Refinancing council flat

[chocorabbit]

Last year we bought our council flat. We really wanted to buy a house but my husband was not confident at all about getting a house mortgage. So we thought that we can buy our flat for the time being and sell it in 5 years time to buy a house. He is the only earner and because he is a contractor he has been repeatedly told that he needs to have worked for at least 3 years and that we needed 25% deposit. We are not sure about it anymore as our bank mortgage advisor was at least incompetent and we got rejected once because he didn't ask us for the full documentation which we possessed, anyway and kept on coming back to us in what seemed forever.

Since then we have witnessed a massive increase in house prices by £100,000 in our area. We have deeply regretted buying our flat. We are worried that if we wait even longer there will never be a chance for us to buy a larger property as we really need one. My husband was told that we can refinance our council flat up to 75% of its value to help with getting a large deposit for the house. I thought that before the first 5 years of buying it were over this would be impossible Or is it? He wants to speak to a mortgage broker with really good reputation but he has been unavailable so he asked me to ask here as there is always excellent advice.

Secondarily, if anybody knows, he also wants to use our deposit saved for buying the house (which wouldn't be enough in the current market) to pay off our flat's mortgage. Would this make sense? I thought that paying off the flat would reduce the burden of its monthly payments but then it would increase our overall borrowing. Because then we would need to pay off the house mortgage and also all our deposit would have been borrowed from refinancing the flat, so all borrowed money.

Thank you for reading all this!

I'm a bit confused at the moment.

How much is your flat worth and how much is owing on the mortgage?

Do you want to keep the flat and buy a house as well or sell the flat and buy?

Your last paragraph mentions repaying the mortage on the flat but then says that your deposit for the house would have been borrowed from refinancing the flat, can you explain what you mean?

I saw your reply last night and could not log in as the connection would time out. Sorry about it!

We have bought our council flat so we cannot sell it for the next 4 years. So my husband was told that we can refinance it by borrowing up to 75% of its value in order to have a large enough deposit to buy a house. Because we are not allowed to sell the flat right now I thought that we would not be able to borrow any money on it either for the time being or maybe at all. What is the case?

Also my husband wants to use the deposit that we already have to pay off the flat's mortgage. To buy the house, wouldn't it be better if we kept the deposit for the house instead of paying off the flat?

So you can't sell the flat for four years but want to refinance to buy a house why? Will you rent the house out?

Look realistically you can't buy a house for four years either way because either:

You will have an existing mortgage in your flat and it's not highly likely they will then give you another mortgage unless you convert your flat to a buy to let mortgage

Or you will not be able to access the deposit money if you pay off your mortgage as it will be locked into the flat for four years.

I don't know definitely but I am pretty sure you can't use mortgaged money from one property as a deposit on another,

So unless you can afford to pay off the flat AND save a 25% deposit , or you look at letting out your flat, I think you're a bit stuck for now. I would say you need good independent advice though, that's just my understanding of the situation.

If you were allowed to refinance (and I'm not sure that you will be) then you will be paying the repayments on that which would be taken into consideration when working out how much you can afford to borrow on a mortgage to buy a house. Can you afford to pay 2 mortgages?

And I still don't really get the bit about using the deposit you already have to pay off the mortgage on the flat. Why would you need to re-finance the flat for 75% of its value if you have the money for the deposit for the house anyway?

Thank you for your replies.

The deposit that we have can fully repay the flat's mortgage OR be part of a deposit for the house, but still is less than 25% of the house value and then we would still need to add stamp duty, legal fees etc. Some people have told my husband that he doesn't really need 25% deposit but we would need to ask. I am also thinking that paying off the flat's mortgage would be locked money that we can't access.

We understand that in order to buy a house and live there we would legally have to convert our flat's mortgage to buy-to-let. Just a few days ago I was told by DFIL about flats like ours renting for double the price of our 10 year mortgage I searched on rightmove and he was right. Even one bedroom flats are renting for over £1000pcm FGS!!! So even if we rent it cheaply the rent we would get would easily pay off the flat's mortgage.

It's a "cheap" area of Greater London and people here, even couples with children can only afford to rent in house shares and we don't want to let the prices go any higher. My husband commutes very easily from here. We could technically afford to rent a house without sharing but with the rents and house prices going up so fast we would rather by a house now.

Ahhh london is a whole different ballgame!