Debt Advice?

[TiG]

Cheers for all that information Rave, me and my partner are planning a big sit down to discuss what we can do. The thing we really like about shared ownership is that we can sell at any time and get whatever profit we make on the house and our share. Between us we only need to get a morgage for about 100k which will give us 50% of the house.

Because we live in London we can't get anywhere to rent at a cheap rate and we both need to stay here for our jobs. If we rented a one bedroom house we would be paying much more than actually getting a house through shared ownership so it kinda makes sense.

You say profit, what happens in the small print if the house loses value?. You have to make up the shortfall i take it?.

So the 50% of the house is sold to you OR is it 100K of the house is sold to you etc. Its an important difference.

as if house prices fall 10%, the house will only be worth 180K, and you will only get 90K back, meaning you've got yourself a further 10K in debt.

I'm with Rave on this and have to say that buying shared ownership at this moment in time is not a sensible option.

Nationwide reported house prices fell this month, and if they do next month (i.e traditionally where house prices pick up with spring sales) people might get rather shakey.

As for renting being more expensive, certainly not sure about that. because with shared ownership you'll be paying the mortgage of what £600 a month and then what 300 or so a month in rent?.

£900 a month will still get you something pretty decent i'd have thought.

TiG

[Nick F]

You say profit, what happens in the small print if the house loses value?. You have to make up the shortfall i take it?.

So the 50% of the house is sold to you OR is it 100K of the house is sold to you etc. Its an important difference.

As for renting being more expensive, certainly not sure about that. because with shared ownership you'll be paying the mortgage of what £600 a month and then what 300 or so a month in rent?.

£900 a month will still get you something pretty decent i'd have thought.

TiG

We would own 50% of the house/flat and then have the option to buy more chunks e.g an dextra 10% when we can afford it.

We would be paying about £800 a month back with a mortgage and rent. I just think that it would be better to get on the propety ladder now as we are both just 22 and house prices will continue to rise in London no matter what. This comes from the people I have spoken to.

[TiG]

House prices will not continue to rise no matter what, IF a recession happens and people start to lose jobs on a massive scale, then people will default, house prices may not crash but they may take an adjustment of 5-10% with ease.

Just look at history to see that House prices do not rise indefinitely THEY do fall as well as rise. The experts on the mortgage side of things also have a split decision on what they think will happen.

If you are in debt putting yourself in more debt isn't the most sensible thing i'm afraid. IT ties you to the area.

Getting on the property ladder isn't all its cracked up to be. Especially when you and your girlfriend aren't married or anything. If anything happened between you two, it could also but a huge financial strain on one of you either, to buy the other person out OR, have to sell up and split the proceeds.

TiG

[5lab]

House prices will not continue to rise no matter what, IF a recession happens and people start to lose jobs on a massive scale, then people will default, house prices may not crash but they may take an adjustment of 5-10% with ease.

not saying it will definately happen, but there are falls of more than 10% in the past there..

[smtkr]

Your credit rating is not based on what you owe at all. It is based purely on your repayment history.

No, there are a number of factors (at least in the U.S.) that make up a credit rating. One of them is debt as a percentage of available credit, as I have mentioned. Go ahead and look it up.

[davidstone28]

I think you should clear off any debts as a 1st priority before you take on a mortgage. With an £8000 credit card debt + overdraft, I would have thought that you'd be paying at least £250 pcm just as a minimum payment, which with the 15.9% APR or whatever it is, you're not making much of a dent in the credit card debt.

Don't forget that you'll also need to stump up a deposit up for the house, pay for furniture, repairs, bills, council tax etc as well as £800 pcm mortgage repayments. The throw in legal costs, costs of local authority searches etc Its alot more expensive that you'd think. Type of mortgages - particularly any redemption penalties - is something that you should think long and hard about, rather than jumping in because of property ladder anxiety.

You're young and able, having a reasonable salary so you could clear the credit card in a year easily if you're sensible and disciplined with your expenditure. Then see if you can save a bit more for your deposit and then go for a house in 12 months time.

[tiggerai]

Ok, the way I see it...

I'm buying a flat, Shared Ownership, in August.

I will own 30% of the flat, for 51k.

Mortgage is £255 a month, with £360 rent.
Add the various Mortgage insurances, contents etc and I can own a place of my own (essentially) for £660 a month.

I've just had a look at some rentals in MK, where I live and they go for about £600 for the same kind of thing.

So, for an extra £60 i get something that is mine, no-one can ask for it back. not a bad deal really.

Also, if house prices drop, I'm only in 50k debt which is a lot easier to recover from than a whole house worth. and I don't HAVE to buy any more shares until I'm ready to... which means that I know what i need to pay out for the next few years.

[Nick F]

That pretty much the way I see it. If house costs drop they arn't gonna drop that much anyway especially not 50k. They might drop 5% but that will always rise again

[Rave]

I just think that it would be better to get on the propety ladder now as we are both just 22 and house prices will continue to rise in London no matter what. This comes from the people I have spoken to.

LMAO!

Clearly, you are speaking to some very ill-informed people. Have a look here:

http://news.bbc.co.uk/1/shared/spl/h...l/county37.stm

And then tell me what prices in Hammersmith and Fulham did in the last quarter of 2005? That's right, they dropped 5.8%. Some areas of London (like trendy Islington) recorded an overall annual loss for the year. There are a LOT more boroughs showing a fall in prices over the last quarter than there are recording a rise.



"Prices never drop! Everything is fine! Continue to take out mortgages of 6x your salary! You will be safe!"

In the crash that started in 1989, London prices were the first to crash. They led the rest of the country down.

That pretty much the way I see it. If house costs drop they arn't gonna drop that much anyway especially not 50k. They might drop 5% but that will always rise again

Right, well 5lab posted a graph. Take a look at that graph again. The last peak before the current one was in 1989. To me, the drop which came after it doesn't look like 5%....it looks a lot more like 50%. But maybe my eyes are playing up.

You say that your mortgage and rent will be £800 a month. On top of that you have to pay out for buildings insurance, water rates, and quite possibly maintenance fees as well. That might not leave much change out of a grand every month. For £800 you could easily rent a nice 1-bed flat; and that £800 would include all the rates, insurance etc. To move in you just need another month's rent as deposit, no spending out on solicitors, surveyors, mortgage brokers, new furniture etc. etc. etc. If house prices crash it's your landlord's problem not yours. And if there's a recession and you lose your job, you can get housing benefit towards your rent straight away (versus something like 6 months until they'll pay your mortgage interest), or you can simply give a month's notice and then walk away.

You're 22 FFS- why on earth would you want to saddle yourself with something like (if my sums are correct) £100,000 worth of debt at that age? If/when house prices crash you could have a serious negative equity problem- you could be trapped in that flat for a long time. Some people who bought in the late 80s didn't get out of negative equity for over 10 years. People who tell you that houses are a one way bet are idiots, or worse, scumbags who have a vested interest in stitching you up with a hugely expensive flat that could be a millstone around your neck for a decade to come.

[Rave]

Ok, the way I see it...

I'm buying a flat, Shared Ownership, in August.

I will own 30% of the flat, for 51k.

Mortgage is £255 a month, with £360 rent.

I don't know how much your deposit was etc. but if that's a repayment mortgage then it looks like the term is at least 25 years. So, frankly, the bank will own a much bigger share of the house than you for the foreseeable future.

Add the various Mortgage insurances, contents etc and I can own a place of my own (essentially) for £660 a month.

I've just had a look at some rentals in MK, where I live and they go for about £600 for the same kind of thing.

Did you include water rates? Even if you did, you're still paying £60 a month more to (essentially) rent the flat from the bank and the housing association than you would pay to rent it from a private landlord.

So, for an extra £60 i get something that is mine, no-one can ask for it back.

....except the bank if you default on your mortgage or the HA if you default on your rent. Yes, the disadvantage of renting privately is that you can be asked to leave after a few months, but an assured shorthold tenancy is generally for 6 months with the option to extend to a year. After 10 months, if you put that £60 in a savings account, you'd have another deposit saved up so that being asked to leave really wouldn't present all that much difficulty.

Also, if house prices drop, I'm only in 50k debt which is a lot easier to recover from than a whole house worth.

I REALLY hope that you didn't sign up to one of those rip off schemes that takes any fall in the value of the flat off your share and not the landlord's share? Assuming that you didn't, well, lets look at a medium risk scenario- that house prices drop 20% over the next 5 years (I personally think they'll drop much more, but hey ho).

So, the market value of your flat drops from £170k (30% @ 51K) to £136,000 (30% @ 40.8K). That means the value of your share has fallen by £10,200. Over a 25 year repayment mortgage you won't have paid back anything like £10k after 5 years- so that means you could be in negative equity. If you wanted to move into a bigger place in 5 years time, you'd have to save up to buy your way out of your curent place before you even start to save up a deposit.

and I don't HAVE to buy any more shares until I'm ready to... which means that I know what i need to pay out for the next few years.

....assuming that you got a long term fixed rate mortgage, that is. If you got a tracker, or a shorter term fix, then actually there's no guarantee at all. The Bank of Japan finally raised their interest rates this week, and the European Central Bank is looking increasingly likely to raise their rates as well now that Germany's economy is picking up again. If everyone else in the world is raising interest rates, then there's only one direction that our rates can go, and it's not down.

[TeePee]

Rave is, scarily, right....

[Rave]

It's a subject close to my heart. My brother and his girlfriend have just paid nearly £160k for a 1-bed maisonette with a 25 year Interest Only mortgage. I'm worried for them, to put it mildly. Still, I suppose my parents are probably rich enough to bail them out if needs be.

[badass]

No, there are a number of factors (at least in the U.S.) that make up a credit rating. One of them is debt as a percentage of available credit, as I have mentioned. Go ahead and look it up.

Well he's not in the US and neither am I so I dont see how thats relevant

[badass]

To me it seems famished's going for this insane plan regardless of what anyone tells him.
A lot of people will do what they want to do, regardless of what the overwhealming majority of evidence tells them, and as a result they wil lose out, long term.
Famished, do what you want - but dont have a moan here when it all goes t1ts up.

[5lab]

thing is, it is all speculation. house prices might well continue to rise for the next 25 years, they might drop for 25 years, or they might do a mix of the 2. theres certainly no proof that any one of these will happen, and there is no vastly overwhelming evidence that any particular senario will happen. get on the property ladder now, you could end up well ahead, you could end up well behind (a friend of mine was lucky to get on in 96 - bought his house for £80k, just sold it for 200k, mortgauge all payed off, and went to aus). the best time to buy is obviously right at the bottom of a slump - but if prices are dropping you cant tell when this is either.

tis a hard choice to make - most of my mates have bought places of their own - i'm currently saving towards a deposit and, if theres not been much sign of a drop in the next year, may look to buy this time next year. i believe there will be a drop, but no-one knows when - they were saying there is going to be a drop in 2001 - since then prices have gone up 25%...

[Nick F]

The thing is me and my partner want to move out of our house. My mum is doing our nut in which adds to the problems. Makaing the choice to buy a house is a hard one and lots of people will tell you that its a bad idea and loads will tell you its a good idea.

I assure you that I am listening to all your fantastic advice and will be sitting down with my partner this weekend to see what we can do.

The thing I am trying to get my head around is when is the best time to buy. We could leave it three years for example and then have to pay way more or way less. It's a bit of a gamble.