Q I bought my first home nearly three years ago through a first-time-buyer scheme – I got a mortgage for 60% of the value of the property and had a loan for the remaining 40% to be repaid upon sale. There is a lot of help and information on buying your first home, but little on buying your next, and because of this I am avoiding moving on.
Some of the details I don’t know about are how the mortgage would work on my next home. If, for example, I bought my flat for £100,000 and sold it for the same amount and therefore had no extra money, would I be able to buy a property for £60,000 even though I don’t have a deposit? And what happens if I move to a new area and don’t want to buy immediately because I don’t know the place well – can I effectively “pause” a mortgage until I’m ready to buy?
I know ordinarily a person could let their home out until they were ready to buy, but I’m fairly sure it wouldn’t be allowed with my mortgage and loan. Some help here would be really appreciated. AH
A It sounds as if you bought your home with the former government’s Homebuy Direct scheme. If that is the case then you are correct, you wouldn’t be allowed to let your home until you had paid the equity loan off in full.
As far as moving goes, when you sell your house a National Homebuy agent has to approve the sale. When the property is sold, the money paid by your buyer is used first to pay off your mortgage and then the equity loan. Anything left over is yours to use as a deposit for your next home (or anything else you want to spend it on). And even if you sold your flat for the same amount you paid for it, there should be something leftover for you to put towards your next home because your mortgage will have gone down.
Because the mortgage is paid off on the sale of your flat, you don’t automatically have £60,000 in mortgage to pay for your next property. You’ll have to apply for a new mortgage and how much you can borrow will be based on a combination of your income, the price of the property you want to buy and how much you can put down as a deposit. You can typically borrow around three to four times your income and you will need a deposit of at least 5% of the value of your next home, otherwise you are unlikely to find a lender willing to grant you a mortgage.
If you move to a new area and are not yet ready to buy, it is not possible to pause the mortgage as you suggest because once you’ve sold your flat you won’t actually have a mortgage to pause. When you are ready to buy in the new area you will have to find a property and then apply for a new mortgage on it.
