Mortgage advice

[Matt]

We are in a very lucky position to have been offered the deposit to buy the house we rent off my parents.

What mortgage advice do you have? For someone who has no idea?!

[familychoice]

I'd reccomend tracker mortgages - I've always had those and over the years they've provided the cheapest cost overall.

[Whatever]

Agreed, HSBC are pretty good at the moment, despite the fact I just don't like them.

Create a spreadsheet with the monthly repayments and include a few different rates of interest on there to make sure if they do go up (not likely for next year I don't think) then you can still repay.

[sarahA]

I would recommend finding an independent financial advisor, who I believe (but admittedly I've never seen one so could be wrong, maybe someone can confirm) shouldn't charge you, as if you go for a mortgage they usually get their fee from the company/bank you go to. Although I could be wrong.

Different types of mortgages suit different incomes, so it's best to get that independent advice.

[Matt]

Weirdly just last week had an IFA in for life insurance and he was a mortgage expert so got him on the case.

[familychoice]

Make sure they're straight, and not just reccomending the company that's giving them the biggest referral fee. We talked to a few but found we got a cheaper deal by going direct to the lender.

[Matt]

Make sure they're straight, and not just reccomending the company that's giving them the biggest referral fee. We talked to a few but found we got a cheaper deal by going direct to the lender.

He has been recommended from someone I trust, but my dad used To be an IFA so will get his help too

[Jem]

Also agree re: IFA - we used one and got a bostin' deal, no cost to us because he was paid by the mortgage company

[rutty]

An IFA should give you the best advice

From our own experience recently I'd personally advise making sure you have a 15% deposit. Things get much cheaper if you can lay that much down up front.

[robwhizz]

We used an IFA. Without him we wouldn't have got our mortgage.

When we bought our first house we used the mortgage advisor who worked out of the estate agents and was paid via commission from the lender. She gave us all kinds of promises and proof that she was unbiased, but we ended up with very bad advice and a lemon of a mortgage which caused all kinds of problems.
On the next house we researched the mortgage ourselves. Lenders were falling over themselves to give us a mortgage back then, but it was still a ball-ache to make sure we were getting the best one.

Last move we made a big leap. The economy was just starting to slide and lenders were pulling deals everyday and we couldn't get a mortgage. Found a good IFA who got us a mortgage no problem, gave us lots of advice too and did all the paperwork.
He even got me life insurance for a reasonable premium. Something we'd been needing for a long time, but because of my Crohn's and surgeries we couldn't afford it (I remember one company wanting £150 per month).

We see him once a year now to make sure we are getting the best deal. If there isn't a better deal to be had then he doesn't charge us either.

[familychoice]

The last IFA we spoke to was great, he actually told us we'd get a better deal than he was offering by going direct which we did. I'd definitely consult him again if we change our mortgage.

On the minus side ones I've used in the past have been awful. One put me on a share performance based mortgage (I thought it was a standard tracker, and it was promoted as such) and at the end of three years the amount taken off my mortgage was less than I'd actually paid. I think I got some compensation for that as it'd been mis-sold. Another one talked me out of possibly the best money making (buy to let) scheme I've ever had - if he hadn't given me the wrong advice I'd be a multi millionaire by now.

It's like anything - if you get a good one they can save you money, get a dodgy one and you can lose out.

[Dom]

I've seen one guy in the last couple of years, but until I get a big enough deposit together it's not even worth me looking at mortgages.

[Matt]

Turns out we cant get a mortgage, despite our incomes meeting the criteria for the amount we require, we do not pass the affordability criteria - which is all well and good, apart from we will need to now pay more then what the mortgage would have been to rent a bigger place.

Good Good.

[sarahA]

What's the affordability criteria? (I know virtually nothing about mortgages). I thought if you had a permanent job contract you could get about 3 times your income in mortgage these days?

We pay more in rent than we would do if we had a mortgage for something of similar size. It's frustrating

[Matt]

What's the affordability criteria? (I know virtually nothing about mortgages). I thought if you had a permanent job contract you could get about 3 times your income in mortgage these days?

We pay more in rent than we would do if we had a mortgage for something of similar size. It's frustrating

Where they add up your debts/outgoings and see if you can afford the payments. So whilst we could get the mortgage we need on income multiples - most are offering half (£50k) of what we need because they dont think we can afford to pay back the full amount.

[samhs]

That's the difference between renting and buying though - you rent and if you can't pay, they can kick you out in a few months, and they've lost 3 months rent. You buy and if you can't pay, they've got to reclaim the house from you, sell it, and still potentially chase you for the difference between the value they achieve and the loan. Keeping in mind that one of the reasons we got into this huge financial mess is that the rules about affordability were relaxed, it makes sense for them to be stringent. I know that's no consolation whatsoever...

Have you considered a part-ownership scheme - housing association style?

Or perhaps you could ask your parents to act as guarantors to your loan - that's another option (but means that they have to stump up for the mortgage if you default - so they will be assessed on the same affordability criteria as you etc etc).

Or, perhaps you should ask yourself if they've got a point, and make it your mission to lower your outgoings in the next 12 months so that the affordability calculation works in your favour. Things like not having the latest phone (and therefore expensive contracts), a new car (and therefore expensive finance), paying off credit cards and paying down loans can all make a huge difference. I know it's easy to sit outside your situation and say "just pay back, reduce commitments etc" but ultimately you have to decide what's important to you! When we got our first ever mortgage, for something like £60K, that got us a 3 bed semi on the south coast. We had to limit ourselves to £60/month on food to be able to make ends meet as we borrowed the money for the deposit from grandparents on the understanding that we'd pay them back monthly at an (ambitious) rate. It was really hard, and we had no social life at all. We had to kit the house out with stuff picked up from skips and second hand shops, but it was totally worth it - we were on the property ladder, and after a couple of years we moved on to a slightly bigger house, being in a better financial position as a result of scrimping on *everything*.

Anyway, this isn't intended as a preaching post, but if I were you I'd list down everything you spend out on contracted goods/services/credit monthly, and ask yourself, "do I really need this?". If you could make do without it, do. If it's a debt, use the money you save from cancelling/lowering other commitments to pay off against the debt, starting with the most expensive debt first (look at the APR rate for your credit card/loan/overdraft and broadly go with the "paying off the one with the largest number first" approach). Very quickly you'll be surprised at how much you can reduce balances, and everything will look a whole lot rosier.

</ex-bank employee>

[yawner]

I'm pleased Sam got in first because he's pretty much said everything I would have and saved me a lot of typing to boot.

[sarahA]

Right, I googled the whole affordability thing. Your mortgage should be about 28% of your gross monthly income, okay going by rent ours is under that. Then it also said (this was on eHow by the way, so not sure how accurate it is) that total monthly outgoings shouldn't be more than 36%. That's where we'd fail.

So despite paying out more in rent for almost 3 years without fail, than we would do in mortgage for a similar house, because we also pay almost the same amount in nursery fees, plus elec/gas/water/council tax/food etc. we would probably fail.

Do many people have 64% of their monthly wage left over after monthly expenses? We have about 10% by the time everything's paid for / put aside for future payments, and we barely have any debt, just standard outgoings.

Although that does remind me, no council tax payments now for two months. That's £260 saved (it all adds up!)

Don't get me wrong. I understand why the rules are there and remember a few years back when the house market basically fell apart. It's just frustrating when you're all put into the same group bound by the same rules. Of course, it's not like we have £10-20k floating about for a deposit anyway...

[Matt]

Fully agree, and I have done just that for the last 2 years. We have cut our outgoings by about £200 a month, we have increased our incomming money by 500 a month, and we have not spent on credit cards since our wedding in August 2010. All the cards are closed anyways, and are at a decent rate to pay off.

The benefit to looking to buy this place is the fact as my parents want rid - its ideal or them to sell to us. Its a nice house - we have done it up - and it has good potential.

It's taken us a long time to sort out our money - but last year we paid off nearly £3k of debt. For the first time ever we are on a solid footing, we are making good financial decisions based on options available to us - which are limited. (if we do buy and need to borrow - like our new washing machine we get it on interest free and we pay monthly) - for stuff for new baby Setchell - we won't be borrowing at all - but we are going without and working more.

So fully agree - but we will never afford a 10% deposit ourselves - especially with a rent increase - so I'd love to be able to take advantage of this one time offer.

That's the difference between renting and buying though - you rent and if you can't pay, they can kick you out in a few months, and they've lost 3 months rent. You buy and if you can't pay, they've got to reclaim the house from you, sell it, and still potentially chase you for the difference between the value they achieve and the loan. Keeping in mind that one of the reasons we got into this huge financial mess is that the rules about affordability were relaxed, it makes sense for them to be stringent. I know that's no consolation whatsoever...

Have you considered a part-ownership scheme - housing association style?

Or perhaps you could ask your parents to act as guarantors to your loan - that's another option (but means that they have to stump up for the mortgage if you default - so they will be assessed on the same affordability criteria as you etc etc).

Or, perhaps you should ask yourself if they've got a point, and make it your mission to lower your outgoings in the next 12 months so that the affordability calculation works in your favour. Things like not having the latest phone (and therefore expensive contracts), a new car (and therefore expensive finance), paying off credit cards and paying down loans can all make a huge difference. I know it's easy to sit outside your situation and say "just pay back, reduce commitments etc" but ultimately you have to decide what's important to you! When we got our first ever mortgage, for something like £60K, that got us a 3 bed semi on the south coast. We had to limit ourselves to £60/month on food to be able to make ends meet as we borrowed the money for the deposit from grandparents on the understanding that we'd pay them back monthly at an (ambitious) rate. It was really hard, and we had no social life at all. We had to kit the house out with stuff picked up from skips and second hand shops, but it was totally worth it - we were on the property ladder, and after a couple of years we moved on to a slightly bigger house, being in a better financial position as a result of scrimping on *everything*.

Anyway, this isn't intended as a preaching post, but if I were you I'd list down everything you spend out on contracted goods/services/credit monthly, and ask yourself, "do I really need this?". If you could make do without it, do. If it's a debt, use the money you save from cancelling/lowering other commitments to pay off against the debt, starting with the most expensive debt first (look at the APR rate for your credit card/loan/overdraft and broadly go with the "paying off the one with the largest number first" approach). Very quickly you'll be surprised at how much you can reduce balances, and everything will look a whole lot rosier.

</ex-bank employee>

[familychoice]

paying off credit cards

Ironically one of the things that made it difficult for me to get my first mortgage was the fact I didn't have any credit cards, or loans. The bank told me I therefore didn't have a credit history so they couldn't assess if I was a reliable repayer or not. I'd spent my whole adult life trying not to get into debt and only buying what I could afford and it was used against me.

Bloody banks, they were happy to take my money though. In the end we found a building society (The Central Radnorshire Remote or something obscure) that took a chance on us and allowed us to have a 17k mortgage. Considering we'd put down a 40k deposit this was all a bit of a farce.

[Tony]

Question is, if in the next couple of years the base rate heads on up to double figures, could you still afford the mortgage?

I remember around 89-90 we were paying around £850 a month on a £70k mortgage - which was a lot then and I got out.

[Matt]

Question is, if in the next couple of years the base rate heads on up to double figures, could you still afford the mortgage?

I remember around 89-90 we were paying around £850 a month on a £70k mortgage - which was a lot then and I got out.

Planning a 3 year fixed rate and then sell. I know planning and achieving are 2 different things!

[samhs]

Thing is that things like a washing machine on 0% is good from a "don't pay too much for your debt" point of view, but bad from a "minimise your contractual monthly outgoings" point of view - you'd be better off (purely from a don't get more contractual outgoings point of view) finding a way to borrow, beg or steal a washing machine - or at least consider buying second hand, and paying for it outright (eBay is a good place to look, or local paper "for sale" section).

Generally the calculation is on things that you're signed up to a contract on - finance/credit cards/loans, sky TV, mobile phone, BT, gas, electricity etc. Also stuff you *have* to pay - water, council tax, and then they like to see that you can account for what food/social activities, clothing, travel etc will cost. The most important stuff, from the bank's point of view, is that absolute must-pay - credit cards, loans etc - they want to see that you're not going to struggle to pay - not just the mortgage, but other existing commitments (which may or may not be to them). They also take into account the impact a rise in interest rates would have - which is why there's a set percentage they're looking for expressed against income.

I haven't heard of nursery fees being taken into account, so if I were applying for a mortgage today I wouldn't necessarily be disclosing that as a contractual outgoing, even if I needed to pay it. Similarly, food isn't contractual - silly but true! Car maintenance - not contractual (although they may ask about how much you spend on that kind of stuff), and so on. Legislation/FSA rules dictate the policy, and if audited the banks have to show they've taken due diligence - but if you can explain and document that you can afford it, it's possible to overturn decisions. I'd still caution you to look very carefully at your priorities though - if you're paying for Sky TV, Lovefilm, anything more than absolutely necessary for your phone, broadband, regularly buying gadgets (as an individual), even eating takeaways once a week - these are all things you could choose not to indulge in (and they are an indulgence, no matter how difficult it might be to imagine life without Sky 1!) - would you do without them if it meant you could own your house? If so, get rid of them - it's a question of what's important to you.

</second preach of the day>

I'm now retiring and will pass over to the illustrious Mr Y

[samhs]

PS FWIW we got rid of Sky TV four years ago as we decided it wasn't a priority. The kids absolutely howled for about 4 days, and then promptly forgot about it - learning to live with Freeview and BT Vision (free for pausing/recording if you have BT Broadband). We used to watch a few things on Sky 1, but I can't honestly say I miss it - our annual bill was still over £250 - even after we'd cut out all the premium channels, and so in the past 4 years we've saved over £1000 simply by "putting up" without Sky. For me, that was well worth it - I'd rather have the grand than the 100s of channels, and if I have to show my contractual outgoings, they're at least £18 less than they would have been - and possibly up to £40 less a month - crazy.

Edit:

Not to mention, just to prove I practice what I preach, we made a (difficult) decision to get rid of a car we really liked a couple of years ago. We had a nice big, comfy and safe-to-drive Landrover Discovery that we were really happy with, but the combined cost of running it, servicing it and financing it made it cost us an absolutely horrendous amount of money each month. We could afford to pay it out, but when we looked at what it would cost to run an eco-friendly little car that would still do the same job ultimately, it made no financial sense whatsoever. We decided, on reflection, that as much as we loved the car, it wasn't the be-all-and-end-all of life to have a fancy car, especially when it cost more than £120 to fill it up! So we got rid of it, paid back the finance and bought a (very) small car that costs £30 a year in road tax instead of £430, £35 to fill up (now £50 sadly, but I dread to think what the disco would cost now), and tyres cost 1/4 of the LR cost etc etc etc. Massive savings monthly, and on balance a great decision - we still miss the disco when it's slippy, but not the bills - and our bank balance is all the better for it.

[Matt]

Only thing I could get rid of is sky. But I pay £50 a month for tv, bb and sky. Getting rid of the tv, would leave us switching elsewhere and paying £25-30pm for line rental, calls and bb.

Mobile phone wise - £15pm - Mattian pays that.

And this washer dryer was because we have had a free washing machine for the last year or so, and I repaired the dryer myself last year - and I was taking 4 hours to dry a load. So unfortunately this is the most sensible option with a baby on he wy

But other then sky, everything is cut down. The only thing gong up is us paying off credit cards and other debts. I changed my brand new seat last year of this vectra estate (use it for business as well as family stuff, as only one car) and cut down monthly payment by £70 there and then.

[Tony]

that's a £240 / year saving straight away minimum!

plus you ain't supporting rupert...

[Matt]

that's a £240 / year saving straight away minimum!

plus you ain't supporting rupert...

In contract tho. Did look at free view recorders recently for FIL. They as good as sky+? What about free view hd?

[Matt]

But I do get your points, and that's what I'm working towards.

[sarahA]

We pay about £25 for phone/broadband, virgin throws in the freeview channels for free. Not going to put money into Murdoch's pocket at all. Company mobiles, but on the lowest tariff. One car, costs about £60 to fill up and gets filled up once a month, and as its new the service is every 18k miles, I've done 12k in just under 2 years. Our everyday costs are pretty low.

I guess working out what has to be paid comes in at under 50% of income. We put money aside each month towards house/car insurance, car servicing (that isn't happening!), road tax, plus birthday and christmas presents for the family, so I guess that wouldn't be considered an outgoing as such as it's just saving cash towards payments.

Still, all of no use without a deposit! Hopefully once this last card goes in a few months then we can just start putting it all into savings. Of course Mr A. will win the lottery by then

[sarahA]

that's a £240 / year saving straight away minimum!

plus you ain't supporting rupert...

In contract tho. Did look at free view recorders recently for FIL. They as good as sky+? What about free view hd?

I've never used sky+ but freeview+ recorders are great. We have one (a Humax something or other). I think it works similar to sky+, you just browse the tv guide and you can select to record a single program or a whole series if it is one. With ours you can pause and rewind live tv, and you can start watching something even while it's still recording. My parents got the next size up to ours recently I think they paid about £150 for a 320GB one which is about 160 hours worth of recordings.