125% Mortgages

daveyjones_3

Hello,

me and my girlfriend are looking into buying a home. The problem is we don’t have much savings and with this being our first home all the extras are going to cost a lot too (furniture etc..). So my question is; are 125% mortgages a good idea? The extra money would obviously help a lot, but we are essentially putting ourselves in negative equity, is it worth it and would a property make up the value in the current market?

thanks

MORPH3US

I don't know your exact circumstances davey but if I were you, I would go for as little mortgage as possible, surely repayments on a 125% mortgage would cripple you but obviously it depends on the actual amount you are borrowing.
Myself and my gf have recently moved into a new flat which luckily already had a cooker and fridge but thats about it. We begged, stole and borrowed (not so much stealing though) from friends and family, neighbours and work colleagues to get furniture and it doesn't look too bad at all so if you can afford it, then in my honest opinion you would be better off getting as little as possible mortgage.

M

Just re-read your post and I gather you mean fees and taxes etc rather than kitting the place out. Even so, borrowing that much money can never be good, I would even think that the fact that you are borrowing more than the property is worth would lead to quite high interest rates too.

Jacster_2

More knowledgeable people than me will be along in a moment.

I wouldn't touch it with a barge pole.

By taking a 125% mortgage, you need to wait for house prices to rise by 25% before you can sell and cover all your costs. There is mixed opinion on what will happen to house prices over the coming months/years....the optimists say they will plateau or continue to rise very slowly, the pessimists say they could fall by up to 30%.

Taking a 125% mortgage at a time of such uncertainty in the housing market is a big risk.

Might be better to sit tight and save a deposit...especially if house prices do fall as some expect....you could buy a better house then!:D

HTH

rchddap1

I'd have to agree with the other posters. Save some money and buy when you can afford to do so.

Little_Miss_Winner

Hi Davey,

Not sure about how much in £k you are talking (loan).

But to give you an example I have just clicked on my mortgage provider, and entererd in details to borrow £20k over 25years.

This is the result;-
Year Interest Rate Basic Monthly Payment Total Amount Payable APR

1, 2, 3, 4, 5, 6, 7, 8, 9 & 10 4.89 % (Fixed) £115.64 per month
£36779.00 TOTAL REPAYABLE!
5.6 %(Variable)
11+ 5.99 % (Variable) £124.11

So i would strongly agree with everyone else! DON@T do it - as you can see to borrow, just 20k over 25 years, you would pay £16,779.00 in interest. :eek:

Hope this helps?
pot

crazyhazy

ok, a different view from me, we bought our first flat in march 2004, to enable us to afford it we bought somewhere that needed a lot of work doing and also pay off a loan we had, so we borrowed 125% of the value. Alot of it depends on how much the propetry is whether this is going to work or not. We bought our flat for £39k and borrowed just over £49k including the mortgage fees. We've been lucky and cos of the work we've done and property prices rising is general, it is now worth at least £50k, we have also managed to make overpayments to the mortgage to decrease the balance so hopefully we'll be able to get a good remortgage when our fixed rate ends next march. The mortgage is with northern rock and 95% is secured and the other 30% is unsecured and we also have the option to overpay, take payment hols etc. The rate is not the best at 5.99% but this really was our only option to be able to get on the property market. I think alot of it depends on whether you will be staying in the property a few years or not and if you can afford to overpay then you can pay it back a lot quicker. The option would be to get the mortgage and an unsecured loan for the extra you need, the problem with this being is while you will pay less interest on the loan cos the term will be shorter your monthly payments will be much higher.

meanmachine_2

Forgive me hazy, but I disagree with your advice.

Asking prices might value your home at 50K, but knock off 7% and you're back to where you've started.

Property hasn't risen nationally since last year, so any rise is all just guess work.

a 125% mortgage is utter madness. Take it from me, as someone who has NEVER been in debt. I'm careful with money and wouldn't go near it.

You need house prices to rise by 125% before you're lifted out of neg eq.

Most OPTIMISTS are suggesting prices will stick until 2010. So even if they started rising after that year, and quite quickly, it could be another 7-8 years before you're out of neg eq.

Madness.

crazyhazy

meanmachine wrote:

Forgive me hazy, but I disagree with your advice.

Asking prices might value your home at 50K, but knock off 7% and you're back to where you've started.

Property hasn't risen nationally since last year, so any rise is all just guess work.

a 125% mortgage is utter madness. Take it from me, as someone who has NEVER been in debt. I'm careful with money and wouldn't go near it.

You need house prices to rise by 125% before you're lifted out of neg eq.

Most OPTIMISTS are suggesting prices will stick until 2010. So even if they started rising after that year, and quite quickly, it could be another 7-8 years before you're out of neg eq.

Madness.

While I accept your opinion, in all fairness you have no idea whether house prices in the area I live have risen or not, as in actual fact it is an area which they have risen substantially in the last year and are actually continuing that way. I was being cautious when I said it was now worth £50k as it is probably nearer £55-£60 if we were to sell tmrw and I know for a fact that it would sell really quickly if we decided to go down that route. All I was doing was giving advice from another point of view, as someone who has been in that situation. And seeing as 30% of the amount in unsecured it is seperate from the mortgage if you like. I did also add that I only thought it was worthwhile if you knew you'd be able to make overpayments to reduce the balance quicker, as I am fully aware of the extra interest you would pay if you kept it like that for the full term of the mortgage.

Thefunkygibbons

In order to even think about this, you need to have a long hard look at the quality of your relationship, because it has to survive some time whilst the mortgage is over your head and both of you need the same attitude to debt, ie are both of you prepared to knuckle down and save every peeeny to make this work (It is going to be tight for the next 5 years)

Such a mortgage only makes sense for a certain type of person, one who can reasonably expect significant pay increases in the next few years

I started with a 93% moprtgage many years ago and that was tough, but I was doing a professional qualification so the payrises once Icompleted my studies helped me out

I cannot imagine what 125% would feel like

As noted, you must be allowed to make penalty free overpayments

Spendless

We considered it. Our house came along cheap about 18 months before we were financially ready for it. As it happened we were turned down for the mortgage,and had to come up with the cash from elsewhere.

I was well aware that my house was going cheap, it is in an area I know well, and a house on the same street was going for 50% more at same time.I knew it was an area we would be staying in for some time. I also knew we had family and friends help which kept our costs down as we modernised the place. Also the property boom hadn't happened here at that point.

meanmachine_2

Hazy, as you say you know the area better than me.

But buyers should be aware that prices can go down as well as up.

And you're right, the Northern Rock deal is partly an unsecured loan - ON TOP of a 95% mortgage.

But you can be sure that if you fall behind they'll work damn sure to persuade you to secure it against the property.

Provided people are aware of the risks, and know that 8 years of property rises *might* be followed by eight years of stagnation, or worse, then that's up to them.