Transfer mortgage or buy cheaper property

bambi1980_2

Hi
To cut a long story short - my partner and I (unmarried) have split up. I have started the process of transferring the mortgage and property title to my own name. Ex is walking away with nothing from the property (agreement due to circumstances) so effectively it’s a straight swap on the mortgage. I would extend the term length but although affordable, there won’t be much spare money each month. I do have quite a lot of equity in the house (approx £250k) my mortgage would be about £145k. 

The other option is to sell up and buy a smaller, cheaper property. I would still need a small mortgage (approx £50k) but more affordable. Downside is that it’s uprooting the kids again - we’ve only lived here 2 years and also in a 5 year deal so will have fees for this. It’s also the hassle and cost of moving that puts me off. SDLT, solicitors, estate agents etc …..

I’m unsure what to do. Don’t have a lot of family or friends to confide in so wondering what people thought. 

Thanks 

vic_sf49

Think this is a decision only you can make, as we don't know your outgoings, or how much "won't have much spare" means.

But... have you factored in any benefit changes, or child maintenance?

As you're changing the mortgage now, that will likely incur fees too I assume, rather than just if you came to sell and move (possibly what you meant in your post)?

Have you sat down and done an honest budget? Can you trim things down ref mobile phone subscriptions, sky type package contracts, if you want to have more flex in your budget?

Are you due a promotion or pay rise? Depending on the age of the kids, are you entitled to any more free child care in the near future?

Personally, I don't like change, and would try to stay put if I liked where I lived, and if that meant a few less takeaway coffees, and cancelling a TV streaming service, I'd do that. Don't underestimate how these things add up.

Edited for spelling.

Albermarle

Maybe you can stay where you are and see how you actually manage in practice.

user1977

Bear in mind that generally speaking, the mortgage payments will get easier (your salary will, I assume, rise, but the mortgage won't, other than fluctuations in interest rates once you're out of the current deal) so you'll have more disposable income as the years go on.

bambi1980_2

I get an annual small pay rise in line with inflation (public services) and could look at promotion but not got the head space for this at the minute. 

Yes - it’s probably going to cost just under £1k to transfer the title. 

I do need to sit down to work it all out. I have done some type of budget - I need to redo it. 

vic_sf49

This is a good budget/calculator, often seen here on mse as a "statement of affairs". 

It might prompt you to think about categories you'd not thought about...

https://www.lemonfool.co.uk/financecalculators/soa.php

ian1246

If your in thr public sector you should have a decent pension - discuss with your mortgage provider the option to extend the mortgage as far as possible into retirement, bringing down your monthly mortgage costs & giving you more lee-way.

With the saved per-month mortgage costs vs. The higher monthly mortgage costs (shorter term), budget to put those savings into a high paying interest account (5% easy access). Build up a good emergency fund - then once your emergency savings are sorted, divert them to mortgage overpayment or regular savers (7%+), whichever has the highest interest rate - if a regular saver, upon annual maturity use it to make an overpayment.

That is my recommendation. You won't be contractually bound to make the higher-mortgage payment which would come with a shorter term, giving you freedom if something goes wrong - but if in the long run you are nonetheless making overpayment, the net effect will be the mortgage length shortening and hopefully being paid off at the point of retirement.

Up to you whether you'd specify the overpayment reducing the term, or reducing the monthly amount (freeing up income now rather than later - if you then bank the freed up income and use it towards overpayment, its the same effect).

Also might be worth having a look at Natwest who have a 1% cashback credit card & a digital saver allowing £150 a month to be saved, paying 6% interest on balances up to £5000. Pay the credit card off in full each month, but by using it at the very least you'll get 1% back on your food costs - which can add up! 

The above is pretty much what I ve done with my own situation (divorce), putting the mortgage to I'm 74 years old! I ve then been putting £300 a month into 7% a regular saver, due to mature tomorrow - which will be the first mortgage overpayment! 

Budget part of any future pay rises to go towards overpayment. Any future reduced monthly costs - such as freed-up nursery fee's when child goes to School - put towards overpayment.

Albermarle

bambi1980_2 said:

I get an annual small pay rise in line with inflation (public services) and could look at promotion but not got the head space for this at the minute. 

Yes - it’s probably going to cost just under £1k to transfer the title. 

I do need to sit down to work it all out. I have done some type of budget - I need to redo it. 

Currently public ( and private) sector pay is increasing by twice the rate of inflation, but that is not normally the case of course.

Even so, inflation will slowly each year reduce the size of the debt in relation to your earnings, as well as you paying some of it off.
As an example.
Today the debt is £145K
Lets say you earn £35K pa and you make mortgage repayments of £8K pa 
In 10 years lets say the debt has reduced to £125K ( due to your payments of capital and interest)
However your salary could have increased to £48K due to inflation, but you are still only paying £8K pa.
So your payments and the debt are a smaller proportion of your salary.

The unknown is interest rates, but you can see how normally time/years reduces the burden of the debt.

confusedfreelancer

The first option (stay) seems like a good deal, and certainly much less stress. If you find you struggle you could always sell later?