House buying risks

Hannimal

Crashy_Time said:

Keswick1uk said:

But I'm looking for alternate views (or agreement) or other ideas...like the lodger one. Should things pan out badlt

If things pan out bad less people will be looking for rooms to rent .

Yeah sure, because if things go awry people won't need housing. right. they'll just live where exactly?

Keswick1uk

This is all really useful.

His job is pretty secure. He is unlikely to move.
Both possible, of course, but minor risks.  Yes, he is very good with money.  10k was from an inheritance when he was a child but he's added to it and now has 55k apparently including the ISA which has a bit of a government bonus attached. He owns little furniture (his rental is furnished) and needs to cover property purchase costs too so cannot deposit it all. 

He is open to a lodger if required as he did it himself for two years and said it worked out fine as the guy he lived with laid everything down in black and white before he moved in.

All your numbers are really helpful. Thank you. He has decided that the extra room from a 3 bed would be beneficial so now he's looking for one with the ability to park 2 plus cars close by/on property not just space for his one.

AnotherJoe

Keswick1uk said:

Or remortgage. 
Which people do have to, relatively regularly. I'm not worried for now. I'm wondering if a 10 year fix would be better.

Very Bad Idea. The rates he'd pay would be huge, far higher than for say a 2  or 3 year fix, he'd are locked in so all sorts of life events can give  big issues, a very high ERC, and if rates start rising, it will be small amounts,  eg in 1/4pct increments, they wont got from 1.5% to 5% overnight which is what some doomsayers here seem to think will happen (likely because it fits their apocalyptic world view)

So, if you are on a 2 or 3 year deal you can remortgage  at the end of each of those those for say another 2 or 3   and still overall, over a ten year period,  be much better off both financially and flexibilty, than taking what you think is a "risk averse" 10 year route route which ends up being far riskier and more expensive than what you think is a risky 2 or 3 year fix.

Thrugelmir

Following the Mortgage Market Review lenders are now required to stress test affordability under certain interest rate conditions. Hence why the cap on earnings multiples. To mitigate,  start the mortgage on the longest possible term and overpay. 5 year fix allows a clear breathing space to start the journey . Makes budgeting easier. 

getmore4less

You don't have to remortgage,

You can just stay with the same lender(pick a good one) and go on to the SVR if there has been a major crash and LTV is trashed or one of  their deals  for your current LTV.

If rates go through the roof it is the renters that have to worry as all those landlords will need to get more money of their tenants.

On the numbers it does not look that stretched £2k+ coming in  £550 rent changed to mortgage, will tick along nicely for a few years.

Keep the finances under control gives headroom if needed even with serious rate rises(go long 40y on initial term)
£950pm(rent + lodger money) covers rates up to 6.6%  start that early as overpayments and covered up to 9.2%

Keswick1uk

Is it common to be allowed to overpay on a fix? Or do you just save on the side and then have some bunce to repay after the fix ends? 

I know he expects his monthly costs to rise in his own home as he will want to do things to it over time. Decorations and repairs etc. Probably save for a kitchen if it's a 3 bed as those in his price range that are 3 beds seem to be needing a bit of modernisation. 

I know it will depend on the specific mortgage agreed but was just wondering if it tends to be a common thing.

getmore4less

Keswick1uk said:

Is it common to be allowed to overpay on a fix? Or do you just save on the side and then have some bunce to repay after the fix ends? 

I know he expects his monthly costs to rise in his own home as he will want to do things to it over time. Decorations and repairs etc. Probably save for a kitchen if it's a 3 bed as those in his price range that are 3 beds seem to be needing a bit of modernisation. 

I know it will depend on the specific mortgage agreed but was just wondering if it tends to be a common thing.

The most common option for any fix is 10% ERC(early repayment charge) free  which he is unlikely to  be reaching even with a lodger as it is over £1k per month in the first few years.

There are variations(like a lot more or unlimited) should they be needed but it seems the 10% limit and work needed will be absorbing any fund for the foreseeable future.

Salemicus

On most fixed rate deals, you can overpay 10% of the outstanding mortgage per year. But as you rightly note, it varies by lender.

Keswick1uk

Yeah, he won't get to that level with a home to run and improve.

Crashy_Time

getmore4less said:

You don't have to remortgage,

You can just stay with the same lender(pick a good one) and go on to the SVR if there has been a major crash and LTV is trashed or one of  their deals  for your current LTV.

If rates go through the roof it is the renters that have to worry as all those landlords will need to get more money of their tenants.

On the numbers it does not look that stretched £2k+ coming in  £550 rent changed to mortgage, will tick along nicely for a few years.

Keep the finances under control gives headroom if needed even with serious rate rises(go long 40y on initial term)
£950pm(rent + lodger money) covers rates up to 6.6%  start that early as overpayments and covered up to 9.2%

Lodger is a major drain on quality of life IMO, unless you are really good buddies with them. Eventually people will tire of having to take in lodgers/washing/ironing or whatever to buy basic shelter, but who will they vote for to lower house prices?