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 !

Op just say roughly what your income is (combined if you’re buying together) that will help us tell you what’s potentially achievable but yes you also need to pay solicitors fees, stamp duty and estate agent fees so it’s unlikely you’ll be able to use the full 200k as the deposit.

It doesn’t matter what your earning potential could be or savings what matters to the mortgage providers is how much you currently earn. They will base whatever they are willing to lend you on that. They’ll also need to do credit checks which could also effect how much they’re willing to lend (poor credit rating means they’ll likely to lend you less)

You need to speak to a mortgage advisor but I think you need to be realistic. Having a 200k house is an asset but only if you’re willing to use it as your deposit. Yiu would still need to borrow 200-300k to get the houses you want and to do that in the simplest possible form you need to be earning a joint income of 50k.

When I got my mortgage I had to give 3 months worth of bank statements showing my income and my spending. They took into account all my fixed payments (so childcare, loans, car finances etc) and looked at my income to see how much I could realistically repay.

@adviceonmortgages

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

As much as you can afford to put in (making sure you keep enough to cover other moving costs, and a rainy day fund).

The bigger your deposit, the lower your monthly payments will end up being. A 40% deposit will give you access to better interest rates with many lenders.

@adviceonmortgages

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

Assuming interest rates stay the same (they will probably go up):

If you buy a £400k house with a £40k deposit and a 25 year mortgage:
Total cost including interest £541k
Monthly repayment £1800

If you buy a £400k house with a £60k deposit and a 25 year mortgage:
Total cost including interest £511k
Monthly repayment £1700

If you buy a £400k house with a £200k deposit and a 25 year mortgage:
Total cost including interest £300k
Monthly repayment £1000

www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/

So putting the full amount into the property saves you £241k in interest and gives you an extra £800 a month to live on over just using £40k. The savings will be even greater if when interest rates go up. You also need to consider how you will afford the payments if interest rates increase (and your monthly payment increases).

You often get a better rate of interest on mortgages with a large (as a percentage of the property value) deposit too.

You do need to get legal advice on how to protect your investment in case of divorce, however.

You should also take advice on capital gains tax if you are taking money from the sale of the property and not reinvesting it in your main home.

Bloody hell it doesn't even seem worth moving atm !! Am I mad to give up a mortgage free home for that?! Seems it.

Joint income is well below 50k

@adviceonmortgages

Joint income is well below 50k

Then you're never going to be able to afford a £400000 house unless you put the full £200,000 in unfortunately.

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 ?

When you are married, both parties assets become marital assets. The starting point in divorce is 50:50. Ring fencing means "protecting" ie in this case, keeping the assets you brought into the marriage if you divorce, so your DH doesn't get half of the money you put ito the new house as a deposit.

You need legal advice on how to do that by being tenants in common and owning unequal shares of the property specified in a deed of trust rather than joint tenants. That has legal implications for inheritance so you will need advice on wills too. If you are joint tenants, the property automatically transfers to the co owner if the other person dies. If you are tenants in common, you can leave your share of the property to whoever you like.

Am I mad to give up a mortgage free home for that?

Bottom line...

Yes.

@adviceonmortgages

Joint income is well below 50k

With a joint income of less than £50k, it’s likely that the maximum you’ll be able to borrow is c.£200k. That means you’d have to make the rest of the house purchase price up in cash. The £200k asset (the existing house) would no longer be an asset, as you would have sold it. The only way for you to get a £400k house would be to use the full £200k as a deposit. If you only wanted to use £40k as a deposit, you’d need a mortgage for £360k, which you wouldn’t get on your combined income. There are many online mortgage calculators which would give you an idea of how much you could borrow. Have you tried any of them?

@adviceonmortgages

Bloody hell it doesn't even seem worth moving atm !! Am I mad to give up a mortgage free home for that?! Seems it.

If you are mortgage free, you ought to be able to save £1k a month to towards moving into a bigger property/paying stamp duty a bit further down the line. If you can't save £1k a month, you won't be able to afford the monthly payments on the mortgage on a £400k house, even with a £200k deposit, even if the bank will lend it to you.

If you are mortgage free, you ought to be able to save £1k a month to towards moving into a bigger property/paying stamp duty a bit further down the line. If you can't save £1k a month, you won't be able to afford the monthly payments on the mortgage on a £400k house, even with a £200k deposit, even if the bank will lend it to you

This is true. How much are you currently saving per month?

Monthly repayment £1800

would you even get those rates now particularly with such a low deposit?

Joint income is well below 50k

times your income by 4.5 & subtract any debt. realistically that's what you can borrow.

If we work on a joint income of say £40k, you would probably be able to borrow £160,000 on a mortgage (four times joint income).

You would then need the cash on top of that £160,000 to pay the difference for any property you want to buy. Plus cost of estate agents, solicitors and stamp duty.

You’d need to be earning at least £45k between you to be eligible for a £200k mortgage. That would be the highest amount you could borrow though. When applying banks will go over your bank statement with a fine comb to see if you can afford the £1000 a month mortgage. If you can’t afford to save that now when you are mortgage free it would be highly unlikely anyone will borrow you £200k , especially if it’s the highest amount you could borrow. You either need to stay where you are while trying to save as much as possible or use an online calculator to see what amount of mortgage you could realistically lend and try find houses within that budget using your current house as a deposit.

Can you find a cheaper house that is more suitable than your current house?

My DS is in a similar position
House has been sold through the estate and never transferred to him on the land registry
Once it’s sold he will use the money to buy his own place
But even his mortgage broker and solicitor can’t decide on if he is a first time buyer or not 😂

@70kid

My DS is in a similar position House has been sold through the estate and never transferred to him on the land registry Once it’s sold he will use the money to buy his own place But even his mortgage broker and solicitor can’t decide on if he is a first time buyer or not 😂

It doesn't make sense to me as I didn't buy the property, it was given to me! If I apply for a mortgage it's the first time a mortgage would be in MY name. I am registered with the land registry because it all was done through a solicitors and I have the deeds with my name on but still I don't get it

If you go on a lender’s website they often have calculators to work out how much you might be eligible to borrow. Eg www.barclays.co.uk/mortgages/mortgage-calculator/borrowing-calculator/#/borrow
If you put your income and outgoings into there it’ll give you an idea. But as pp have said, you’re unlikely to be able to afford it unless you put the full 200k in.

Re the first time buyer stuff, it’s because these schemes (stamp duty exemption, help to buy etc) are aimed at helping people get onto the property ladder. But you don’t need that help because you already have a property.

"A first time buyer is defined as an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence.22 Nov 2017" <a class="break-all" href="https://www.google.com/url?sa=t&source=web&rct=j&url=www.gov.uk/government/publications/stamp-duty-land-tax-relief-for-first-time-buyers/stamp-duty-land-tax-relief-for-first-time-buyers%23:~:text%3DA%2520first%2520time%2520buyer%2520is,property%2520as%2520their%2520main%2520residence.&ved=2ahUKEwjwrOyN7Y73AhVOilwKHR-zBbwQFnoECAQQBQ&usg=AOvVaw0ZGBHB7ZebYnnVojziled2" rel="nofollow" target="_blank">Stamp Duty Land Tax: Relief for first time buyers. Gov.uk

Does this help? You have an interest in a property - the one you are living in - because you own it. Therefore, you are not a first time buyer.

The question as to whether you're a first time buyer or not is all academic though, and a bit of a distraction. If your current salaries mean you can't afford the mortgage on a £400-500k house, being a first time buyer or not is not going to change that.

How much were you expecting to be able to borrow, and how much did you think it would cost you each month?

It doesn't make sense to me as I didn't buy the property, it was given to me! If I apply for a mortgage it's the first time a mortgage would be in MY name. I am registered with the land registry because it all was done through a solicitors and I have the deeds with my name on but still I don't get it

You’re not a first time home owner, though. And the first time buyer schemes/discounts are aimed at helping to get people on the property ladder, who wouldn’t otherwise be able to afford to. This doesn’t apply to you, as someone has given you a house.

Even if you could buy as a ‘first time buyer’, it wouldn’t change the fact that you won’t be able to borrow more than £160-£200k on your current salaries.

OP I inherited a mortgage free house on my parents deaths, but I didn't register it in my name, just sold it after probate was done. When we then applied I was a first time buyer, as the house had never been 'mine'. It was never registered in my name etc.

Whether you are a first time buyer or not in this situation is probably irrelevant. You need to be able to afford the home and on an income "significantly less than 50k", even with a large deposit it is unlikely to be approved by the bank. Childcare (which I assume you will need to pay for atleast the one you are pregnant with) could make a big impact on how much you can borrow. As PP stated on 40k you are only likely to be approved for 160k best case scenario - with childcare or other loans this will likely decrease. Even if adding 200k as a deposit that only takes you up to 360k.
In times like these with prices of everything increasing rapidly you would be silly to stretch yourself to the very max. We have a household income well in excess of 50k and would not consider a 400/500k home at this time.
Go see an advisor and get a realistic idea of how much you can borrow