Mortgage/Valuation issue

toshj · 14 Jul 2010 at 10:55

snowball1 said:
So why post on here then!

because i initially posted a question as to how i should overcome the issue of the property being undervalued, and our mortgage lender only willing to offer us a mortgage on the value and not the asking/agreed sale price (as in, how should i approach the estate agents and/or vendor to comew to an agreemnt). i had no intention of asking anyone whether it was a good idea to buy this place, but everyone took it into their own hands to tell me i was an idiot

Rotty · 14 Jul 2010 at 10:55

The Mad Rapper said:
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.

Yes, doubling is not out of the question, this would require a 6 fold increase in base rate but even that would only make it 3% which historically is still very low

toshj · 14 Jul 2010 at 10:56

The Mad Rapper said:
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.

like i said, i think its quite funny people saying i can't afford it. i'm very comfortably paying £2000 a month's rent at the moment!

clv101 · 14 Jul 2010 at 10:58

Maybe the bank's valuation is more accurate than the estate agents? Maybe the bank is factoring in 5-10% falls within a year or two and don't want to lend today more than they think the property will be worth in a few years (that's when they would be trying to recover their money if things did go wrong). The fact that you only think you'll be able to get approved for a mortgage in the next few weeks should set alarm bells ringing.

Bes · 14 Jul 2010 at 10:59

STOP!

PLEASE for your own financial future, STOP this now! This is beyond insane, I cannot believe you are even contemplating doing this!

Let's quickly distil the facts, please tell me if I miss anything/ make any mistakes:

You are buying a 3 bedroom warehouse conversion in 'not in the nicest part of town (not the worst, but hasn't got the greatest reputation)' part of SE London
You are hoping to pay £540,000
You are on a 2 year fixed I/O mortgage
You are going to rent out the third bedroom for £x? a month
You have a 30% deposit and your mate's mum is guaranteeing the mortgage
Your mate earns 18,000 per year so has around £1,200 take home?

So tell me the following:

1) What happens if house prices go down?
2) What happens if interest rates are 4% (Still low by historical standards, but 8x higher than now) by the time your mortgage fixed term ends in 2 years?
3) What percentage of the property will you have paid off over that period?
4) What happens if you and your mate fall out?
5) What happens if one or both of you lose your jobs?
6) Can you afford to have the third room empty?
7) After 2 years when you need a new mortgage deal, are you going to find someone to take you on given IR's will probably be higher?
8) Can you afford to start paying this off after two years even if interest rates are a mere 2%?

So you are entering an agreement to take on £540,000 (Minus deposit) of debt against an asset that has a fair chance of falling in value over the next year or two.
After two years, you will have spent £900 per month on servicing a debt you have not paid one single penny against, which is still tied to an asset that might be worth less than it is now. i.e. IN THIS CASE, YOU WILL PROBABLY NOT BE ABLE TO AFFORD TO SELL IT
In two years time, you will need a new mortgage and interest rates are pretty much guaranteed to be higher than they are now. Will you be able to get a new deal? afford even IO? be able to pay off this debt? or is it going to be IO for ever?

You do realise if one of you want out, you cannot simply have the mortgage transferred into one person's name, you need to effectively sell the place or 'buy out' their half? You are effectively married to this guy in a financial sense.

Renting from the bank whilst accepting a liability of over half a million pounds and blowing away a MASSIVE deposit is just mad- never mind an FA or bank manager, you need to see a doctor if you think what you are doing is financially sound in any way, shape, or form.

ColdAsIce · 14 Jul 2010 at 11:00

toshj said:
like i said, i think its quite funny people saying i can't afford it. i'm very comfortably paying £2000 a month's rent at the moment!

Why the hell are you paying £2000 on rent? Must be a bit of a palace to pay that much living on your own..

clv101 · 14 Jul 2010 at 11:01

Good post Bes... and why this deal will never happen.

Bald-Eagle22 · 14 Jul 2010 at 11:06

cableguy2003 said:
All the deposit will be eaten away fairly quickly on an interest only mortgage, what a waste.

This man tells the truth .

jamief · 14 Jul 2010 at 11:11

toshj said:
because i initially posted a question as to how i should overcome the issue of the property being undervalued

And herein lies the problem.

The property is overvalued, not undervalued.

Trust the banks valuation and walk away.

The Mad Rapper · 14 Jul 2010 at 11:14

toshj said:
like i said, i think its quite funny people saying i can't afford it. i'm very comfortably paying £2000 a month's rent at the moment!

No offence, but you are talking out of your arse. No-one 'very comfortably' pays £2000 a month in rent. By your own admission, your salary is likely to change in the immediate future, and you have no guarantee that it will even remain at the same level from what I can tell.

apatia77 · 14 Jul 2010 at 11:18

Interest only mortgages can work well but probably not in the next 5 years. Imagine you bought a property 10 years ago on interest only, lets say for 100k, surely it is worth now 150k as in most cases and as far as I remember interest has been quite low in the lats 10 years.

It's a win situation for many home owners.

toshj · 14 Jul 2010 at 11:27

The Mad Rapper said:
No offence, but you are talking out of your arse. No-one 'very comfortably' pays £2000 a month in rent. By your own admission, your salary is likely to change in the immediate future, and you have no guarantee that it will even remain at the same level from what I can tell.

ah, sorry - i do take offence to that.

you're very correct by mentioning that there's no indication that my salary level will stay the same or is guaranteed. i'm actually cautiously optimistic it will improve over the next few years. look its probably best i leave it here. all i asked for was advice on how to approach the estate agent/vendor in order to secure the purchase.

Bes · 14 Jul 2010 at 11:28

toshj- have you considered anything I wrote/ any of those questions when approaching this 'deal'?

Knubje · 14 Jul 2010 at 11:29

apatia77 said:
Interest only mortgages can work well but probably not in the next 5 years. Imagine you bought a property 10 years ago on interest only, lets say for 100k, surely it is worth now 150k as in most cases and as far as I remember interest has been quite low in the lats 10 years.

It's a win situation for many home owners.

If you time it right as you said. The timing now would probably make it less worth while

Good post from BES. OP, if you are that comfortable in paying £2k rent then you're obviously earning some bucks. Put it towards getting your own place, that's cheaper and will not tie you into a commitment with people for life.

Everyone's individual situation is always different, but from what you have posted many people think what you are doing isn't such a good idea. Yeah sure, we are on a forum and it's easy to argue/ignore/pedant the issue at hand.

Surely you notice that most people in the thread have said "not a chance"?

Post this in another forum, such as MSE, see what reaction you get there too.

Also, I thought that if your lender valuation is grossly different then you can have it re-evaluated independently and show the findings to the Estate Agent who then might to review the price with the vendor as it is unrealistic and won't sell, therefore a waste of their time?

toshj · 14 Jul 2010 at 11:36

Bes said:
toshj- have you considered anything I wrote/ any of those questions when approaching this 'deal'?

yes yes, excellent post mate

was in the process of answering a few of your points, but i realised its pointless as i appear to be continually wrong in everyone elses eyes

the point is, removing my friend and the additional renter out of the scenario, i could buy this place on my own on a capital repayment mortgage. i'm ultimately buying the place with a friend as i've known him for 20 years and he's an excellent bloke - without me he'd never have a chance of getting on the ladder. his family have helped me out in the past and i'm keen on repaying them. but obviously i'm a total douche for doing this

Bes · 14 Jul 2010 at 11:36

toshj said:
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.

Whilst that is very nice of you (To be helping your friend get a foot on the 'property ladder' whilst putting a huge financial millstone around his neck that he is unable actually pay down- ps if he is earning £25,000 in 2 years - £7,000 a year more than now- and is paying £800 a month mortgage -i.e. double what it is now (And I think interest rates being a 1% in two years is wildly optimistic, plus any mortgage rate adjustments due to removal of the SLS, etc), he IS going to struggle)

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, no, no it's not! Can house prices go up from here? maybe. Can they go down? More likely. Also see my previous post about 'divorcing' yourself from this arrangement, not to mention your financial commitments if your mate or you loses their jobs. All for really no financial gain as you are renting from the bank at the end of the day.

brummie · 14 Jul 2010 at 11:38

The Mad Rapper said:
Is that directed at me?

yes

Knubje · 14 Jul 2010 at 11:41

So essentially the thread has come down to, asking advice on a major financial decision where clearly money isn't an issue.

Hmmm..... :rolleyes:

toshj · 14 Jul 2010 at 11:43

Bes said:
Whilst that is very nice of you (To be helping your friend get a foot on the 'property ladder' whilst putting a huge financial millstone around his neck that he is unable actually pay down- ps if he is earning £25,000 in 2 years - £7,000 a year more than now- and is paying £800 a month mortgage -i.e. double what it is now, he IS going to struggle)

that's the thing, its neither his or my idea to buy a place in this manner, but his mum's idea. she wouldn't let him rent as she wanted to a deposit down in his name. i raised this issue last night with him, in that his mum could effectively financially cripple him - however, she's always happy to (financially) support him. given my relationships with the family i duly obliged to go 50:50 on a property with him, as i new that taking the my side of the mortgage (£190,000) is affordable in my eyes.

toshj · 14 Jul 2010 at 11:45

Knubje said:
So essentially the thread has come down to, asking advice on a major financial decision where clearly money isn't an issue.

Hmmm.....

it was asking advice on how to get around the banks valuation of the place to make sure we could secure the property - at no point has money come into this from my side, everyone else decided that money came into this. glad i'm being blamed for that too