Mortgage/Valuation issue

The Mad Rapper · 14 Jul 2010 at 10:05

toshj said:
30% deposit, interest only and a friend renting out the third bedroom. its all financially sound from our perspective, but the valuation has just totally screwed us!

How is it financially sound when you are paying Interest Only? You are supposed to have a repayment vehicle to pay back the capital at the end of the term. Interest Only mortgages are completely retarded and should be banned. Repayment mortgages only would sort the wheat from the chaff, those who can afford a mortgage and those who cannot.

I am pleased the FSA is going to enforce the 'affordability' issue, but they need to go much, much further. Incidentally, I do believe that this would have a profound and necessary effect on house prices, which, let's be honest, are still grossly inflated.

The Mad Rapper · 14 Jul 2010 at 10:07

cableguy2003 said:
You keep talking about how you can afford this, if you have to pay interest only and have no plan to pay the mortgage off with a savings plan then you most definately cant afford it and you WILL get shafted further down the line.

Yes, if, as predicted, interest rates do rise, then he really will be in for a world of hurt.

Knubje · 14 Jul 2010 at 10:11

I'm in agreement with Rotty. This whole scenario is madness and I think the OP wants his head testing.

Still, if you got rich parents to throw over £100k of a deposit at you then I suppose you're not ever really going to learn much in that respect.

Stumble Bum · 14 Jul 2010 at 10:11

an interest only mortgage on a 540K house, going halves with a mate only on 18k = you can't really afford it yet.

Find something more affordable so that you're actually making capital payments on your mortgage or stick to renting, it'll save you a lot of hassle and worry.

Also I don't believe you've mentioned how much your earning? that might change the situation to an extent.

The bank of England rate is currently a mere 0.5%. Whilst it may stay the same for a little while yet.... it can only really go one way and that is up, i've already read one article this morning hinting that it will be rising soon.

and as just said above.... what will you do if one of you all of a sudden wants out?

The Mad Rapper · 14 Jul 2010 at 10:17

Stumble Bum said:
The bank of England rate is currently a mere 0.5%.

Yes, if it rises to 1%, which is nothing at all, his share of the mortgage doubles. He has no room to breathe as far as his personal finances are concerned. As others have suggested, he really should give the idea up and rent. The money the respective parents are giving will be lost if they default on the mortgage

wesley · 14 Jul 2010 at 10:19

Wow I cant believe reading this. How the hell the bank letting this happening. That's the main reason many people are in bad debts.

What would happens if your friend want to move out?
Interest payment can increase massively by small % increased.

Very bad idea mate.

jamief · 14 Jul 2010 at 10:25

toshj said:
i'm confused. based on the valuation our bank has agreed to lend to us.

as this is my first time buying, i'm totally happy to listen to suggestions/comments/abuse! however to pay £450 a month in London is surely not a bad thing? Like i said, please let me know if i'm being a total douche about all this and i'm shooting myself in the foot!

it might be wortt noting that the mortgage is fixed for 2 years, and i'm an ok financial situation.

Interest rate fixed for 2 years = fine.

In 2 years, the interest rate may be 3-4.5%. You will have no more equity in the property than you did, but your mortgage may double (or worse). You might need to sell, at a loss, because you can't afford the monthly repayments.

brummie · 14 Jul 2010 at 10:27

The Mad Rapper said:
Interest Only mortgages are completely retarded and should be banned.

They make a lot of sense to a lot of people. :rolleyes:

snowball1 · 14 Jul 2010 at 10:28

Wage of 18k, your friend is in need of a reality check!

booyaka · 14 Jul 2010 at 10:30

Walk away now.

You need to pay £540k to seller plus £22k in stamp duty.

You need to find approx £570k

Bank realisitcally will lend you 75% max at the moment on the "VALUATION" of the property, not the price you pay for it.

So 75% of 475k is -£356k or so as a mortgage.

Basically you need to find 215k as a deposit to cover the difference!!!

If you friend is on 18k a year, even at best, the lender will look at joint income multiplier of 3x your joint income to get a mortgage of 350k. Therefore unless you are saying your earning around 80-90k a year, you would never get a mortgage for that size.

If the lender is giving you more than 3x you joint income they are being very irresponsible. This will only end in tears unless you have someone stumping up £200k plus as the deposit for a flat.

Rotty · 14 Jul 2010 at 10:36

The Mad Rapper said:
Yes, if it rises to 1%, which is nothing at all, his share of the mortgage doubles. He has no room to breathe as far as his personal finances are concerned.

With a 0.5% rate and a typical +2.5% tracker he would pay 3%, a doubling of the base rate would only make it 3.5% :confused:

toshj · 14 Jul 2010 at 10:40

right, i'll point out a few things. The mortgage is interest only, as the additional funds we'd be pay in a capital repayment scheme would be better off invested in something else (my opinion). Although the mortgage is being undertaken in two people's names, the cost is being split between three people. one person current earns £18,000 a year (will be on £25,000 by the time the fixed term expires), the renter earns about £35,000 and then there's me. to retain a modicum of modesty i'm not going to mention how much I earn, but its a decent amount.

the mortgage offer is at £1200 a month, and therefore it'll cost £14,400 per year for three people to live in zone 1 in london - £4,800 per person per year. if interest rates double we would be paying £9,600 per year (£800 a month is still pretty good in London). my girlfriend earns £18,000 a year and is having to fork out £8,000 a year in rent to live in a pretty average place in SE London.

the main reason why we're taking this route is so that my friend will be able to get a foot on the property ladder. He doesn't earn much, but he'll always have someone to bail him out (mother) if it all goes wrong.

also, and i know how much people like to give aggressive advice on this forum, but it's impossible for you to decide whether this is a viable idea or not without knowing how much i get paid

ColdAsIce · 14 Jul 2010 at 10:40

Please do not go through with this

It will be one huge mistake :|

The Mad Rapper · 14 Jul 2010 at 10:43

brummie said:
They make a lot of sense to a lot of people.

Is that

directed at me?

Stretch · 14 Jul 2010 at 10:49

brummie said:
They make a lot of sense to a lot of people.

Yeah, dreamers.

snowball1 · 14 Jul 2010 at 10:50

toshj said:
right, i'll point out a few things. The mortgage is interest only, as the additional funds we'd be pay in a capital repayment scheme would be better off invested in something else (my opinion). Although the mortgage is being undertaken in two people's names, the cost is being split between three people. one person current earns £18,000 a year (will be on £25,000 by the time the fixed term expires), the renter earns about £35,000 and then there's me. to retain a modicum of modesty i'm not going to mention how much I earn, but its a decent amount.

the mortgage offer is at £1200 a month, and therefore it'll cost £14,400 per year for three people to live in zone 1 in london - £4,800 per person per year. if interest rates double we would be paying £9,600 per year (£800 a month is still pretty good in London). my girlfriend earns £18,000 a year and is having to fork out £8,000 a year in rent to live in a pretty average place in SE London.

the main reason why we're taking this route is so that my friend will be able to get a foot on the property ladder. He doesn't earn much, but he'll always have someone to bail him out (mother) if it all goes wrong.

also, and i know how much people like to give aggressive advice on this forum, but it's impossible for you to decide whether this is a viable idea or not without knowing how much i get paid

So why post on here then!

Citizen420 · 14 Jul 2010 at 10:50

maccapacca said:
£540k holy £21.5k stamp duty

Sounds like it's either overvalued or the mortgage company need a second opinion, where is it? you do need to make sure you have some equity forsight i.e. up and coming area or in need of work, otherwise you'll be stuck there with two mates, let's hope your good mates and don't fall out

I don't think first time buyers pay stamp duty?

The Mad Rapper · 14 Jul 2010 at 10:53

Rotty said:
With a 0.5% rate and a typical +2.5% tracker he would pay 3%, a doubling of the base rate would only make it 3.5%

One of us is missing the point, and I'm not sure it isn't me. Actually, I've just thought it through again and realised it is me!

That said, the affordability issue is still there. He has no room to breathe.

Rotty · 14 Jul 2010 at 10:54

Citizen420 said:
I don't think first time buyers pay stamp duty?

they do above £250k

The Mad Rapper · 14 Jul 2010 at 10:54

toshj said:
also, and i know how much people like to give aggressive advice on this forum, but it's impossible for you to decide whether this is a viable idea or not without knowing how much i get paid

No, people like to give sensible advice aggressively

You can't afford to buy this property, give it up and rent. There's no shame in it.