

Thrugelmir

BuildTheWall said:

eskbanker said:

lookstraightahead said:

Ah so eskbanker, if we say moved again in 5 years which makes us 55/57, we might struggle to remortgage / take out a new one? 

Quite possibly - obviously there comes a point at which it's too risky for a mortgage lender to be advancing significant funds to folk whose earning capacity and health will statistically be weaker than those who are younger.  As to when that point is reached, it will depend on circumstances - you've shared some figures but omit many others that would be part of the analysis, in terms of income, property prices/mortgage sizes, etc, so I'm not saying it would be a problem but just flagging it as a potential hole if you're looking for flaws in your plan....

If I read it correctly, OP might have 40% towards the second property, so lenders wouldn’t be too concerned on that front. But the constraint then could be your regular incomes - would your part time jobs still be solid enough? 

Equity provides security in the event of default. However the full cost of recovery is never made. Hence why lenders set lending criteria in determining the market that are looking to advance money too. Little point in underwriting unprofitable business. Mortgage books are created top down. Not bottom up. A risk team will determine the tranches of money that will be marketed as individual consumer products. 

lookstraightahead

Ok figures wise. 
We have £110000 'equity' and are looking at a property that is £190000. So looking at putting down £76000 leaving us £30000 to do something with (any house stuff but hopefully we can save most of it). We can have a 5-year mortgage at about 1.89%. The mortgage on the property for those 5 years is £400 and something. It's a small pretty cottage. But it's small! 

The mortgage loan is made up from our two part time incomes (as we both have businesses which have good but erratic incomes and we didn't want to make the mortgage application complicated by including these). We have had these part time incomes for quite a long time and they are bread and butter incomes. if we lost these jobs we could hopefully find others which pay the same.

We therefore have quite a lot left over each month. By buying somewhere, we are reducing the rent and saving the money, plus any other money from our businesses. It actually gives us a bit of freedom with our businesses to try some new ventures without much risk.

then in 5 years we could sell if we wanted and put down more equity, but with the same amount of mortgage (so buying say a £300000 house instead).

if we can save more, we might not need a mortgage at all? 

We don't need a big place (kids independent now) and I want to get all our finances sorted. I suppose it feels like downsizing but without a property to downsize from! We have rented for a long time spending eye watering amounts on rent, and I lost a lot of money through divorcing/life events etc in the past and it's taken us ages to feel that we are in a slightly better position now.
I feel small steps are the right way forward, but I'm wary of our ages and also not putting our money to best use.