Buying and selling house questions

[Amplus]

I know most things you can 'google' but really struggling to find any decent information when it comes to buying and selling a house. Most of the information out there is for first time buyers at the bottom of the chain.

I brought my house 2 years ago for £173,000. I put down a 10% deposit and signed up to a 5 year fixed term mortgage at 2.83%.

It's a beautiful Victorian terrace house close to 2 railway stations but is in a 'dodgy' area although my road is actually really nice and away from the bad bits, I plan to have kids in the next year and frankly want to move to a better area now.

My mortgage is portable but I want to buy a house in a different city for around £250000-£270000.

Similar houses on my road are going for between currently £180000-£210000. So realistically worst case I expect the house to sell for £183,000 so £10k equity and I have just over £150,000 left to on my 35 year (now 33 year) mortgage.

I have barely any savings so wondering a) what my LTV on my house is currently b) how much equity I have to use towards next house (confused if it is just the 10k or includes the 10k plus the 17k deposit I put down plus the 2 years I have paid of the mortgage c) I have read I don't pay the deposit to pay for my next house. That comes from the bottom of the chain (buying my house) to pass to the house I'm buying?? If I have equity left over does that transfer to the solicitor to pay his fees and the stamp duty so essentially I have nothing to lay out other then moving costs??

 

[Bluecube]

You put down c£17k deposit so your mortgage was for £156k. Ignoring how much you’ve paid off your mortgage, and using an example sale price of £180k, you’ll have £24k in equity. So yes, equity includes your deposit.

You’ll need a bigger mortgage for the new house. You’re likely hoping the equity will pay for the deposit on the new one so you can get another 90%(ish) mortgage. You’ll have to pay solicitors fees (on sale of your house and purchase of new one), stamp duty and whatever other costs on top of that.

 

[Psycho Sonny]

33 year mortgage = dead by the time it's paid off.

why don't you stay where you are and in 2 years time remortgage and reduce the policy? or start making over payments now to reduce the term.

you do realise a mortgage is a loan? taking a loan out over 35 years or even 33 years even with low interest rates when talking hundreds of thousands of pounds equates to hundreds of thousands of pounds of interest.

so your £270K property would cost you £360K to buy if you had it on a 33 year mortgage and interest rates remain low.

£90K in interest if rates never rise over the next 33 years.

so for you to make a profit. your £270K property would need to sell for £400K in 33 years time.

 

[Usel]

33 year mortgage = dead by the time it's paid off.

why don't you stay where you are and in 2 years time remortgage and reduce the policy? or start making over payments now to reduce the term.

you do realise a mortgage is a loan? taking a loan out over 35 years or even 33 years even with low interest rates when talking hundreds of thousands of pounds equates to hundreds of thousands of pounds of interest.

so your £270K property would cost you £360K to buy if you had it on a 33 year mortgage and interest rates remain low.

£90K in interest if rates never rise over the next 33 years.

so for you to make a profit. your £270K property would need to sell for £400K in 33 years time.

What's wrong with spending £90k over 33 years to end up owning something that is worth £400k?
Looking at the housing market over the last 100 years it's very likely to be worth £400k in 33 years.
It'll be 33 years of well spent cash and you get to enjoy a home you want to live in.
There's also the possibility that they will get a job promotion with a pay rise along the way and maybe some inheritance so they can reduce the mortgage.

 

[Psycho Sonny]

What's wrong with spending £90k over 33 years to end up owning something that is worth £400k?
Looking at the housing market over the last 100 years it's very likely to be worth £400k in 33 years.
It'll be 33 years of well spent cash and you get to enjoy a home you want to live in.
There's also the possibility that they will get a job promotion with a pay rise along the way and maybe some inheritance so they can reduce the mortgage.

Because that isn't guaranteed.

I know people who bought before the crash. £490K and today worth £400K even after 12 years. So add another 21 years they might get to £490K. Then add all the interest they walk away with a loss.

Also that money would be better invested elsewhere than in a property which needs regular money spent on it.

Over 33 years that is how many coats of paint? A new roof? How many new carpets, kitchens, bathrooms, etc. A smaller cheaper property costs less to maintain.

So no it isn't as gravy as you think at all.

Also what age is the OP? he could be mid 30's to 35 plus 33 years means 68 before he's mortgage free.

That would be a huge burden on him for his best years.

 

[Martynt74]

Then add all the interest they walk away with a loss.

And to have had a nice house to have lived in for 30 years?

 

[Usel]

Because that isn't guaranteed.

I know people who bought before the crash. £490K and today worth £400K even after 12 years. So add another 21 years they might get to £490K. Then add all the interest they walk away with a loss.

Also that money would be better invested elsewhere than in a property which needs regular money spent on it.

Over 33 years that is how many coats of paint? A new roof? How many new carpets, kitchens, bathrooms, etc. A smaller cheaper property costs less to maintain.

So no it isn't as gravy as you think at all.

Also what age is the OP? he could be mid 30's to 35 plus 33 years means 68 before he's mortgage free.

That would be a huge burden on him for his best years.

You know people in a different area to me.

I bought pre crash (2006) and it was the best thing I ever did.

 

[Psycho Sonny]

And to have had a nice house to have lived in for 30 years?

Well if he's had to take out a 35 year mortgage to live in his current house. I wouldn't exactly be trying to move up the ladder straight away.

If he had a load of equity or a short mortgage then yeah why not.

In his situation he needs to think realistically about what he can do long term.

There is no point in him plowing every ounce of disposable into a home if that means he cannot buy the fancy cars, holidays, decent clothes, etc that go with the prestige of having a nice home. Or even have money to host regular dinner parties, bbq's, etc.

If he can easily afford the nice home and drop it to a 20 year mortgage then I would say go for it.

 

[tom_nieto]

@Psycho Sonny - the OP wants to move to a better area to start a family (perhaps even a larger house) and pay interest on a property that they want to live in. Suggesting the OP waits until they’re in a position to reduce the term to 20 years on such a property would probably involve much more than staying put for 2 years and is unhelpful advice.

Talking about the upkeep of a property is fine, but every house will require redecoration and occasional remedial work. Why does having a larger house in a better area necessitate a fancier lifestyle unless you’re hopelessly caught up in a cycle of keeping up with the Joneses? To factor that into moving costs is frankly ridiculous.

I would suggest that a young, employed person (or couple) should absolutely mortgage themselves to the hilt so that they can enjoy possibly THE most important thing in left - a nice place to live. A mortgage is a relatively low risk investment if you’re buying to live in a property. BTL and fixer uppers are a totally different story and should be regarded in a different light.

OP - you need to find out how much of your mortgage you have left to pay. Then get an estate agent to value your property to understand your equity. You then need to figure out how much you realistically need to buy the house that you want. This will tell you how much of a deposit you have and how much of a mortgage you need to take out. Then go online and place the figures into a mortgage comparison website to see what sort of deals are available.

Does your current mortgage carry an early repayment fee? If so, you will probably have to port the existing mortgage across and take another loan to cover the additional cost.

 

[Randomface74]

I know most things you can 'google' but really struggling to find any decent information when it comes to buying and selling a house. Most of the information out there is for first time buyers at the bottom of the chain.

I brought my house 2 years ago for £173,000. I put down a 10% deposit and signed up to a 5 year fixed term mortgage at 2.83%.

It's a beautiful Victorian terrace house close to 2 railway stations but is in a 'dodgy' area although my road is actually really nice and away from the bad bits, I plan to have kids in the next year and frankly want to move to a better area now.

My mortgage is portable but I want to buy a house in a different city for around £250000-£270000.

Similar houses on my road are going for between currently £180000-£210000. So realistically worst case I expect the house to sell for £183,000 so £10k equity and I have just over £150,000 left to on my 35 year (now 33 year) mortgage.

I have barely any savings so wondering a) what my LTV on my house is currently b) how much equity I have to use towards next house (confused if it is just the 10k or includes the 10k plus the 17k deposit I put down plus the 2 years I have paid of the mortgage c) I have read I don't pay the deposit to pay for my next house. That comes from the bottom of the chain (buying my house) to pass to the house I'm buying?? If I have equity left over does that transfer to the solicitor to pay his fees and the stamp duty so essentially I have nothing to lay out other then moving costs??

a) LTV
LTV percentage is Loan divided by Value times 100.
Your Loan = £150,000
Your Value = £183,000
Your LTV = 82%

b) Equity
Equity is Value minus Loan.
Your Value = £183,000
Your Loan = £150,000
Your Equity = £33,000

c) Deposit requirement for next house.
On your current house you paid 10% deposit on £173,000. Which was £17,300.
That meant your LTV was 90%. That LTV got you a 2.83% fixed rate.
In normal circumstances, when your mortgage deal ends, you agree a new deal. When you do this your LTV is recalculated, if this happened now it would be 82%, this may mean you're able to get a better rate. You may find there are better rates under 80% so that's a suitable target. Improving your LTV as quickly as you can should be a priority to allow you to access the best rates, it tends to settle around the 60% mark.
If you're looking at a house valued £250,000, and you put your £33,000 equity down as deposit, that's 13% deposit, so 87% LTV. So in terms of accessing rates, this doesn't improve your situation.

d) Fees and Stamp Duty
You'll have to pay them.

e) Term.
Holy f 33/35 years is a long term. I understand the reason to want a lower monthly payment, but really once you get over 25 years you aren't living within your means.
Also considering that you don't have savings and are considering having kids, I'd say this is a move you can't afford right now.
That said, it's not like it really matters until you're actually considering a school for your kid anyway, so you have a few years I think, maybe see out your current 5 year deal.

 

[Psycho Sonny]

@Psycho Sonny - the OP wants to move to a better area to start a family (perhaps even a larger house) and pay interest on a property that they want to live in. Suggesting the OP waits until they’re in a position to reduce the term to 20 years on such a property would probably involve much more than staying put for 2 years and is unhelpful advice.

Talking about the upkeep of a property is fine, but every house will require redecoration and occasional remedial work. Why does having a larger house in a better area necessitate a fancier lifestyle unless you’re hopelessly caught up in a cycle of keeping up with the Joneses? To factor that into moving costs is frankly ridiculous.

I would suggest that a young, employed person (or couple) should absolutely mortgage themselves to the hilt so that they can enjoy possibly THE most important thing in left - a nice place to live. A mortgage is a relatively low risk investment if you’re buying to live in a property. BTL and fixer uppers are a totally different story and should be regarded in a different light.

OP - you need to find out how much of your mortgage you have left to pay. Then get an estate agent to value your property to understand your equity. You then need to figure out how much you realistically need to buy the house that you want. This will tell you how much of a deposit you have and how much of a mortgage you need to take out. Then go online and place the figures into a mortgage comparison website to see what sort of deals are available.

Does your current mortgage carry an early repayment fee? If so, you will probably have to port the existing mortgage across and take another loan to cover the additional cost.

Starting a family?

Has he taken into account the loss of his partners earnings? Child care? Nursery?

Again he needs to look at priorities which are far more important than a home. A home is just 1 piece of the puzzle. There is absolutely no point in having a home and nothing else. You have to have a balance.

I know people who are mortgaged to the hilt and they are miserable because of it. No money to have a nice car, etc or go on holidays. Other people talking about Vegas, Disneyland, etc yet they can barely afford to go away for a weekend within the UK.

I wouldn't advise anyone to go for a 35 year mortgage unless of course they were taking the money saved and plowing it into an investment which would return much more than overpaying the mortgage would.

 

[Amplus]

Thanks for the replies guys. Currently redoing the bathroom, going to paint one of the bedrooms then hopefully once Brexit is sorted house prices may start to rise again and I'll get more then the minimum £10k extra I expect to make on the house.

In regards to the 35 year mortgage I don't understand this thinking of being trapped for so long. After the 5 year fixed term is up our LTV, if in the current house, would be around 75%. So could easily remortgage and knock 5 years off for around the same monthly price. 35 years isn't really 35 years and at least we didnt have to struggle financially for the first 5 years if we took out a 20 year mortgage with much higher monthly repayments.

 

[tom_nieto]

Yeah, I don’t really understand either. Some slightly unusual points being put across above. Some pretty big assumptions being made when key details are absent - not that we really need to know your age, but a 35 year mortgage for a 20 year old would be great, for example.

I would agree that you shouldn’t move without very good reason as it’s expensive and a royal pain in the backside.

I have clearly failed in life as I’ve not been to Vegas...

 

[Psycho Sonny]

Thanks for the replies guys. Currently redoing the bathroom, going to paint one of the bedrooms then hopefully once Brexit is sorted house prices may start to rise again and I'll get more then the minimum £10k extra I expect to make on the house.

In regards to the 35 year mortgage I don't understand this thinking of being trapped for so long. After the 5 year fixed term is up our LTV, if in the current house, would be around 75%. So could easily remortgage and knock 5 years off for around the same monthly price. 35 years isn't really 35 years and at least we didnt have to struggle financially for the first 5 years if we took out a 20 year mortgage with much higher monthly repayments.

so you would struggle financially on a 20 year mortgage yet want to buy a bigger house after 3 years?

as already noted above what is your age? how much of the household income does your wife contribute?

if you are young and you earn a shedload and your wife little then i would say it's viable. 2 big IF's though

 

[tom_nieto]

@Psycho Sonny - women can earn a living too these days!

 

[Slade2]

some good and not so good advise in this thread.

You first have to understand that everything is speculation and the market changes every day. House prices are in a state of flux currently as the foreign investment money is pausing for a while. (i dont want to mention the B word)

Selling your house has to happen first this might be fairly simple given that its probably a good house for a first time buyer. Sell the house get some money and use that money minus some of it to put towards a slightly bigger house, potentially rinse and repeat until all your kids leave home and do the same in reverse.

If you want some advise I would say right now you cant afford to move house, especially if you are planning on starting a family soon. Wait it out for another couple of years (perhaps until your fixed rate ends) and then look at what you can afford and see how it goes from there. You might want to look at reducing the term as well, those 10 years on the end of a normally 25 years are killing you in interest. You might be able to pay a little more now to reduce the term and pay the loan off quicker and then if you do decide to move later you could always go for the longer term for your forever home if you are younger enough now.

The example I use was my wife used to smoke, it cost us about £150 a month at the time, she gave up and we overpaid that £150 a month on the mortgage for three years and took 7 years off the term because all the additional money was going to pay off the amount borrowed in the first place. My advice is to get used to paying a larger amount of money out when you are younger on things like your mortgage and potentially savings and pension, its nice to have nice things but its also nice to retire early and have enough life left to enjoy those things when you still can.

 

[Psycho Sonny]

@Psycho Sonny - women can earn a living too these days!

yes but if she is the main breadwinner and they are planning on having a family. unless you know any different. she will be the one who's income drops more than his.

 

[Psycho Sonny]

some good and not so good advise in this thread.

advice?

what would you say is bad advice? i pretty much said the exact same as you.

overpay, cut down the term, don't move if planning on starting a family due to drop in HH income, etc plus kids aren't cheap i also mentioned childcare and nursery costs which would be additional HH expenditure. as well as additional costs of moving up the ladder and the fact a more expensive home is more expensive to maintain usually.

 

[Mercenary Keyboard Warrior]

Agree with Slade2 good and bad advice in this thread

We dont know OPs income, whether that includes other half etc, so any speculation on if he can afford it, what hes earning, spending, willing to give up etc is just that.

Obviously term is an issue, but then interest rates are low, so the term has far far less of an effect than it did when rates were high. With overpayments now pretty much universally allowed the original term isnt a big deal, as funds become available its easy to pay some off and effect a term change or reduced committment for the future. Its only relevant at all during any fixed period, its literally irrelevant after that, and purely comes down to a calculation on affordability and if someone wants to clear the mortgage or to let it carry on and prioritise other things such as cars and holidays.

Its always good advice to live to the outgoings level your next step will take you to. So if your current outgoings are £1250 a month and your new situation would move that to £1650, then you should aim to save the difference (or pay off mortgage).
If you cant do that then your overstretching, if you do that for 6 months, go simples, then you should be ok, and the bonus is you just saved the difference to pay some costs you will incur.

Leveraging by "owning" a higher value asset than you could achieve without a loan is a pretty basic principle of economics so its not a bad thing to do, unless the interest your paying is notably more than the benefit you will gain. It often is at the start but can correct as you pay off some capital.

There is an issue with portable mortgages, in that they have to be willing to lend against the new property, so you need to meet current lending criteria, and they have to be happy with the valuation and area etc. You should not count on being able to port, but treat that as a bonus if you can.

i wouldn't stress too much about deposit, they are frequently not really used now. Often the first deposit is passed up the chain with no more funds being added. The deposit is pretty irrelevant until you get to exchange, this often happens with completion, and if not its a short period of time anyway between. If you think about it, most people pass the deposit on, so the deposit you receive from your seller you do not retain. The deposit not actually passing or being held doesn't affect in any way the point when technically you are liable for this.

What I would probably do in the OPs situation is look to remove some of the unknowns. Get his house valued, and potentially put it on the market towards top end, you dont have to accept even an asking price offer.
You can also discuss with you lender, give them a hypothetical situation, want to move house, new house price £xxx, they will confirm salary etc and advise if they are likely to allow you to port.

 

[Bounce]

@Psycho Sonny - women can earn a living too these days!

Yes but most don't.

Have you heard of the gender pay gap?