Is Our Mortgage Plan Realistic?

endee68

I thought I would post here for some feedback, before we contact any Mortgage Brokers, as to whether the following is a feasible plan? and if so, how likely are we to be accepted by any lenders?

Also if anyone can explain how over-payments are applied regarding a Part and Part Mortgage?

My husband (55) and I (53) have the opportunity to purchase the house we are currently renting.

The property in question is valued at £250-260,000. Our current landlord is prepared to accept £200,000 from us due to being good, long-standing tenants.

We love the house and don't really want to have to move anywhere else until we are ready to downsize, probably in about 10+ years.

We have a joint annual income of around £50-£55K and can raise a deposit of £60,000; however we have both had some adverse credit in the past, (including a bankruptcy back in 2007) and although we feel we have sufficient disposable income for repayments, our credit rating isn't very high as we have very little on credit (a couple of low limit credit cards that get paid off regularly and mobile phone contracts).

Ideally our plan to finance the purchase would be as follows:  
£60,000 Deposit and either
£140,000 Part and Part Mortgage over 10 years (£40,000 Repayment/£100,000 Interest Only)
OR
£40,000 Repayment mortgage over 5 Years
£100,000 Interest Only over 10 Years

Repayment of the Interest Only at the end of the 10 years by either
a) Downsizing ie:selling the property, or
b) Remortgage/equity release (possibly Lifetime or RIO Mortgage) if we decide to stay put.
Would welcome any thoughts or advice.

K_S

@endee68 Happy to comment on some aspects of the case

- The LL giving you a discount of 50k on the market price seems a bit too good to be true tbh, but I'm sure you have thought of that as well.

- With a purchase price of 200k and deposit of 60k, that's 70% LTV. Even with a good credit history, you are unlikely to qualify for a mortgage with a large interest only component tbh. I won't say it's impossible, as I don't know the whole case. But it's a tough ask.

- If you want to get a realistic idea of your options and are sure that you want to go ahead with buying the property, I would recommend getting in touch with a mortgage broker who can look at the whole scenario and advise.

endee68

Thank you for such a quick response K_S

The landlord has several properties and they are looking to sell them all off over the next 12 months prior to retirement and want a quick, easy sale, due to the amount of rent they have received on the property they have offered to sell to us at the price they purchased.
In your experience what would be a more realistic option regarding the breakdown of repayment and interest only amounts?

K_S

@endee68 Grab it with both hands I say!

Sorry, it's hard to be any more specific unfortunately as it depends on the details. The adverse history might kill off the chances altogether, but again it depends on the specifics.

Most lenders who do interest-only and accept downsizing as a strategy require a minimum equity north of 200k. 

getmore4less

I would run numbers for longest term on repayment, might stretch to 15y to 70.

Thrugelmir

 endee68 said:

Repayment of the Interest Only at the end of the 10 years by either

a) Downsizing ie:selling the property, or
b) Remortgage/equity release (possibly Lifetime or RIO Mortgage) if we decide to stay put.

£60k of capital repayments aren't going to provide you with many options to downsize nor to draw equity down to live off. 

getmore4less

£140,000 Part and Part Mortgage over 10 years (£40,000 Repayment/£100,000 Interest Only)
OR
£40,000 Repayment mortgage over 5 Years
£100,000 Interest Only over 10 Years

lets look at those 2 options lets run with 2%  70%LTV  rates are under that but you are not an easy placement 
Start with £140k over and amount owing in 10y
 

10	£140,000.00	2.00%	£1,288.19	£0.00
15	£140,000.00	2.00%	£900.91	£51,399.16
20	£140,000.00	2.00%	£708.24	£76,970.99

your options leave ou with £100k outstanding after 10 years 
£40k+£100K over 10years  £368+ £167 = £535pm
or   
£40k over 5years £701+£167= £768pm for 5 years then £167pm for 5 years.

Longest term all repayment might be easier to place just how you pitch the income up to ~70 

£50k  should be around £3k net, are you saving every month how much?
what's the current rent and maintenance status(as you will be paying if you buy it)

endee68

getmore4less said:

£50k  should be around £3k net, are you saving every month how much?
what's the current rent and maintenance status(as you will be paying if you buy it)

Thank you all for your comments.

The rent is £650/month and has been for the last 6 years (if we had to move to a similar property now the average rent would be £900+).

When we took the tenancy on the landlord said that they won't ever increase the rent and that we could live there as long as we want. However, now they are looking to sell, which as it is their property they are well within their rights to do so.

Regarding savings - until recently we were saving very little, and living up to our income as we were happy where we were, the amount of rent we were paying and, had planned to remain there until retirement. We didn't envisage getting the opportunity to purchase the property so haven't been planning finances accordingly (or at all!).
We are now saving around £500 month.

Maintenance wise - the house was built around 20 years ago and is in good condition throughout. We have treated the property as our own really as we believed we would be here long-term, and have carried out some improvements ourselves (which the landlord is fine about), in fact that is probably one of the reasons he is prepared to offer it to us at this price.

We did consider a 15 year repayment option but thought we would struggle to acquire a lender over that period of time and that a part-and-part mortgage would offer a more flexible and affordable monthly payment. Not necessarily the 40K/100K split I mentioned, it could be 70K/70K or 90K/50K etc

We were not overly worried about the outstanding balance of the Interest Only part at the end of the 10 years as we plan on downsizing to a static home in retirement.

If we were to sell the property in 10 years time, even at today's value of £250,000 (hopefully this will have increased) the sale of the property would clear the outstanding balance, in my example £100,000 and also provide a lump sum of £150,000.

MWT

Just one more number to help with your options, in 10 years time with the youngest life being at 63 years old, if the property was still at £250k, the largest equity release you could probably achieve would be a little under £90k...

Obviously some variations between lenders and who knows what the criteria will be in 10 years time, but just a hint that the plan to use equity release as a vehicle to repay a £100k interest only product in 10 years time isn't likely to be viable.

endee68

MWT said:

Just one more number to help with your options, in 10 years time with the youngest life being at 63 years old, if the property was still at £250k, the largest equity release you could probably achieve would be a little under £90k...

Obviously some variations between lenders and who knows what the criteria will be in 10 years time, but just a hint that the plan to use equity release as a vehicle to repay a £100k interest only product in 10 years time isn't likely to be viable.

Thank you for clarifying that MWT.

Would the sale of the property still be a viable option though?

K_S

endee68 said:

MWT said:

Just one more number to help with your options, in 10 years time with the youngest life being at 63 years old, if the property was still at £250k, the largest equity release you could probably achieve would be a little under £90k...

Obviously some variations between lenders and who knows what the criteria will be in 10 years time, but just a hint that the plan to use equity release as a vehicle to repay a £100k interest only product in 10 years time isn't likely to be viable.

Thank you for clarifying that MWT.

Would the sale of the property still be a viable option though?

@endee68 With that level of equity, almost certainly not. Depends on the region as well. For example one of the more flexible lenders in this regard (a small BS) has the following regional min equity requirements for downsizing as I/O repayment strategy. I'd have to check to be sure if this at start or end of term.

NW £96,000
WM £115,000
EM £114,000
SW £154,000
EA £187,000
London £279,000
SE £195,000 etc.