Sell or mortgage? Financially savvy, this way please

[PostBellumBugsy]

I own my home. I'm far from uber rich, infact I struggle on a day to day basis, but I was lucky enough to sell a house in London & move out & have enough to buy outright.
DS has special needs & his school is very expensive. I've tried my damndest to get help but he isn't severe enough. Anyhow, that is a diversion really. I'm happy to send him to private school as the difference it is making is incredible.
I work full time & earn a reasonable wage but not enough to cover DS's school fees. Ex-H is not prepared to help. Again long story & I won't divert here.
So, I have two choices. I could get a mortgage of about 20% of the value of the house, or I could sell & move somewhere smaller. It is a rubbish time to sell, so I am thinking the mortgage idea is a good one. Any thoughts?

my first thought is are there any bursaries available to you and him? Are you claiming any tax credits/DLA you may be entitled to?

May be worth having a look here and playing around with figure for how much you would need to borrow and how much repayments would be. www.moneysavingexpert.com/mortgages/mortgage-rate-calculator

I have found London and county mortgages to be very useful, informative without any hard sell, in my case they gave excellent advice which saved us, we never went with them in the end and they didn't hound us with calls, would highly recommend them.

Can you get a lodger? Can you move jobs to earn more? Can you cut costs anywhere?

If you sell the stamp duty alone will pay school fees for a year, let alone solicitors, removals and so on so IIWY I wouldn't do that.

It would be worth speaking to a mortgage advisor about this, but my feeling is that a mortgage would provide sensible way to a low interst loan. If you are only releasing 20% of the equity of the house, I think you would still be able to feel financially secure. It sounds however like you don't need a lump of cash, but some cash to help with cost of living. Definitely a lodger makes sense in that case. But also, I wonder if you were to get an offset mortage if that would provide you access to some money when you needed it, but what you didn't need would be held in a savings account not costing interest.

Thank you all. The offset mortgage sounds quite interesting. I'm going to investigage further.

I've looked at the possibility of a lodger, but to be honest, for the inconvenience it wouldn't really be worth the relatively small amount I'd get each year.

I could change jobs, but I love my job, it is close to home & schools (as have a DD as well) and it is relatively low stress. I am incredibly frugal, drive an tiny old banger to keep petrol & running costs down. Shop at Aldi/ Lidl / Asda etc, having heating on as little as possible and constantly monitor and change my utility bills, sell stuff on ebay etc etc
I get the tax credits I'm entitled to & get childcare vouchers when I use holiday clubs. The only thing I could possibly be entitled to for DS would be DLA, but again in relative terms it wouldn't really help that much with the flipping ginormous school fees. Not to mention the fact, I would feel slightly fraudulent, because although his ASD can be difficult, he really isn't disabled.
So, from what I can tell mortgage looks like the better option so far.

Well, there's nothing wrong with having a mortgage (esp only a 20% one) if you can afford the repayments.

The question is, will you be able to afford the repayments and the school fees as well as your other living costs? You need to sit down and do a budget really.

When doing this, don't rely on paying just the interest part of an interest only mortgage - you need to factor in capital repayments as well (or at least, building up savings/investments elsewhere to pay off the capital in due course). Also reckon on interest rates going up a bit from where they are now.

Minipie, my current thinking would be to use the mortgage to pay 80% of the school fees. I'm thinking I may even do an interest only repayment on the mortgage over 20 years, because in 20 years time I will either be: dead / ready to move to a smaller house / my parents will have died and left me a bit of money. Looks a bit brutal in black & white (specially the parents bit) but that is pretty much the lie of the land.

You are in a fantastic position home wise, in that you own your own home.

Very few people can say that, and very few people understand the difference to having a mortgage for £200k vs owning a house with an asking price of £200k!!

You have the power of choice on your side, the choice which enables you to put your house on the market with no concerns on a minimum amount you need to achieve to clear your debts to the bank. You can afford to price attractively and get a sale, it is a great time to sell with your flexible position (ie no debt to banks) you hold ALL the cards!

It also puts you in the driving seat when you buy your next property as you go to the front of the queue of everyone else reliant on debt to 'buy'. They aren't buying anything, you ARE!

Good luck in whatever you decide to do
Sarah

Every good business has a small amount of debt. If you have a ltv ratio of 20:80 you should be able to fix at a good level which I think would suit your situation. And you could speak to the bursar at your son's school about paying a lump sum towards fees.

lulu - like the idea of a lump sum towards fees. Hadn't thought of that as a possibility.

PostBellum the thing is that the bank will want to see your plan for how you will repay them the capital, if you are doing interest only. They used to be pretty lax about this, but have tightened up a lot in the last couple of years.

Agree re the lump sum thing. Schools are sometimes willing to do a bit of a discount if you pay in advance!

if you get a mortgage because you haven't got enough money, how are you going to have enough money to pay the mortgage?

At the moment you have the security of your own home.

In the future you might have a substantial and growing debt, and still not enough money, with the extra headache of compound interest at higher rates than today, plus penalty charges, plus court costs, plus threat of repossession.

You can see what I think, can't you?

This is very quick maths. I presume you are looking at fees of 800ish a month. Say you were prepared to spend half of that on a repayment mortgage you are looking at being able to borrow 50/75k over 20 years. I know of someone who has just paid 2dc school fees for the next 10 years at 25% discount on current rates and private school fees are increasing beyond inflation atm (v little wage inflation to combat this). I think this makes good sense. But you could try the market with your house. It depends how hard the fees are hitting you right now.

Not sure what Piglet is saying. The OP only wants a small LTV. Releasing 20% equity may well be very affordable even at a high interest rate of 5%. Of course you need to work out the maths re: affordability but it does sound like a sensible way of paying for something you consider very important.

aA great time to sell ? I don't think so

Piglet is saying that if the OP hasn't got enough money to cover her outgoings now, she will not have enough money to cover her outgoings when they are even higher due to having a mortgage to pay. She will only get by temporarily by eroding the cash in bank from the loan, to pay both her current outgoings, plus the extra cost of the mortgage. Interest rates are currently exceptionally low, so will go up.

Once all the money from the loan is gone, OP will then have a mortgage she can't afford to pay, and a secured loan on the house.

Secured loan means the lender can take your house off you.

Not a good position to be in.

If you think 5% interest is high, you haven't lived.

Minipie, good advice about budget. But there is some confusion. OP needs to see whether she can afford mortgage payments in addition to her usual expenses excluding fees - she is borrowing so she can pay the fees. In fact, the loan may go toward paying for other living expenses. Just means that she does not own her home outright anymore. That's how a lot of people have managed to live lifestyles that they might not have been able to otherwise but many overextended themselves with ridiculous LTV ratios. But OP is clearly not in that boat.

Disagree Piglet. Private tuition is not forever (thank God). She is borrowing a small amount (20% not 80%). She is struggling with the fees, which are probably at least £8k/year. When the loan is finished, hopefully (having done her sums right) she would have finished schooling her child and will only have to deal with the mortgate payments.
So for eg 20% of say £200k home = £40k. Interest rate of 5% (which is high for now but may go up to that in near future, cannot see it being ridiculous as it was in 80s, not in this economic scenario) = £2k /annum. More affordable than £8k.

mortgage even

Piglet, i think no matter what OP does she is a very long way away from having her home repossessed!

Thank you all. Fees are alot more than £8k per year sadly!

Interesting poing minipie regarding interest only. If I'm only borrowing 20% of the value of the house, then repayment will always be guaranteed on the sale of the house (if by some amazing chance my parents are still alive & didn't leave me a bean). By the time in 62 (in 20 years), I will definitely not need to live in a house of the current size & will probably not want to do so many flights of stairs either (it is a very tall town house!). Even if the house market crashes out completely, and the value of the house halved, I would still have enough left over after repaying a loan of 20% of current value to buy somewhere else. Would I be able to sell that to a mortgage lender?

Unless you are on an absolute pittance (which it doesnt sound like you can be if you even halfway manage to pay fees) then it doesn't sound like you have much selling to do at all.

PostBellum that makes sense logically. I don't know whether the bank would accept that though.

maggie you're right that, in any budget, the school fee expenses would disappear and be replaced with mortgage expenses instead - assuming she pays all the school fees in a lump sum up front. I do think it's important though to calculate mortgage expenses on a repayment basis not an interest only basis. And factor in 5% or 7% or even 10% interest rates as a possibility.

PostB, if you do end up doing a lump sum deal with the school, make sure you negotiate what happens if your son leaves the school early for any reason...

Thank you all so much. Quite alot to follow up on. I'm going to do some spread sheet stuff to work out various scenarios. So great to get some fresh suggestions & idea.