How has this house gone up so much?

RelievedSheff

Mark_Glasses said:

@RelievedSheff we are allowed 10%. Our monthly payments are just over £800 so we'd be allowed £80 a month which won't go very far so I've never done it.

It will be 10% of either your initial mortgage amount or the mortgage amount at the start of the year not your monthly repayment amount.

Ours is 10% of the initial mortgage amount which was £181500 so we can overpay by £18150 per year or £1512 a month with no penalty.

Even small overpayments will bring your mortgage term down. Try playing around with some of the mortgage overpayment calculators.

Mark_Glasses

@Herzlos I know of 4 houses within a 5 minutes walk of me which sold recently. The cheapest was £475k and most expensive was £650k. I would have considered the £475k one but thought the £650k one was overpriced (though not to the extent about the house I'm asking about in this thread). I'm reluctant to say how much the other 2 cost in case people can figure out who I am but they're closer in price to the cheaper one. The mortgage advisor said your LTV doesn't get any better once you're below 60% and ours is below 60%. 

Is he right? He did seem a bit dodgy and also told me I'd be a property entrepreneur in 5 years time but over 5 years later I'm not.

I've just been cheap and stuck all spare money into a savings account hoping I'll suddenly become rich enough. It's the only way I know, I thought I'd go far in my career but it's been a disaster any anything the relies on luck never goes my way. This is why I'd like to make money from a property going up in value.

@RelievedSheff That would mean we could overpay by £20k a year which sounds a lot better. We have saved over £20k in the last year. Do you think we should make an overpayment or keep it in savings?

RelievedSheff

I can't answer that for you. That's your choice.

We overpay our mortgage and put money away in savings. So a bit of both.

The overpayment we currently make brings our mortgage term down to 10 years. We are hoping to increase the overpayment again after Christmas. 

We will never be rich, but then again we don't want to be. We want to be comfortable and in a property that we enjoy living in. Which we are. It isn't the biggest, most expensive house but that isn't what we want nor desire.

Herzlos

He's right in that generally the don't get better under 60% LTV.

So I'm also slightly confused, you've got a flat in London with at least 40% equity, and you've managed to save £20k in the last year, so what's stopping you getting a house?


If you're not getting a house, then I'm sure your wife would rather you spent some of that £20+k of savings on living.

Generally, just sticking money into a savings account isn't the best approach; it's the safest but it also sounds like you're maxing out the annual ISA allowance (assuming you're putting it in an ISA). You need to be less passive in hoping that money will just come to you.

Whether you overpay the mortgage or not will depend on the interest rates.

Herzlos

Also, the median saving rate is about £2160/year for a family, so whilst you don't think you're rich you're 10x better than that which puts you just shy of the top 20%.

As a comparison, I earn pretty well and only manage to save about £5-6k/year.

Your £1600/month savings would equate to something like £268k mortgage assuming 5.5% APR and a 24 year term. That's obviously on top of whatever you're already paying and any equity/savings you have. You can afford your flat + £225k easily.

So I don't think more money in the solution to your problems at all. Being bitter about others having more money even less so.

EssexHebridean

We started overpaying on our first mortgage by rounding the monthly payment up to the next £10 level - the actual amount was about £8.50 I think in addition to the contractual payment. Then we worked on the basis of any small amounts we could save during each month - by renegotiating bills, spending less on groceries, opting to not have a takeaway even, we stashed that into a savings account and each time it got to a set amount we paid off a lump sum. 

Later, once we were at a point when the amount we OP’d had reached the stage we were in danger of hitting our 10% annual limit (ours related to the capital amount outstanding at the beginning of each calendar year) we put the money in a higher interest account ready for the fixed rate to end - once you are on a standard variable rate you can usually OP without limit. First time round we paid off a chunk, then took a new deal with the term shortened, and began the whole process again. When we reached the end of that term, we were able to clear the remaining balance from savings. I bank transferred most of it, then hit the bank’s daily limit, so ended up calling the mortgage co the day our fix ended to pay off the remaining £2k odd with a debit card payment - first time the lad on the phone had ever had that happen, he was nearly as delighted as I was. That was 13 years and 2 months after we originally took the mortgage on a 25 year term.

The earlier you start with overpayments, the more effect they will have in the long term. However, there is a rider to that which is that technically if your mortgage interest rate is lower than the rate you could get in savings, you would do better to stash those overpayment amounts then pay a big lump sum as soon as your fix ends. I’m not practising what I preach on that one though as we have already started OP’ing the mortgage we started paying last month on the house we’ve just moved in to! For us, the interest difference isn’t huge, and we want to see the advantage of the OPs at this stage. 

Mark_Glasses

@RelievedSheff does overpaying by 10% every year bring the mortgage down to 10 years because 10x10% = 100%? If we do manage to buy a house then that would be a good target. 

@herzlos do 20% of people save more than £20k a year? we have multiple savings accounts because of savings limits of some and because we have more than the £85k that's protected if the bank goes out of business. We want to make sure we get it right. If we save £20k a year (we actually save more) then it would take 50 years to reach a million by which point I'll probably be dead. That's why we need help from the property going up in value. I know that based on what we save we should be able to afford it but would the bank see it that way? Like I've said previously my boss couldn't afford a £500k property and he obviously makes more money than me. The bank could also see from our statements than I contribute the lions share to our savings so they might lend based on my salary alone.

@EssexHebridean all our savings accounts pay a higher interest than our mortgage now but they never used to. That sounds like a good strategy. One thing I would be worried about is that you won't have the money any more if you lose your job. One thing that kept me going when I lost my job was having more in my savings than I would have earned in a year in the job I lost.

Elliott.T123

Mark_Glasses said:

 

@herzlos do 20% of people save more than £20k a year? we have multiple savings accounts because of savings limits of some and because we have more than the £85k that's protected if the bank goes out of business. We want to make sure we get it right. If we save £20k a year (we actually save more) then it would take 50 years to reach a million by which point I'll probably be dead. That's why we need help from the property going up in value. I know that based on what we save we should be able to afford it but would the bank see it that way? Like I've said previously my boss couldn't afford a £500k property and he obviously makes more money than me. The bank could also see from our statements than I contribute the lions share to our savings so they might lend based on my salary alone.

Mark, I tried to find exact stats but it was very tough however by combining two we can make a rough guess. The average savings rate in the UK is 8.8% a year the 98% in the UK have an income of £186k pre tax....

Combine those and you get £16,350ish. So using average figures the top 1% of people in the UK are saving just over £16k a year.

I doubt those figures are that far off, for the average person as your income goes up so do your outgoings. As the saying goes your cost of living is your income plus 10%. 

So for you to be saving over £20k a year (more than a lot of people earn in a year!) will firmly put you in a very small minority.

Why does reaching £1m mean so much, what do you think is going to change if you do that? 

I think you need to decide where your priority is:

1. Buying a house that you can make a home and be happy in
2. Creating wealth at the detriment to other areas


If wealth is your priority then look at using the money you have saved (over £85k you have mentioned) invest this into more efficient schemes than just a savings account. However you will then not be able to buy the house you are talking about

OR

Use the savings (I am going to assume £100k for simplicity) an equity you have in your current flat and a mortgage to buy a house you are happy with.

You mentioned that you would have been happy with one that sold for £475k recently, use your savings and equity and you are looking at needed maybe £350k on a mortgage (possibly less if your savings are higher) I am sure you mentioned your income is around £50k if your wife earns £25-30k you could probably find a lender who will give you around £350k.

This option will not make you a millionaire but it will buy you a house you are happy with.... 



 
 

Herzlos

Mark_Glasses said:

@RelievedSheff does overpaying by 10% every year bring the mortgage down to 10 years because 10x10% = 100%? If we do manage to buy a house then that would be a good target.

Not quite, the 10% would diminish every time. Ignoring your repayments, a 10% payment every year would drop your balance to about 35% each year. So it may well let you clear it in 10 years.

Mark_Glasses said:

@herzlos do 20% of people save more than £20k a year?.

Yup, the top 20% of savers apparently save morethan £20k/year, but that must be skewed by millionaires because saving £20k means you're paying in the entire take home pay for the average wage (£32k). You'd probably need a household income of well over £100k to save that much whilst maintaining mortgage payments.

Mark_Glasses said:

If we save £20k a year (we actually save more) then it would take 50 years to reach a million by which point I'll probably be dead. That's why we need help from the property going up in value.

Not with compound interest. If you're saving £20k/year and getting a 5% yield, it'd only take you 25 years to hit £1,000,000.  But then why do you think you'd suddenly be happy with a million in savings? Will it be worth another 25 years of penny pinching? You'll be able to retire well at 66 but you'll wish you spent your money when you were younger and could enjoy it more.

You're clearly already in a very financially privileged position, since you're saving in surplus cash more than the median person earns, but just don't seem to be able to appreciate that because other people are doing even better that that. And that's the cause of your misery.

Without being too patronizing though, it sounds like you could really do with working to be more financially literate, because for someone who is so obsessed with money you don't seem to really understand how any of it works, and that's holding you back badly.

EssexHebridean

Mark_Glasses said:

@EssexHebridean all our savings accounts pay a higher interest than our mortgage now but they never used to. That sounds like a good strategy. One thing I would be worried about is that you won't have the money any more if you lose your job. One thing that kept me going when I lost my job was having more in my savings than I would have earned in a year in the job I lost.

Yes - generally speaking keeping your emergency fund untouched is always a good idea.