# Mortgages - how do they work?



## hotwaxxx (Jul 12, 2007)

Okay. This is just a hypothetical question (for the time being anyway).

I am looking to buy a house within the next 3 years or so and will need to take out a mortgage. Price wise, I can afford to put in around £75,000 of my own cash and the rest will need to be borrowed. The house price would be around £150,000 (so I'd need to borrow £75,000).

Now I would be a first time buyer. Would I get a mortgage in the first instance? I am employed and have been for the past 10 years with no credit outstanding. Also, how much do people tend to pay back per month. I could afford to pay back around £500 per month. Would this be acceptable?


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## bigslippy (Sep 19, 2010)

The loan to value ( LTV ) would be favourable with a lender:thumb:


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## Deanoecosse (Mar 15, 2007)

A 50% deposit is a healthy amount to put down on a house and you shouldn't have any issues getting a mortgage even as a first time buyer. The banks are stricter now with the lending criteria and a lot look for 20%-25% deposits whereas a few years ago they were lending over 100% on loan to value. Go to any of the money sites for a quick idea of what you will expect to pay. But a quick look at Nationwides website for your figures on a 25 year mortgage, show a repayment figure of £350-£390 a month on a fixed rate mortgage depending on how long you want to fix it for and what level of fee you want to pay.


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## Avanti (Jan 17, 2006)

hotwaxxx said:


> Okay. This is just a hypothetical question (for the time being anyway).
> 
> I am looking to buy a house within the next 3 years or so and will need to take out a mortgage. Price wise, I can afford to put in around £75,000 of my own cash and the rest will need to be borrowed. The house price would be around £150,000 (so I'd need to borrow £75,000).
> 
> Now I would be a first time buyer. Would I get a mortgage in the first instance? I am employed and have been for the past 10 years with no credit outstanding. Also, how much do people tend to pay back per month. I could afford to pay back around £500 per month. Would this be acceptable?


When I had my mortgage, I was paying about £6/1000 per month so in your case about £450/pm over 20-25yrs


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## MidlandsCarCare (Feb 18, 2006)

I've been shopping too, my deposit is closer to £40k, so on a £130k house it was coming to about £420 per month (based on £90k mortgage) but that was a couple of months ago - I'll certainly be buying next year, that's for sure!

Are you looking in West Brom, Dave?


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## hotwaxxx (Jul 12, 2007)

Thanks people - I knew there would be some budding bankers on DW.:thumb:

Russ - I have no plans to buy yet but I am thinking about the next 3-4 years or so. I would also be looking at West Bromwich or within a 3 mile radius (I work in Walsall and the other half works in Oldbury so we don't want to be moving too far away).

But like I said, not planning on moving until 3-4 years time.


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## kh904 (Dec 18, 2006)

You certainly have an excellent deposit!

I'm in a similar situation. First time buyer which a similar sized deposit as yourself, but i'm in London, so you don't get much home for your money.

If you are looking to buy in 3 years time, i would save as much as you can to increase the deposit and take out as little mortgage as possible. You would be surprised how much interest you have paid back over the lifetime of the mortgage!

Also, open up another bank account and move some money to it. Iirc your desposits are protected up to the value of £85K i believe (i need to check that figure). Make sure it's not a bank in the same group as your current one (otherwise it counts as one account).

On a side issue to think about:

The banking sytem is ready to collapse further imo! Some people are taking ALL their money out bit by bit to save their money, because if it collapses (not a few banks, but the whole system), even the Government may not be able to protect peoples deposits.

I don't mean to scare you, but it's just info, make of it what you will, but i've been pretty spot on so far with the trend of the economy.

I personally will be opeing another account and move anything above the guarunteed deposit limit over to the new account. I also may consider taking money out and keep it safe elsewhere.

I would guess that house prices will continue to fall (at what rate i'm not sure, and some areas will always hold their value), so if you have as much cash as possible to put down it will help you negotiate a better deal!

You also need to work out the costs of morgage deals- fixed or variable over the period, the impact of interest rate rises - IMO they will rise, not soon but the historical average is about 6% (BoE) iirc - What effect would an interest rate rise have etc etc?


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## hotwaxxx (Jul 12, 2007)

kh904 said:


> You certainly have an excellent deposit!
> 
> I'm in a similar situation. First time buyer which a similar sized deposit as yourself, but i'm in London, so you don't get much home for your money.
> 
> ...


That's most helpful mate - and taken on board.:thumb:

I currently have around £70k to spend today so in a few years I can see that figure hit over £100k and less of a mortgage as a result.

Just out of curiousity, how much interest do banks charge on mortgages? For example, if I was to take out £50k how much interest would I be paying back over a 20 year period say?


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## PaulN (Jan 17, 2008)

Id guess the £75k is what he estimates he will have saved by 3 years. If its already saved then sorry for assuming. (STAND CORRECTED WAS ASSUMING)

Things will be very different in 3 years. maybe better maybe worse. For sure you wont be getting the same house for £150k you can today.

Instead of just saying £150k 50% deposit why not look at what you really can get £75k Deposit £600 per month mortgage payments. id guess would get you more cash and therefore a better / larger house and less need to move sooner.

If it all sounds OTT sorry but both my folks and in-laws recommended spending as much as we could honestly afford (Not talking 100% mortgages) which has put us in a good position 12 years down the line. 

Cheers

PaulN


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## kh904 (Dec 18, 2006)

Depends really on the each bank, Bank of England base rate & the current economic circumstances etc etc.
On a very very rough basis, iirc muliply your mortgage by 3 and that is what you pay back the bank (that's the original capital & interest) over a 25 year period - once again this is a very rough idea and depends on other factors.
Much of the mortgage repayments for a good chunk of years is merely paying just the interest, not the capital!


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## kh904 (Dec 18, 2006)

PaulN said:


> Id guess the £75k is what he estimates he will have saved by 3 years. If its already saved then sorry for assuming. (STAND CORRECTED WAS ASSUMING)
> 
> Things will be very different in 3 years. maybe better maybe worse. For sure you wont be getting the same house for £150k you can today.
> 
> ...


He currently has £75K now which could rise to £100K in 3 years time :thumb:

I would agree spening as much as you can afford on a decent place if that is your priority, but still have a financial cushion should finances get tough & any unforseen circumstances etc.
Imo it makes more sense buying a place for the long term, & spend time & money investing in it, than to buy a place & move ever few years, just my opinion


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## hotwaxxx (Jul 12, 2007)

kh904 said:


> Depends really on the each bank, Bank of England base rate & the current economic circumstances etc etc.
> On a very very rough basis, iirc muliply your mortgage by 3 and that is what you pay back the bank (that's the original capital & interest) over a 25 year period - once again this is a very rough idea and depends on other factors.
> Much of the mortgage repayments for a good chunk of years is merely paying just the interest, not the capital!


Wowzers.:doublesho

So if I took out a mortgage of £50k I would be paying the bank back £150k over 25 years?


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## PaulN (Jan 17, 2008)

Fair point with Mortgages costing alot over 25 years they do..... nothing like a credit card though, and unlike renting you get something at the end.... lol


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## adamck (Dec 2, 2010)

Ha, im a first time buyer and i have £400 as a deposit, any takers on lending me £120,000? :lol:

Bad news is... where i live the 'cheap' houses start at about £110,000 in an 'ok' area. but they do need some work on them.

So i need £12-15K deposit, and they way things are going, thats probably going to take me about 15 years to save... at which point i may aswel just keep renting as i'd never own my own home 

I hate this country, nice to see the bank owners still taking a fat wage/bonus every year at our expense...


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## PaulN (Jan 17, 2008)

btw i cant see how its costing 3 times over 25 years. maybe 2.5 very worst case..... lol not really making my point... lol


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## Estoril-5 (Mar 8, 2007)

is it just me thinking, how on earth did you manage to raise £75k??!!!


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## kh904 (Dec 18, 2006)

PaulN said:


> btw i cant see how its costing 3 times over 25 years. maybe 2.5 very worst case..... lol not really making my point... lol


It's just a very rough estimate. 
That 3 times amount also includes the original loan amount, the rest is compounded interest (interest on top of interest)


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## hotwaxxx (Jul 12, 2007)

Estoril-5 said:


> is it just me thinking, how on earth did you manage to raise £75k??!!!


Ahhhhh - the benefits of living at home with the parents and paying very little board and saving a few grand every year for 10 years of working.:thumb:


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## vroomtshh (Nov 23, 2009)

hotwaxxx said:


> Wowzers.:doublesho
> 
> So if I took out a mortgage of £50k I would be paying the bank back £150k over 25 years?


More like £100k over 25 years. It depends on which mortgage you take and the interest rates, but generally, double is the accepted norm


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## kh904 (Dec 18, 2006)

hotwaxxx said:


> Ahhhhh - the benefits of living at home with the parents and paying very little board and saving a few grand every year for 10 years of working.:thumb:


Same as you mate! :thumb:

There's no other way to do it unless you are earning mega money! Even my friend who's quite high up working for Bank of America, has only recently bought her first place (2 bedroom flat leasehold), by living at home longer.


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## adamck (Dec 2, 2010)

hotwaxxx said:


> Ahhhhh - the benefits of living at home with the parents and paying very little board and saving a few grand every year for 10 years of working.:thumb:


And theres me, paying £800 (rent + council tax), then theres bills and only 1.5 fulltime wages coming in... trying to save money? 
pah... not easy to do when its all swallowed up in rent and bills


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## hotwaxxx (Jul 12, 2007)

adamck said:


> And theres me, paying £800 (rent + council tax), then theres bills and only 1.5 fulltime wages coming in... trying to save money?
> pah... not easy to do when its all swallowed up in rent and bills


I can imagine how hard it is.

I stupidly made a flippant comment at work the other day as we were discussing how much money we save from a month's wages. I said around 75% and I was astonished how many people have nothing at all by the last week of the month and are desperately waiting for their next payslip. I don't think I live in the real world sometimes and really appreciate how lucky I am.

I was also looking at other jobs on the internet recently comparing jobs similar to mine. I worked out that I'm earning a good amount compared to other areas although I could be earning more and have the experience to do so. I really need to consider my future and know that I can achieve so much more - if I get off my backside.


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## Pezza4u (Jun 7, 2007)

adamck said:


> And theres me, paying £800 (rent + council tax), then theres bills and only 1.5 fulltime wages coming in... trying to save money?
> pah... not easy to do when its all swallowed up in rent and bills


I know the feeling mate but even if I bought a house I couldn't take it with me so might as well enjoy my money while I can. When I was younger I wanted my own house but I'm not so bothered now I'm older. When houses were cheap (80s/90s) it was the sensible thing to do but with current prices it's too much debt IMO. A house is only something to live in, I'd rather be out enjoying life instead.

I left home at 25 and started renting after using my savings to get through uni. I have no chance of saving a deposit of that size now and even if I did you have to factor in house repairs and anything else that needs doing. At least with renting it gets done for me and I don't have to worry about where I'm going to find £XXXX for a big repair bill.

Some people won't agree with that but that's just my opinion. Life's too short to be stressing about £200,000+ mortgages, which is what my 2 bed flat is worth. Yeah I could move somewhere cheaper but there's not as much work there or it's lower paid.


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## adamck (Dec 2, 2010)

Lol very true, im lucky i have a good job so i earn enough to have a reasonable rented house rather than a flat, i dont think i could fit all my junk into a flat lol.

And i do live a nice lifestyle, take-outs, nice things, bike & car, designer clothes etc... and i own everything except the house... ive never had a credit card, loan etc... and never borrowed money, so i am lucky in that respect!

If i really wanted to save up, i could cut down, move into a flat and sell most luxury items, but id rather just juggle multiple jobs until i have enough money for a deposit lol.

Im currently working 3 jobs, 1 fulltime and 2 part time to have some spending money for my luxury items and hopefully one day one business will take off enough to run itself


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## Avanti (Jan 17, 2006)

hotwaxxx said:


> I can imagine how hard it is.
> *
> I stupidly made a flippant comment at work the other day as we were discussing how much money we save from a month's wages. I said around 75% and I was astonished how many people have nothing at all by the last week of the month and are desperately waiting for their next payslip. I don't think I live in the real world sometimes and really appreciate how lucky I am*.
> 
> I was also looking at other jobs on the internet recently comparing jobs similar to mine. I worked out that I'm earning a good amount compared to other areas although I could be earning more and have the experience to do so. I really need to consider my future and know that I can achieve so much more - if I get off my backside.


It's a little luck and a lot of common sense, much as I hate the iron lady, her phrase "one must live within their means" always rings true, I was watching a program on monday about the banking system, it's all based on BS, I was astonished at how many have stuff on the never never 
Sometimes it's not that someone has more actual cash, it's that they can have a bigger loan 
Like you I save over 50% of salary and that is with paying CSA at 15% net


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