How does a first time mortgage work

[adviceonmortgages]

I have a mortgage free property that was gifted me. I've never had a mortgage before so am a first time buyer. How do I go about getting a mortgage and selling the current property? Would I be able to use some money of the house sale as a deposit for a new house/mortgage ? All this is new to me don't know how it works !

I wouldn't want to use the full amount as I know there is other fees and stamp duty (which would be quite alot on a 400-500k house) but I would be willing to use 40 or so for a deposit

Maybe it's different in the UK (I'm in Ireland) but i inherited a half-share in a property and was still classed as a FTB when we bought our first house 4 years ago. As it was the first time either me or my husband had bought a house.

You need to speak to an advisor before doing anything else. 40k is less than a 10% deposit (which is often the minimum amount needed) and you say your salaries aren't great. This could be a complete pipedream and you need someone (formally) to advise you if this is the case

Yes, you won't be eligible for any first time buyer schemes because you already own a property, even if you didn't buy it eg you will not be exempt from stamp duty as a first time buyer on a new property

Agreed about stamp duty but not always true for everything else. We recently got a first time buyer cashback bonus from our mortgage lender when taking out a new mortgage because even though we already owned a house, we hadn't had a mortgage in the previous 5 years. We explained our position in full to the lender and they said we were eligible. So it varies.

OP, I would use a mortgage advisor to help you navigate all your options. You will get offered much better mortgage rates if you put in a higher deposit.

10% of 400k is 40,000. I thought 10% is an acceptable deposit ? I could probably use more but I just don't want to use everything from the house as a deposit

Is 15% more doable? That would be around 60,000.

You should speak to a mortgage advisor. Lots of them are free. I think you’ll need lots of help

40k deposit on a 400-500k is nothing. It would depend what you call not very good income / salary but I think it’s unlikely you’d be able to borrow enough to achieve a 400-500k house on that

You can Google online mortgage calculators most banks have them. You can put in your salary and deposit amounts and it will tell you how much you can borrow (in theory). How much you can borrow depends on salary and your ability to pay it back

@adviceonmortgages

10% of 400k is 40,000. I thought 10% is an acceptable deposit ? I could probably use more but I just don't want to use everything from the house as a deposit

40k of a 500k house isn't - you mentioned a 400-500k house. Plus 10% mortgages will only be available when your income is suitable - if you have low wages (which you state) you will need a higher deposit to make up the shortfall so that the mortgage amount is in line with affordability

Okay for example what would be a good deposit on a 400-500 house ?

If would be very silly to have £200k in equity in your current property and only plan to put £40k into the new house. You’d be paying interest on borrowed money that you didn’t need to borrow.

Are you planning to use the other potential £160k to fritter away on legal fees, stamp duty and furniture, etc? That’s not a smart decision.

As a PP said, you MUST make sure you have ring fenced your deposit contribution on the purchase of this new house.

It seems like you’re very naive about it all and could do with doing some proper research and reading yourself before you rush into this. Put the brakes on, equip yourself with some knowledge and don’t start signing anything or putting your house up for sale until you know exactly where you stand.

Depends what your income is OP. You need to be able to pay back the other 90%.

For example when i got my first house I earned 24k (ish) and the max I could borrow was 96k. I had a 50k deposit and the house I wanted to buy was 130k so it was easily achievable

I

Op I mean this in the nicest possible way but if you have a mortgage free house and you say your incomes aren't the best then is going for a house that expensive the best idea?

What are you salaries? Assume you can borrow 4.5 the amount of them combined and then minus that from the cost of you new house. That final number is what your deposit has to be. That's an overly simplistic version so don't take it as gospel.

Speak to a mortgage broker as a priority.

And don’t let your partner take the lead on this or let yourself be satisfied with him telling you it will all be okay and it’s totally fine and blah blah blah.

You have a significant asset, you must protect it and make sure that the new set up works for you and the security of your future.

It would be easy for him to say it would all be okay, when he’s not the one about to give up the opportunity to live rent/mortgage-free forever.

Op if your income isn’t good I’d be putting as much as you can in as a deposit. Typically Most providers cap loans at 3 – 4x your income.

If you used all 200k you’d still need 200-300k mortgage to achieve the houses your looking at. To get that your joint income would need to be roughly 50k a year (based on the idea a bank would lend you 3-4x amount) and monthly repayments would depend on interest rates but likely to be over 1k a month

@adviceonmortgages

Okay for example what would be a good deposit on a 400-500 house ?

What's more important is how much you would be able to borrow - it's worked out on a multiplier of your annual salaries.

If you pay £60k as a deposit on a £400k property, you would need a mortgage of £340k - if the multiplier is 4 x joint salaries, you would have to earn £85k per year between you. That would be a large mortgage to pay - probably at least £1600 per month for 25 years.

Are you sure that you want that?

I am naive to it all definitely because it's all new to me. I have no idea what so ever how the property ladder works !! Sorry If im coming across as dumb, im genuinely clueless. I just thought I've got potentially 200k as an asset, surely that should go for me ??
Wages aren't that bad and we have the potential to earn more and also some savings so it isn't all bad.
What does ring fence mean? And if we're married by the time we buy I thought if anything was to go wrong we could just sell up and split it ? Current property partner has spent nearly 40k doing it up so that could be his portion of deposit and I could match it ? That's 80k then and we've both put the same amount in. Or am I missing something ?

We need the space, 2 kids another on the way. Houses aren't cheap and we need the space

Typically the deposit is 10%. Your buyer would pay 10% of your purchase price on exchange. If that is 20k and you are buying a place for 400k you might need to tip it up with another 20k to make the 10% but it's quite common for the rest of the chain to waive the requirement to top up and for the 20k to work as the deposit on your purchase too.

If you sell your place for 200k you will need a mortgage for 200k to be able to buy somewhere for 400k. As someone else has said a multiple of around 4 times or 4.5 times joint salaries is fairly common now, but there will also be affordability checks so it will depend on your other outgoings. But roughly to be able to get a mortgage for 200k you might need to be earning around 50k between you.

You will also need money for surveys, movers, legal fees, estate agent fees, solicitors and stamp duty.

I've got potentially 200k as an asset, surely that should go for me ??

Only if you put it towards the deposit for your new house.

This is why you need to talk to an adviser to explain it all..... deposits, fees, affordability calculations etc. Generally you transfer the equity from one property as deposit for the next. So if for example you have 200k in equity on one property, you transfer that to new property and get the mortgage on the rest.

So I need to get round the fact that the whole price of current property should be used for the deposit ? If I had to do that to afford it then that's fair enough. The other fees we could do but I'm just worried about the stamp duty.

Stamp duty on a £400000 house would be £10000
There are loads of free calculators online for this stuff. You need to use them with your specific circumstances or as others have suggested go talk to a mortgage broker to work out affordability.

Taking the stamp duty and fees out is normal, don't worry about that. An advisor will explain everything based on your salaries, and circumstances.

Well thank you everybody for your advice it's really opened my eyes !! I was obviously blind 😆 definitely going to speak to a financial advisor/mortgage broker and see what we can do. Truth is I'm not happy where we are. It isn't big enough and I'm sick of the constant diy. Being given a property is a lovely thing of course but I didn't consider just how much money would have to be spent on it 😩😩