Posted on 24 September 2010 by DJ
My wife and I own a house and six acres of land in north-east Scotland. The property is valued at £260,000 and the outstanding mortgage is £150,000, giving us 42% equity. We had not intended to sell the property, so it needs some tidying before it could be put on the market (some redecorating, replacement floor coverings in two rooms and a chimney needs repair). The surveyor who valued it also recommended removing an awkwardly placed wall at the end of the very long kitchen and putting in a new stud wall to create a utility room as this would make the property more saleable. All in, the work would cost about £10,000.
The reason why we are now looking at selling is because we stumbled across another property that would suit our needs better and improve our finances considerably. This property is a house and 12 acres of heavily wooded land. It's on the market for offers over £185,000, and has a valuation of £190,000. The owner is already moving out and needs a prompt sale, so there's a strong possibility we could buy it for the valuation. The house needs urgent chimney repairs, replacement double-glazing downstairs and a non-integral porch needs repairs. The land drains need to be cleared and the entire perimeter fence needs to be replaced.
Our current mortgage provider, Bank of Ireland, will allow us to port our five-year fix deal to the new property. The deal has four years left to run and we easily manage the payments of £953 a month. If we can buy the property for £190,000 on a mortgage of £150,000, we'd have £40,000 equity. Depending on what we achieve from the sale of our existing property, that could free up to £70,000 from the sale of our existing property. It would be more than enough to cover fees, taxes and charges, moving costings, the necessary work on both houses and still have money left over.
We could use some of the the remaining money to repay a personal loan and a single credit card (£3,700 outstanding on the loan, £53 per month; £2,000 outstanding on the card, £150 per month). We would also move from spending £80 per month on oil for heating to using wood from the land for heating. This would free £283 a month. After that, we could use any remaining money to pay down our mortgage within the yearly limits set in the deal.
For us, it would be win/win: a property that suits our purposes better and lower monthly outgoings.
Where we're running into problems is financing our current property while we have it tidied up and find a buyer. We've talked to a number of mortgage providers and independent financial advisers, but their consensus is that we should sell our current property first, rent a place, and then look for a suitable property to buy—completely ignoring the fact that the type of property we're looking for seldom comes on the market and are rarely within our budget, much less under it as this one is.
We've been told we wouldn't have the 40% equity for a buy-to-let mortgage on our current property, and lenders wouldn't be interested if we did as the rent would be relatively low given the type of property and its location (outside a small village, half an hour from the nearest town). We've also been told we would exceed the maximum loan to value for a bridging loan.
My wife is a professional, earning £43,000 per year. One of our two sons has Aspergers, so I have to be home for him but I still manage to bring in £5,000-6,000 a year. (We don't get disability living allowance or carer's allowance as we didn't realise we were eligible until a month ago, but we're now submitting applications for those.)
Is there any way we could finance a move without having to sell up first, rent for a while and then look for another property that might not be as suitable for our purposes? Due to our oldest's learning difficulties we'd really prefer to move just once and lessen the anxiety he will feel.
On the face of it the easiest way to proceed would be to reduce the asking price of your own property to achieve a quick sale. With a potential surplus of £70,000 this would seem to leave you the room to manoeuvre or do you really want to purchase the new property before yours is sold?
Whilst Bank of Ireland have agreed you can port your existing mortgage deal, have they seen the property you would like to buy? I can imagine that they would either want to retain some monies from the mortgage advance or maybe not release any money until the works have been carried out.
I don't think that a Buy to Let mortgage is the way to proceed given that you want to sell the existing property and really only need short term finance. I am surprised that you have been told that the Loan to Value is too high for Bridging Finance and believe that there are specialist firms who would agree to take a first charge on your existing property. This would allow you to redeem your existing mortgage, carry out the tidying up and achieve a sale from which the finance would be repaid.
I recommend that you contact a national independent mortgage broker before deciding your next move.
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