Mortgage, whats the chances?

[manwithnoname]

Some very good advice everyone many thanks, im hoping to know whats happening within the next month or so. It all depends on what the house is valued at, were eligible for a £22k discount whatever the valued price is. I have a few things I can sell to raise a deposit, such as my car. But we will have to wait and see what happens,

Its tough this house buying lark, and what doesnt help is that im the worlds worst person for saving money. If I have two options, save £1000 to buy something in a years time or spend it now, I spend it now. I live for today, not tomorrow

Cheers all!

In the opening post you mention needing a mortgage of 50K, and above you mention you'd get a discount of 22k. Putting 2 and 2 together if the house is worth 72k, a 50k mortgage has a 70% LTV (loan to value) - you should be able to get favourable terms with no deposit. Deposits are required to reduce the LTV rate lenders are unlike to offer a loan of 100% LTV in a falling market. I would save some money, if a house cost 72k there a lost of extra charges - mortgage fees, valuation fees, solicitors fee, but in your case stamp duty and moving fees are not applicable.

If I were you I'd save some money to pay some of the fees, see what the housing market is like next year if it still dropping wait longer. No harm taking to a few lenders to see what they would lend you.

[Saracen]

As far as I can tell, the only way to find out exactly what the mortgage implications will be is going to be to talk to mortgage companies and/or brokers.

But there are some things to be aware of. Firstly, not all mortgage products are )or ever have been) available on RTB properties, so you'll have to narrow it down to those products are RTB properties are eligible for. And keep an eye on the terms and conditions, and the applicable interest rates.

Secondly, this is obviously a time when credit is VERY tight, and lenders aren't just looking at LTV but at their perception of the ability of borrowers to pay back. If your income is such that you're going to be struggling with this, even given the RTB discount and haven't managed to save anything towards the deposit, well, you take the risk that that will influence lenders in their ability/willingness to lend at all. This is another reason why you'll need to get specific comments (and an offer) from lenders.

Next, the rules ofthe RTB scheme have some gotchas in them. On of them is that if you resell the property within 5 years, you'll have to repay a percentage of the discount you received, and if that's within the first year, that percentage is 100%. It then drops by 20% per year for each year of the remaining 4 in that 5 year period. Oh, and the amount that you pay is a percentage of the resale value, not the value when you bought or the amount of the discount.

Let me clarify that. When you buy, the percentage is worked out. If the property has an open market value (OMV) of £72k, and you buy at £50k, the discount percentage you got was 30.55%. If, when you come to sell, the OMV is £100k (which, right now seems like a very unlikely scenario, but it could have been a couple of years ago), you'd be facing a repayment in the first year of 30.55% of £100k.

If you sold in the second year, you'd have to repay 80% of the discount, which is 80% of the discount percentage applied to OMV, i.e. you'd pay 80% of 30.55% of £100k. The next year, you'd pay 60% of 30.55% of £100k. And so on.

Now, suppose the worst happens. You buy the property, and then within the first year or two, you lose you job and can't get another one. The economy is, after all, in some bother and it looks like getting worse before it gets better. Or, worse yet, you have medical problems or an illness which leaves you unable to work. You now have a mortgage to repay in full, and that percentage discount to repay. And, as a home owner, you'll get precious little help from the government, at least, not for a while. It used to be 39 weeks (9 months) before income support would give any help even meeting the interest element of the mortgage and that has always been the most they'd do ... help with the interest element. And, at least for some lenders, they're trying to reduce their risk element and are being pretty tough with people that fall behind. So .... if the worst happened, could you cope with repaying the mortgage, perhaps for months, with no income and naff-all (unless it's changed with Brown's recent announcements) government help? I'd suspect that if you could, you wouldn't have these problems with the mortgage in the first place.

So .... given that, you're looking (IMHO) at a situation which implies you face on of two options :-

- risk it going badly wrong, losing your home and ending up homeless, literally
- take out mortgage protection insurance to protect mortgage payments against accident, illness or unemployment.

And if so, factor in the cost of that insurance when working out what mortgage is affordable. And make sure you sort out the implications of council tax, buildings insurance and don't forget that it'll now be you responsible for building maintenance and repair. What if the roof needs replacing? What will it cost if the boiler packs up and has to be replaced (it just cost me £5500 for that one)? What happens if the water main springs a leak inside your property line or the drains block up? Either you risk facing a bill of hundreds, perhaps thousands, to get that kind of plumbing issue sorted or you'll be paying insurance, perhaps to the water company, to cover you, which adds yet more costs.

Perhaps most significantly, as has been mentioned, property prices are declining fairly rapidly right now. I won't say they're in freefall, but they're certainly dropping, in most places at least, steadily and significantly. That, personally, would make me think HARD about whether this was the time time to be looking at right to buy. I obviously have no idea of your circumstances, but I rather doubt it is, unless there's a very specific reason for doing it right now.


Overall, Chris, the entire country has spent some years being determined to climb on the property ladder, but that's been largely because owning your home has been seen as the thing to aspire to. But is it? While prices were going up the way they were, it looked like an astute financial move. BNut that certainly doesn't apply now, and I doubt the market will ever (at least in the next couple of decades) go back to the way it was. For a start, the ratio between property prices and incomes ensures that, now the bubble of house price invulnerability has been burst, consumer confidence won't let it. Secondly, I don't think food or fuel prices are going back to their previous levels. They may drop back a bit from where they are right now, but the last decade has been a heyday of relatively cheap prices on almost everything (including fuel if you take the government's extortionate tax take out of the price) and those days are gone, in my view, for good. The China effect on inflation, for a start, is showing signs of being over, and that's been a major factor in keeping our overall prices down. Major parts of the developing world (China and India) are now reaching a level of affluence where they can afford the goods we've been buying and demand will insure prices stay a lot higher than they were.

Anyway, in my view, we now have a worldwide backdrop very different to the one we had for most of the last decade, and that makes me seriously doubt that property is going to return to the "must have" purchase that it has been seen as .... in this country.

I'm not trying to lecture (though probably failing in that ), and I don't presume to know your wants or desires, or circumstances, but my advice, if you haven't already, is to think HARD about whether this is a good idea. You may well be buying an asset that drops in value over the next year or two, and are buying into some fairly serious risks and/or costs (as outlined above) in the process.

I wish you the very best whichever way you go, but I advise thinking hard about whether to buy right now. Would it make more sense to put it on hold for 6 months, then re-evaluate? And when you do reevaluate, it may be that another 6 months, or 12 months, would be a smart move. Do you have to use the RTB now? If you wait a year, maybe two, you may well find the property value a fair bit lower, and you can use the time lag to save like stink.

Anyway, it's all just food for thought. All I can add is that while I'm not convinced I ought to sell up right now (though it's sure been tempting recently), personally, I sure as hell wouldn't buy at the moment if I didn't already own. But none of us have a crystal ball, and I could be wrong.

[chriswood_7]

Saracen, that is a very comprehensive post that is very informative and a lot of the issues you have brought up I will think about.

I consider your points about being in a situation where you can pay your mortgage if you lose a job. Unfortunately, I do one of those jobs which is heavily affected by industry and that could happen if the economy suddenly crashes. I consider myself to earn very good money for someone my age (25) and I feel that I can afford all of the costs assosiated with running the house, and in general affording life. However, circumstances change and like you said, if I did lose my job, I think id find it hard to find a job as well paid as the one I have now.

The rules of the RTB scheme is that once the house is valued, I have 3 months from the day I get the valuation to organise a mortgage and complete the purchase of the house. Im still very keen to get the house valued, and as this is a free service, this may help me make my mind up whether to go for it or not. At no point in the process is there any obligation to continue, so for example if I cant get the right mortgage (or any mortgage) I can cancel without charge.

But your point about mortgages for RTB is very useful, I did not realise that I may not be eligible for certain mortgages. I will be this in mind.

I think over the next month, I need to think long and hard. I can probably come up with £1k towards fees, charges by the end of month. What sort of money am I looking at requiring?

Thanks again,

[Kumagoro]

You could get them to value it now and start looking into getting a mortgage and then not do it.
Then get it valued again in 6 months time just so you can see how much you saved by not doing
it now. Could you not also get a few estate agents to come and value it, to give you something to
compare their valuation too. They wouldn't know you don't own it I would have thought.

Have a look on rightmove also to see what similar places are up for and actually selling for.

[TheAnimus]

You really have to ask, can i afford this.

If your having problems coming up with £3k for the deposit, remeber you also need plenty of other things, you really should keep 3 months mortgage CASH in the bank.

Consider what happens if rates jump up, or when your promotional rate end if you can afford it, this is an intresting position i'm going to be in a couple of months, where my rate will change from nicely below base, to +0.75%, this is going to have a massive effect on my flat mate & i's disposable income, it might be down to baked beans most nights!

but your also in a good posistion of knowing the property your buying, this is really rather great, because it helps you in determining a fair price.

[j.o.s.h.1408]

what about this? http://news.bbc.co.uk/1/hi/business/7603387.stm

i dont quite understand it but is this going to help the credit crunch in a BIG way? or is this just a minor improvement or a stepping stone for brighter things to happen?

[Blitzen]

For £50K i would rather have a personal loan

[chriswood_7]

Hi,

I dont think I would get a £50k personal loan, however if it was more like around the £30k mark I might have a chance. I havent got a clue what the vlue will be until its valued.

Cheers

[schmunk]

For £50K i would rather have a personal loan

I suspect that would be very hard (and/or expensive) for Chriswood_7 to arrange. Remember, for the purposes of acquiring the loan he is not a homeowner.

[Saracen]

For £50K i would rather have a personal loan

Or better yet, a lottery win.

[j.o.s.h.1408]

Or better yet, a lottery win.

if i won the lottery i would buy every member in hexus a round of drinks

[Brucelles]

I had to save 25% of the cost of my house. It is worth it though, as I own quite a lot of the house already. Though I recommend thinking hard about actually putting money into a depreciating asset. My house is in France and worth more than I paid for it at the moment, but I think the same house in Britain would have had me in negative equity 3 months ago.

[Barrichello]

what about this? http://news.bbc.co.uk/1/hi/business/7603387.stm

i don't quite understand it but is this going to help the credit crunch in a BIG way? or is this just a minor improvement or a stepping stone for brighter things to happen?

It will probably just facilitate a "dead cat bounce" imo as far as the markets are concerned, and to a extent the mortgage market. But yes mortgages may become slightly more tempting due to rates changing by the lenders.

Result of that news you linked?, well, its been a busy day on the markets, apart from the LSE Its been one long day. Makes me laugh that there is such a lack of failover on our stock exchange on what would of been the busiest day for years (well recent record activity on open) sure is going to be fun tomorrow

[chriswood_7]

Thanks for all of the previous advice all.

Im currently going through the motions but Im not convinced im in a position to buy this current house. I found out last week that im technically not a tenant as I live with my mum, so my mum has to go joint on the house with me. However, I dont know where this leaves me with mortgages as the mortgage will be in my name. So with banks and lenders being fussy, this may be a loophole which puts a lot of them off lending, not to mention a mountain of legal paperwork probably.

That coupled with some advice above is making me think that now is not soo good a time to buy. Im gonna get the house valued, and then see where that leaves me. Ill keep everyone posted though