Advice needed please...

stevo1405

I have a mortgage with C and G , with 190k outstanding , i had some problems and went into arrears to the tune of 5k which i still on the account , im on a monthy arrangement and paying it , I want to downsize and have been offered 232k for my house , i have seen a house for 180k , I just wondered will it be difficult for me to get another mortgage , i will have 42k left so i could put a bigger deposit down but i would like to stick at 10% , our household income is 60k per annum , no ccjs but missed payments on a few things.

freda

Why don't you want to put the full 42k down as deposit?

What other debts do you have?

What would the moving costs be and have you got them covered?

stevo1405

freda wrote: »

Why don't you want to put the full 42k down as deposit?

What other debts do you have?

What would the moving costs be and have you got them covered?

I just wanted to have a little left to put in the bank if possible , i just have a loan with hsbc for around 3k , moving costs . stamp duty estate agents will all be covered by the company i am buying the house from

freda

Why do you want to put £24k in the bank? You would be paying what, about 5.75% interest on a mortgage - where would you earn more interest if you put the £24k in the bank? Remember you have to take into account your tax on any interest earned on savings. You are also in the danger of being tempted to spend the £24k, instead of paying off your (mortgage) debt with it.

You'd be financially better off having a smaller mortgage and larger deposit.

MortgageMamma

Why are you downsizing? is it because you are still struggling with your mortgage payments?

How long ago were your mortgage arrears and how many months arrears did you have?

MM

silvercar

For what its worth, I think it quite sensible to have some rainy day money in the bank. Who knows whats around the corner?

Particularly when you move to a new house, there is always some unexpected expenditure. stevo1405 has just been caught out with mortgage arrears, so now wants a safety net in the bank. Combining that with downsizing makes sense, though I accept the point about avoiding the temptation to spend.

freda

For what its worth, I think it quite sensible to have some rainy day money in the bank. Who knows whats around the corner?

I agree, but £24k is more like a torrential hurricane day fund than a rainy day fund, surely? Maybe think about setting aside at most 3 month's salary, which would give the OP a minimum of 3 months to find a new job, should he lose his current position. In reality, it would give him much more than 3 months, as he could reduce expenditure to make it go further.

Stevo - I'd seriously look at doing a comprehensive budget for yourself. On a decent income and a relatively small mortgage (<3x salary) you should find it fairly easy to budget to kill off the 3k loan, save for future large expenses (new cars, new white goods, holidays etC), save for annual things (xmas, car maintennace, emergencies, clothes etC), pay for monthly bills AND save/overpay your mortgage so that you are totally debt free sooner rather than later.

stevo1405

MortgageMamma wrote: »

Why are you downsizing? is it because you are still struggling with your mortgage payments?

How long ago were your mortgage arrears and how many months arrears did you have?

MM

i am downsizing as my mortgage payments have gone up to 1390 a month and its killing me , my mortgage arrears were around 6 months ago and i had about 5 months arrears , maybe it would be best if i put down 15 % ?

stevo1405

freda wrote: »

Why do you want to put £24k in the bank? You would be paying what, about 5.75% interest on a mortgage - where would you earn more interest if you put the £24k in the bank? Remember you have to take into account your tax on any interest earned on savings. You are also in the danger of being tempted to spend the £24k, instead of paying off your (mortgage) debt with it.

You'd be financially better off having a smaller mortgage and larger deposit.

yes i suppose you are right but as i have had problems in the past i just wanted to have a bit of security so as not to get into that situation again , cant say with total honesty i wouldnt start spending it after a while though.

freda

as i have had problems in the past i just wanted to have a bit of security so as not to get into that situation again , cant say with total honesty i wouldnt start spending it after a while though.

This really rings alarm bells with me, as someone who sees lots of people trying to dig themselves out of debt, run up through simply spending more than they earn over a period of time.

In order to avoid problems in the future, you need to look at what you are spending, not have a large pot of money doing nothing for you but tempt you to spend it in the bank. Have a look at the 'statement of affairs' that the 'debt free wannabe' board has, this lists all of the main items that you will be spending on on a month by month basis (bills, food, car costs etc). Then, think about what you want to save up for (replacement car, replacement fridge freezer, new boiler, holidays etc) and work out how much you need to save each month to pay for them. Once you have done this, start logging every penny you spend each week, and compare it with your budget. Tweek it until you have a budget that allows you to both spend and save for things at the same time.

By all means, put aside 3 months salary in case of dire emergency (losing your job), but start an ethos of SAVING for things you need bit by bit instead of frittering away your equity.

The problem with using your house equity 'pot' as 'security' is that it will inevitably get spent, for example when xmas comes along and you want to treat the kids but you've not saved for it, or when you deserve a decent holiday but you've not saved for it, or a new car but you've not saved for it. Then, all that £24k will be gone, you'll be left with no savings, a big debt (mortgage) and you'll be used to spending all of your monthly income, not saving it. So the next big bill that comes in, you'll borrow money for....and before you know it you'll be downsizing again, in order to pay off your debts.

You've had problems in the past - this implies to me that you're not that hot yet on working out your finances? Ue this as an opportunity to start investing in your financial future, not frittering it away.

Hope you understand I'm not having a go, I'm just trying to warn you of the pitfalls I've seen so many people get into.

freda

Sorry, forgot to say:

Another thing that rings alarm bells is that with a joint income of £60k, you should be bringing home a minimum of 3.4k per month. A mortgage of 1.3k is well under half of this - where is the extra £2.1k going each month? You surely shouldn't be borrowing £3k and getting £5k into arrears with such a large surplus? Another reason to look closely at your spending in order to not fritter the £24k away.