How do I work out how much we can afford?

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How do I work out how much we can afford?

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sally_in_wales
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Joined: 06 Mar 2005
Posts: 20809
Location: sunny wales

Posted: Mon Jan 09, 06 8:58 pm Post subject: How do I work out how much we can afford?

Ok, a property we have been daydreaming over for ages has just sprouted a for sale board, dunno the asking price yet, but if we went for it we'd want to buy it, move in, and only then put our current house on the market, largely because we have a lot of clutter and use the house as a workshop, so it would need a quick makeover before we got a good price for it.

I can find lots of mortgage comparisons online, but what do I look for that will do a quick number crunch to tell me roughly what we might be eligable to borrow given that we currently have a mortgage that will overlap with this one by about a year? There must be a way to get a ballpark figure, but I'm all in a flap and can't think straight.

gil
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Joined: 08 Jun 2005
Posts: 18409

Posted: Mon Jan 09, 06 9:36 pm Post subject:
It used to be possible to get something called a 'bridging loan , designed for such situations. No idea if these still obtain. May have been a bit pricey - basically, you only had one mortgage at a time, but a loan for the other one during the period of property overlap. Worth asking about.

Jonnyboy

Joined: 29 Oct 2004
Posts: 23956
Location: under some rain.

Posted: Mon Jan 09, 06 10:05 pm Post subject:
If you go to Alliance & Leicester or the yahoo finance section then they have calculators. We are remortgaging now that the house is finished and the lenders seem quite keen to give us up to 5x income. bonkers.

Lisa

Joined: 31 May 2005
Posts: 248
Location: Cheshire

Posted: Mon Jan 09, 06 10:07 pm Post subject:

We were considering doing this last year, when we found a house we wanted but had no buyer for this. I don't think bridging loans as such exist any more - we were advised to remortgage this house (on an 'interest only' replayment basis), and use that money to put a downpayment on the next one (also an 'interest only' mortgage). Then, when this one sold, we would pay off its mortgage (of course) and switch the other to a proper repayment schedule. It wasn't cheap, but it was doable.
I don't know how you do shenanigans like that without a good financial advisor. Most estate agents have them attached - read their small-print carefully to check that they are quite independent and find out where their funding comes from. We saw three before we found one who appealed; now we love her and will stay with her in the future.
Lisa
(Of course, our seller 'changed her mind' 3 days after we paid to have her house surveyed. But that's another story - we are due to actually move properly, selling this one and everything, in a month or two. Fingers crossed.)

Edited to say: ignore what they tell you they will lend, it can be many times your income these days (now nobody can afford a house on the traditional 3x salary). Best is to work out what you could afford, short- and long-term and work backwards from that. Include sums with increased interest rates, too.

Behemoth

Joined: 01 Dec 2004
Posts: 19023
Location: Leeds

Posted: Tue Jan 10, 06 9:28 am Post subject:

The 5x is based on what lisa has mentioned above. the 3x was the standard norm from the 1960's when wages were lowere and living costs such as food and consumer goods werehigher. If you work backwards from income and subtract essential outgoings people have more disposable income now and can afford to service larger mortgages. Its this 'surplus' that's supported the boom in unsecured loans. However the essential thing to remember that you now have less disposable income.

Bootm line is that lenders will want some reassurance and confidence that you can repay at least the interest. So Lisa's advice is good - get and advisor, do your sums and try to speak to some one who can make a proper decision, not the sales team on the shop floor.

Blue Peter

Joined: 21 Mar 2005
Posts: 2400
Location: Milton Keynes

Posted: Tue Jan 10, 06 11:36 am Post subject:

gil wrote:

It used to be possible to get something called a 'bridging loan , designed for such situations. No idea if these still obtain. May have been a bit pricey - basically, you only had one mortgage at a time, but a loan for the other one during the period of property overlap. Worth asking about.

I would put a caveat in here, since a bridging loan almost did in the parents of a friend of mine during the last housing crash.

The housing market (in general) is very slow with properties for sale sitting around for ages. It is also quite possible that we are at the top of a property bubble and that house prices will fall in the future.

So, if you buy a second house whilst still holding onto your first you face the triple whammy of:

1. Paying loans (bridging, mortgages or whatever) on two properties;

2. The prices of the properties are both falling;

3. The market is slow (if prices are falling, buyers would do better to wait, because they will pay less) and so it is difficult to sell either property.

This is what happened to the above mentioned people, and it is not a nice situation to be in.

Every situation, specific market, nature of properties etc. is different, but it is worth thinking about the possibility of the above situation,

Peter.

sally_in_wales
Downsizer Moderator

Joined: 06 Mar 2005
Posts: 20809
Location: sunny wales

Posted: Tue Jan 10, 06 11:55 am Post subject:

All academic now, we called the estate agent and it went on the market at £250k (which in a street where houses go for between £9 and £60 depending on size and condition is really bonkers). Suppose that is the price of a garage and a flat garden in Wales these days! I'd guessed it might have gone up to £120, which is a real top end price here, but thats nuts.

Might go for a look anyway just out of curiosity, have previously sneaked round the gardens and outbuildings, would be interesting to see the inside and see if the price is justified.

Treacodactyl
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Joined: 28 Oct 2004
Posts: 25795
Location: Jumping on the bandwagon of opportunism

Posted: Tue Jan 10, 06 12:00 pm Post subject:

Sorry to hear that but in case it happens again, I was going to suggest the same thing as Lisa and Behemoth. I'd also suggest writing it down and being honest with yourselves as if it's unaffordable it's best to know now. I'm not sure how lenders do things at the moment but if you tell them what you've done I would expect it would help.

A couple of things to remember, realistically how quick does your type of house sell? What would happen if one of you had to take time off work ill for a few months? It may be worth looking at some form of payment insurance but they often cost a fortune.

Blue Peter

Joined: 21 Mar 2005
Posts: 2400
Location: Milton Keynes

Posted: Tue Jan 10, 06 12:06 pm Post subject:

sally_in_wales wrote:

If there are similar properties in the street/area which have sold in the last five or so years, you can find out the sale price from a number of websites, e.g. www.nethouseprices.com, www.rightmove.co.uk

and see if the price really is bonkers.

If it is bonkers, then unless a bonkers buyer comes in, they won't be able to sell at that price. In which case, how badly do they need to sell? If they do need to sell, then they will have to bring the price down to a non-bonkers level and/or wait for a nutcase to turn up. If you think that this is a likely situation, then you could take the opportunity to prepare to sell your own house.

It may also be worth you going to the land registry site, and for a fee of £2, getting information about any charges (mortgages) against the property,

Peter.

P.S. I haven't used 'bonkers' for ages - what a great word

Behemoth

Joined: 01 Dec 2004
Posts: 19023
Location: Leeds

Posted: Tue Jan 10, 06 12:07 pm Post subject:
Get yours valued - it might not be as bonkers as you thought.

sally_in_wales
Downsizer Moderator

Joined: 06 Mar 2005
Posts: 20809
Location: sunny wales

Posted: Tue Jan 10, 06 2:00 pm Post subject:
Ours is worth 45 tops, this one is detatched though, which is a rarity here, and an ex vicarage so probably has quite interesting sized rooms. Ah well. Back to just paying off the current mortgage in short order

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