Moving up the ladder

[joelk2]

So as first time buyers 4 years ago we had an easy time getting on the ladder.

we bought new and luckily bought at a time where we didnt need a deposit. (we needed a mortgage for 80% of property value and the developers paid the 20% which they get 20% of any equity we have when selling)

whats the deal with moving up the ladder.

this is my example.

we bought for £175k with a £140k mortgage.

we have paid around 8k off but are now looking at a property valued at £140k

do we need a deposit still to make up the other 6k (10% of the new one)

im confused on how this stuff all works.

 

[Gilly]

You've paid £8k in 4 years?

 

[joelk2]

i think so, were on some 30 year mortgage thing so only pay like £550 a month.

 

[Adam]

Yes, if you are looking at mortgages with a LTV of 90% then you need to have that amount either via equity or the shortfall made up with additional funds.

 

[ChocolateStarfishRammer]

pay like £550 a month.

we have paid around 8k off

550 * 12 * 4 = £26400

Either mine, or your maths are wrong?

 

[joelk2]

cool. thats what i needed to know.

id love to move house, the mrs would love to move but she also wants more children etc. i want a house first.

id love to have rich parents.

friends of ours have recently been given 50k deposit of parents

i get a birthday and Christmas card.

 

[joelk2]

550 * 12 * 4 = £26400

Either mine, or your maths are wrong?

yeah it doesnt seem right but i dont think its as simple as that due to % rates and interest.

 

[div0]

You've paid £8k in 4 years?

Possibly means that he's only paid off £8k of the capital, and the rest was just covering the interest?

550 * 12 * 4 = £26400

Either mine, or your maths are wrong?

It's not quite that simple...

Borrowed £140k

Pay ~£580 / month

35 year mortgage (although he did say 30 year)

Interest ~3.5%

If that were the case, then after 4 years he'd have paid off about £8k from the original £140k and the rest of his ~£580/month was just servicing the interest.

Hard to say from the details in the OP, but not impossible.

 

[Nismo]

Yes, most of what you've paid is interest so your mortgage balance will hardly have shifted.

 

[joelk2]

Possibly means that he's only paid off £8k of the capital, and the rest was just covering the interest?



It's not quite that simple...

Borrowed £140k

Pay ~£580 / month

35 year mortgage (although he did say 30 year)

Interest ~3.5%

If that were the case, then after 4 years he'd have paid off about £8k from the original £140k and the rest of his ~£580/month was just servicing the interest.

Hard to say from the details in the OP, but not impossible.

this seems right from my understanding on how it works.

 

[Adam]

Don't forget the costs of moving such as estate agents, moving your possessions, legal fees as well as the standard stuff like stamp duty.

I'm mid way through a sale and purchase and it's a painful exercise.

 

[joelk2]

Don't forget the costs of moving such as estate agents, moving your possessions, legal fees as well as the standard stuff like stamp duty.

I'm mid way through a sale and purchase and it's a painful exercise.

im quite happy to stay where we are for now. my plan was to save for a couple of years. (could save 10k in 2 years pretty easily) and then we'd be sorted for all the fees/deposit etc.

mrs was ok with this and then decided she wanted another child and to start trying somewhere mid next year (i said the house is out of the question then)

today shes said she wants to buy another house so i said she needs to find a lot of money to do that but wanted to know the reality of it all.

being a first time buyer seemed easy as peas, sign a few documents hire a van. job done (well a bit more involved than that but not hard)

moving up the ladder seems a whole other ball game.

 

[div0]

So back to the OP:

whats the deal with moving up the ladder.

this is my example.

we bought for £175k with a £140k mortgage.

we have paid around 8k off but are now looking at a property valued at £140k

do we need a deposit still to make up the other 6k (10% of the new one)

im confused on how this stuff all works.

Ok, all you need to know is this:

• How much do you still owe the bank (I suspect about £132k from above details)?
• How much are you likely to get from the sale of you current place (remember that some of it will go to the developers)?

A lot will depend on how much your current place sells for. If you 'pocket' £140k from the sale (after developers take their cut), then you could just about 'remortgage' on the new place, without having any extra cash up front for a deposit (assuming you buy from £140k).

But this might affect what deal you get, as your LTV has changed (as £132k is loan and only £8k is your initial contribution / deposit). If your bank insists on 90% LTV, then you might need to find another £6k to take your 'deposit' to £14k.

As above, you'd also need to consider admin costs (stamp duty, legal fees, etc) and make sure you have the funds available to cover these.

It would possibly be a good idea to speak to a mortgage advisor, particularly as there is the slight complication of the developers taking a cut from any sale. I'm not sure of your exact deal, but it seems strange that they only take 20% of the equity and not their initial investment and then possibly 20% of any equity on top. They effectively 'invested' £35k and so I'd suspect that they'll first re-coup that from the sale, then you and your bank recoup your initial investment (£140k), then any equity is split 80/20.

Independent mortgage / financial advice would be very useful here imho.

And as usual, I'd also recommend trying sites like MoneySavingExpert - even if just to read some of the existing advice there.

 

[joelk2]

So back to the OP:



Ok, all you need to know is this:

• How much do you still owe the bank (I suspect about £132k from above details)?
• How much are you likely to get from the sale of you current place (remember that some of it will go to the developers)?

A lot will depend on how much your current place sells for. If you 'pocket' £140k from the sale (after developers take their cut), then you could just about 'remortgage' on the new place, without having any extra cash up front for a deposit (assuming you buy from £140k).

But this might affect what deal you get, as your LTV has changed (as £132k is loan and only £8k is your initial contribution / deposit). If your bank insists on 90% LTV, then you might need to find another £6k to take your 'deposit' to £14k.

As above, you'd also need to consider admin costs (stamp duty, legal fees, etc) and make sure you have the funds available to cover these.

It would possibly be a good idea to speak to a mortgage advisor, particularly as there is the slight complication of the developers taking a cut from any sale. I'm not sure of your exact deal, but it seems strange that they only take 20% of the equity and not their initial investment and then possibly 20% of any equity on top. They effectively 'invested' £35k and so I'd suspect that they'll first re-coup that from the sale, then you and your bank recoup your initial investment (£140k), then any equity is split 80/20.

Independent mortgage / financial advice would be very useful here imho.

And as usual, I'd also recommend trying sites like MoneySavingExpert - even if just to read some of the existing advice there.

Thanks.

we need more money i think is the clear picture in all this, which is entirely what i expected but was unsure on how ill all works as all id ever heard is how hard it was to get on the ladder (when in reality it was easy)

as far as the developers goes. if we sell for £175k then they get what they paid initially, i we sell for less then they still get what they paid initially and if we sell for more then they get a 80/20 on the equity plus their initial payment. (a win win for them really)

 

[div0]

as far as the developers goes. if we sell for £175k then they get what they paid initially, i we sell for less then they still get what they paid initially and if we sell for more then they get a 80/20 on the equity plus their initial payment. (a win win for them really)

That's what I suspected.

In truth, getting on the ladder is the hard bit. But at the same time, selling in a lot of places just now isn't easy, unless you're prepared to take a bit of a hit on the price, to speed up the sale.

Re-mortgaging maybe seems more complicated than the initial process, but it actually shouldn't be. The complicated bit, as you've said, is trying to make sure you can afford what you want.

 

[Adam]

im quite happy to stay where we are for now. my plan was to save for a couple of years. (could save 10k in 2 years pretty easily) and then we'd be sorted for all the fees/deposit etc.

mrs was ok with this and then decided she wanted another child and to start trying somewhere mid next year (i said the house is out of the question then)

today shes said she wants to buy another house so i said she needs to find a lot of money to do that but wanted to know the reality of it all.

being a first time buyer seemed easy as peas, sign a few documents hire a van. job done (well a bit more involved than that but not hard)

moving up the ladder seems a whole other ball game.

I actually found my 2nd move to be easier than my first. I found I could save a decent amount within 6-12 months moving in and 3 years later I am moving again due to very similar circumstances to your own.

My advice would be to move before the baby and have as much room as you can. Also think ahead to baby 2/3 if that's what your plans are as it's cheaper to move once, 3% stamp duty is a killer. I have ended up doing the garden during my paternity leave in September but we didn't actually sell the house until May (I took it off the market until February). Adds a bit of stress on to an already stressful period.

 

[joelk2]

I actually found my 2nd move to be easier than my first. I found I could save a decent amount within 6-12 months moving in and 3 years later I am moving again due to very similar circumstances to your own.

My advice would be to move before the baby and have as much room as you can. Also think ahead to baby 2/3 if that's what your plans are as it's cheaper to move once, 3% stamp duty is a killer. I have ended up doing the garden during my paternity leave in September but we didn't actually sell the house until May (I took it off the market until February). Adds a bit of stress on to an already stressful period.

i want to move before the baby. but the wife wants both. haha.

we have a 3 bed 3 storey at the moment. its lovely but just not very practical, 3rd bed is very small (office room currently), lounge on the 1st floor.

the house the wife wants is 3 bed 2 storey (with extension room - see below) but i would like something bigger from the off but wouldnt need to go above the 200k mark, so the stamp duty will still be 1%

the one shes looked at has a huge dining room which could be split to make an office but no upstairs bathroom (extension would be needed to add this but house can be extended above the single storey part of the house.

its in one of the nicest /sought after areas in the town has a nice garden and on a quiet road.

1 more child is the most we'd both want to go to anyways.

we can save and are good at it but we are paying off a rather large holiday at the moment and wont have paid off the rest of this until october so no saving can start until then.