Q. We are looking to move house and, ideally, would prefer to keep our current home and let it.
We need to know what is possible, based on the figures that we’ve given you.
A. Ok, let’s look at the numbers.
Your current property is worth approximately £240,000 and you have an outstanding mortgage of £90,000. You also have other unsecured debts of £40,000 (loans and credit cards).
You have said that you wish to try and repay the unsecured debts when you move home.
The likely rent from your current property is £700 per month, and the likely purchase price of your new home is £450,000.
The first step is to work out how much equity can be extracted from your current mortgage if you don’t sell. Based on a rental of £700pm, you will be able to increase your mortgage to £117,500, which means that you’ll be able to extract £27,500.
With the current mortgage market, you’ll need a 10% deposit for the new property. There ARE some products available from certain lenders where you’ll only need a 5% deposit, however the rate you will end up paying will not be very competitive.
So, you’ll need to add the 10% deposit of £45,000 to the other associated costs. These include legal fees, moving costs and stamp duty (which is 3% of the purchase price).
To break it down, you’ll need approximately £62,000 to buy the new house as well as retain the current property. So you are £34,000 short. At the same time, you will continue to have £40,000 of unsecured debt and this will need servicing every month.
The alternative is to sell your current house and wipe the slate clean and repay the unsecured debt.
Let’s look at the numbers.
If you sell for £220,000 (better to use pessimistic numbers) and repay the current mortgage and debt, you will have £90,000.
The purchase price of the new property is £450,000 and we need to add the moving costs of circa £17,000. So, £467,000 minus £90,000 gives us £377,000, which is 83.8% of the purchase price.
This will mean that you will be able to secure a mortgage at a competitive rate, as compared to the 95-100% route. You will also remove the risk on the rental property; one major one being if you fail to find a tenant you’ll still have to repay the mortgage. In addition, you’ll have repaid the unsecured debts.
Perhaps this is not the answer you want, but you may see it as the most sensible option when all the figures are taken into account.
We wish you luck!
