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Owning your own home on mortgages (mega-post)

Original Post in Facebook Group by Dr A. Adebayo

A compilation on everything I found on the subect on this group, based on posts (including subsequent comments) by Dr Efekodo and Dr Eyaru available at the following links:

Also, all links are repeated at the end, so feel free to finish reading first, or jump to the end if you want a particular one.


 

A lot of false info out there, so ask if you aren’t sure. You needn’t be in Uk for 2-3 years or have a credit card. Both are desirable but not essential. Here are the steps: Determine Area you want to live in - Factors important to you, say, proximity to work or good schools - Price range in area for kind of house you’re looking for (and if you can afford it): as a rough guide, you can’t get a mortgage > 4.5 times your annual salary before tax (bear in mind joint income is considered for couples - Type of house you want and what are essentials for you, say, spacious kitchen, parting, large rooms or lounge downstairs, large garden etc. (It should at least tick most if not all your boxes) Do - Get your finances in order: ensure deposit is saved up - Speak to a mortgage broker to guide you (their services are usually free (ask Ejiro Eyaru for reccomendations) — bounce if they charge you - Gather your payslips so they can better help you - Search on http://Rightmove.co.uk or http://Zoopla.co.uk for houses in your desired location and including your criteria (number of rooms, price range, etc) - Once you find a property you like, call agent to arrange viewing: don’t be carried away by how the house looks furnished — all that bling doesn’t come with it — stick to your list of essentials - You may need to do a few viewings before you get the house that fits your specs — don’t be in a hurry to make an offer — a house isn’t something you change so often, and once you buy, it’s yours When you find the house that meets your specs - Make an offer on the property: it doesn’t have to be at the advertised price: use price of similar properties recently sold in the area as a guide (info on Zoopla and Rightmove) — if your offer is countered or rejected, you can put in a higher offer till it’s accepted - Don’t feel you need to put in a very high offer because you feel it HAS to be a particular property — there are thousands of properties for sale, you need patience here - Inform your mortgage broker / advisor to start the financial aspect of the sale — the lender usually asks for documents like payslip, employment letter, etc - Get a conveyance lawyer online to handle the legal aspects of the transaction www.propertytransaction.co.uk - If it’s not a new build, consider a Home Buyers Report (detailed survey of the house showing any possibly hidden problems — once you buy a property, its problems become yours) — costs about £400 or more, depending on the property — check Reallymoving.com for quotes - Overall, it takes about 12 weeks from making an offer and contact the Conveyance lawyer, to completing the deal — fast tracked service isn’t worth the extra expense, so don’t bother paying — plus you have the right to pull out of the sale at any time before completion and exchange of contracts - Finally get your key and welcome to the property ladder! On ILR No advantage really to waiting for ILR: you may get a lower rate but it won’t outweigh gains from buying earlier. If you’re going to wait 5 years, might as well save a huge deposit, and also 200/month with help to buy ISA, & govt will give you 25% — which is 3k at the end of 5 years. Pre-ILR you’re not really considered to be settled in the UK, so you are a higher risk. However mortgage brokers scan the W true market and get you a lender, and many people get houses on Tier 2. You just have to decide how much you are willing to pay back monthly. Then you can remortgage after — that is, renegotiate interest rates with your lender or a new one, and you may get a cheaper rate that reduces your monthly mortgage payments. It’s easy to remortgage and you don’t even need ILR: you can just mortgage for 2-3 years initially and remortgage when it’s due. Examples

  • For £200k house with 20% deposit, your mortgage is about £727 per month at 3.7 APR.

  • £100k house might mean about £599/month for next 20yrs or so, excluding levies, with 0% deposit (except with exorbitant APR, say 5.9.)

  • With 20% deposit, you pay much less, even after utilities, and you can put the extra into paying off the mortgage quicker than stated on the books and saves yourself from swinging interest rates you have no control over.

  • Moved from £665 monthly rent for a 3 bed 2 toilets and 1 bath to £207k house (3 beds, washing machine, dishwasher, freezer + fridge, 3 toilets and 2 baths, 1 ensuite) with 5% deposit via HTB. Mortgage now fixed for 5 years at £669/month + extra monthly costs of £20 house insurance and £20 life insurance.

A plan for deposit-saving: 1. Have a time frame. 2. If you do locum shifts, save everything for your deposit. 3. Rent a cheap house for starters (preferably near your NHS job) and save what balance you would have had. If you can afford a £750 rent and you move into a £400 house. That’s a £4200 saving in one year. 4. Only buy a car if you must: children and night shifts. And don’t buy an expensive one for starters — a £600 car won’t break down in that one year you’re saving, you can then buy your Porsche later. 5. Body no be wood: keep and stick to a budget for outings and specials. Don’t eat out or insist on Naija food or other expensives. 6. Save on household items. Forego that £4k Sofology sofa for your rented home: buy the cheap £200 leather sofa from BHF or Facebook Marketplace. You have a target to reach. 7. In a year, you’ll hit your 15-20% deposit and voila, you can buy your 4 bed cottage on a farm with no neighbours! More on Finances

  • From the finance point of view: it’s always important to look at the fineprint of owning a house: deposit, lawyer fees, transfer costs and then monthly payments — compare your monthly payments against your overall monthly income + future investment goals. That is why it’s vital to build a very solid deposit (preferably ≥20% of total mortgage). It’s good to own a house, but don't stifle your finances paying back for 20+ years with no wiggle room to further diversify your investment portfolio. Real estate ownership can be tricky personally and financially, so research well before plunging in.

  • Most lenders frown at taking a loan from your bank to make your deposit for mortgage — that’s why they ask for 3-6 months bank statement, to know if you have pending loans etc. (There’s a max percentage you are expected to pay out in loans, and a mortgage putting you over that will be declined.)

  • A better option (courtesy Ndilemeni Okechukwu): offset mortgages are a smart way to pay off your mortgage quicker. They're linked to your current account (so your money is yours at all times) such that your account balance is subtracted from your mortgage balance before interest is calculated. Learn more here: https://www.money.co.uk/.../how-do-offset-mortgages-work.htm

Help to Buy HTB is designed to help first-time buyers get on the property ladder. House has to be a new build, less than £600,00 and you should be a first time buyer: Two types:

  1. HTB-equity loan: you deposit as low as 5% and govt loans you up to 20%, and you get the rest as mortgage.

  2. HTB-ISA: a special savings account into which you save up to £200 a month into the account (but a boosted limit - maximum deposit? - of £1,200 in the first month) and any interest you receive on your cash is paid tax-free. When you buy a home, govt tops up your savings with a 25% bonus, also tax-free (max bonus £3,000 on £12,000 savings) — you can’t use the bonus towards deposit, only towards the main payment, and you’ll need a conveyance to claim the money from the government. Unavailable from 30 November 2019.

Main drawbacks from someone who, like many others, used it in purchasing a first house:

  • You must live in the house, so you can not rent it out

  • You can't buy any other property while on it, until you pay it off

  • New builds have a premium on them, and so are relatively overpriced

  • If you haven’t paid it off after 5 years:

  • You’ll be making 2 payments: mortgage to lender + paying govt back (recommended you ask your main lender to buy out your Help to Buy before this stage)

  • Also interest kicks in and from then on the Help to Buy is 20% of the CURRENT market value, which is bad if your house’s market value goes up


But those aside, HTB is fit for its purpose: helping you buy your first home on a 5% minimum deposit. To exit HTB:

  • Sell your home, from which the govt collects their equity (share in your home) and everybody goes their way

  • Ask your main borrower (who you have your morgage with) to buy out the Help to Buy so you own your home without govt equity and can rent out — but your monthly morgage payment will go up

  • Stay on it jejely and pay up

On new builds

  • New builds can be unnecessarily expensive with a large amount of payment deferred to 5 years time.

  • Often flats with little or no room for expansions.

  • Subsidence and cracks are normal in new builds due to contraction and expansion of materials. The cracks are usually plaster cracks so does not threaten the structural intergrity of the house. Typically there is a declaration by builders that they will fix cracks larger than a certain size, and that occur within 5 years of the building.

Useful links:


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