Tips for building equity in property

[Jcwjosh]

Morning All,

Just after a few tips or advice and stories on how people manage to overpay the mortgage/build up equity without becoming obsessed and still having a life.

Bought my first house with partner 2 years ago and currently have between 30-35k in a property worth 265-270k.

We have just moved to a 5 year fix mortgage at a better rate and will have a saving of around £120 left which we will begin to overpay.

I hope to be able to add in another 10-15k this year.

I cant really see how i am going to build up enough equity in the next 5 years to allow us to 'move up the ladder', we are in the south east in a small 2 bed end of terrace. I don't want much but some more space for children ( and hopefully some toys ) would be nice Any stories or advice you can share with this first timer ?

Should i be focusing on overpaying and attempting to top up my savings too ? Or just one if i feel i have enough for emergencies put away ?

I understand that this is all a matter of opinion and ultimately it is down to my own capabilities but would be good to hear anyone else in the same position or who has managed to achieve this in the current climate.

All the best

Josh

[NickCQ]

Jcwjosh said:

I cant really see how i am going to build up enough equity in the next 5 years to allow us to 'move up the ladder', we are in the south east in a small 2 bed end of terrace. I don't want much but some more space for children ( and hopefully some toys ) would be nice Any stories or advice you can share with this first timer?

You are doing the right thing by trying to overpay, but historically the way people have been able to move up the ladder is by (i) increasing earnings (you get 4-5x any increase in additional mortgage borrowing) and (ii) increasing house prices - given the amount of leverage you have on the property a 15% increase in value will effectively double your equity.

Moving up the ladder purely through savings is going to be challenging - over 5 years you will pay your mortgage down by maybe £20-30k? Net of costs to move that won't be a transformational change on where you are on the ladder unless you can relocate to somewhere cheaper.

[Evolved]

Renovate and extend to add value. The net cost to renovate is hopefully less than the sale price you can achieve, meaning you bag the profit and have a larger deposit for the next place.

Just paying down your mortgage reduces down your term in the long run.

[ozzuk]

I've always seen property as a great investment, however lots of people have a different opinion so it is worth considering the risk. If you are overpaying, and adding your own money then you are gambling on your single asset appreciating. The market is pretty unstable at the moment, and although I think long term prices will still rise that isn't a certainty - so you could find that 30k equity gets wiped out, or worse.

Reducing the mortgage will mitigate somewhat the risk of effect of rates increasing, but you could see that investment disappear so looking at other investment options could be a better approach (in parallel).

[Jcwjosh]

NickCQ said:

You are doing the right thing by trying to overpay, but historically the way people have been able to move up the ladder is by (i) increasing earnings (you get 4-5x any increase in additional mortgage borrowing) and (ii) increasing house prices - given the amount of leverage you have on the property a 15% increase in value will effectively double your equity.

Moving up the ladder purely through savings is going to be challenging - over 5 years you will pay your mortgage down by maybe £20-30k? Net of costs to move that won't be a transformational change on where you are on the ladder unless you can relocate to somewhere cheaper.

Both my partner and i hope to increase earnings as time goes on, so i think we are on the right path in that respect.

I guess with the uncertainty of the housing market at the moment its just a case hoping for the best and dealing with it as it comes r.e house prices, meanwhile chipping away a little bit can hopefully only be a positive.

I would be up for relocation but unfortunately my partner lives in a humongous family that are very close ( im being polite ) we moved 45 minutes away to be able to afford the house instead of a flat and this already causes problems occasionally.

[Jcwjosh]

Evolved said:

Renovate and extend to add value. The net cost to renovate is hopefully less than the sale price you can achieve, meaning you bag the profit and have a larger deposit for the next place.

Just paying down your mortgage reduces down your term in the long run.

I wish i had the space to do this but i dont think i have, I have modernized what i can and can bring it up to date a littler more in the next 5 years, maybe add a driveway but aside from this i am pretty limited at the side and back of the property

[Jcwjosh]

ozzuk said:

I've always seen property as a great investment, however lots of people have a different opinion so it is worth considering the risk. If you are overpaying, and adding your own money then you are gambling on your single asset appreciating. The market is pretty unstable at the moment, and although I think long term prices will still rise that isn't a certainty - so you could find that 30k equity gets wiped out, or worse.

Reducing the mortgage will mitigate somewhat the risk of effect of rates increasing, but you could see that investment disappear so looking at other investment options could be a better approach (in parallel).

Yes i totally agree and i hope i dont find myself in negative equity, i have seen it happen to my father he was luckily enough to have some better luck with property after. What else would you suggest as an investment growth option ?

[Mr Pointy]

OP: do you have a contingency fund? If not, I suggest you think about starting one & putting any extra money into it until you have built up £5k-10k in emergency savings. You never know what life is going to throw at you & knowing you can cover the mortgage for 6 months or a year is a huge comfort. Open a seperate account & don't touch it except in case of disaster.

[Deesee]

Josh,

Some friends of ours moved from a 2 bed to a 4 bed 400k + using help to buy, (80k worth). They’ve got a brand new house, drive, garden etc..

The mortgage is practically the same.. have a look at those schemes I’d say.

[Jcwjosh]

Mr Pointy said:

OP: do you have a contingency fund? If not, I suggest you think about starting one & putting any extra money into it until you have built up £5k-10k in emergency savings. You never know what life is going to throw at you & knowing you can cover the mortgage for 6 months or a year is a huge comfort. Open a seperate account & don't touch it except in case of disaster.

Hi Pointy,

I do, but its rather small at the moment - 3k - i need to rebuild it a after paying for some work done in the house last year but im also saving for the bathroom to be done early next year ( only small but needs to be done properly ) You are right, life never seems to go to plan !

[Jcwjosh]

Deesee said:

Josh,

Some friends of ours moved from a 2 bed to a 4 bed 400k + using help to buy, (80k worth). They’ve got a brand new house, drive, garden etc..

The mortgage is practically the same.. have a look at those schemes I’d say.

I wasn't actually aware that help to buy is available to everyonel, so this is definitely something i will consider if the incentive is still there in 5 years time !

For some reason i think i was put off by owing 2 lots or having only a certain percentage in the property ( which seems stupid as that is what we do anyway as we pay down build more equity )

[Deesee]

Jcwjosh said:

Deesee said:

Josh,

Some friends of ours moved from a 2 bed to a 4 bed 400k + using help to buy, (80k worth). They’ve got a brand new house, drive, garden etc..

The mortgage is practically the same.. have a look at those schemes I’d say.

I wasn't actually aware that help to buy is available to everyonel, so this is definitely something i will consider if the incentive is still there in 5 years time !

For some reason i think i was put off by owing 2 lots or having only a certain percentage in the property ( which seems stupid as that is what we do anyway as we pay down build more equity )

Get in your car one weekend and have a look about, you’ll be surprise what you can get for the same cash, then you can still save on top, good luck.

[Mr Pointy]

Jcwjosh said:

Mr Pointy said:

OP: do you have a contingency fund? If not, I suggest you think about starting one & putting any extra money into it until you have built up £5k-10k in emergency savings. You never know what life is going to throw at you & knowing you can cover the mortgage for 6 months or a year is a huge comfort. Open a seperate account & don't touch it except in case of disaster.

I do, but its rather small at the moment - 3k - i need to rebuild it a after paying for some work done in the house last year but im also saving for the bathroom to be done early next year ( only small but needs to be done properly ) You are right, life never seems to go to plan !

Please don't take this the wrong way (it's good you've got some savings) but a new bathroom isn't an emergency. An emergency is getting hit while crossing the road leaving you with a shattered thigh & facing 12-18 months of bed, operations, crutches & time off work (just as an example).

Start a bathroom/home improvements fund by all means but don't raid the disaster fund. Once you've got those two well topped up then maybe start to think about overpaying the mortgage.

[Jcwjosh]

Mr Pointy said:

Please don't take this the wrong way (it's good you've got some savings) but a new bathroom isn't an emergency. An emergency is getting hit while crossing the road leaving you with a shattered thigh & facing 12-18 months of bed, operations, crutches & time off work (just as an example).

Start a bathroom/home improvements fund by all means but don't raid the disaster fund. Once you've got those two well topped up then maybe start to think about overpaying the mortgage.

I do agree its not an emergency and i have lived with it for the past 2 years in its current state albeit a bit dingy !
I have seen how a bad accident can turn your life upside down with a friends dad and he was out for a very long time.

Maybe reassess my plans a little end of the year, im currently in the working hard up towards my holiday in august mode, so will adjust priorities around Christmas time. Thanks for your input

[Nickbrapp]

Jcwjosh said:

I wasn't actually aware that help to buy is available to everyonel, so this is definitely something i will consider if the incentive is still there in 5 years time !

For some reason i think i was put off by owing 2 lots or having only a certain percentage in the property ( which seems stupid as that is what we do anyway as we pay down build more equity )

Move quickly with help to buy, there’s soon to be regional caps on the price of the house you can buy using the scheme, I think in the south east it’s going to be £437k, which with the way house prices are rising in the east won’t take long to be a 3bed semi.

Help to buy has its pros and cons, it is open to anyone, and you still own 100% of the property and still owe the same amount as if you had just had a 90% Mortage or whatever.

You don’t have to use the 20% I believe it’s incriments of 5%.

Interest free for 5 years with £1 a month management loan.

The downfall where house prices are rising quickly is its 20% of the price when you sell, so the loan increases as your house price does, not so bad in Wales.

Although if you plan to buy a “forever” home it shouldn’t matter too much.

Equity is also one that baffles me, if you’re baking on house prices rising to give you some, surely unless you move to another town where the prices are lower everything around you is rising too, so you’re not any closer to really having anything extra, not to mention it’s soon wiped out with solictors fees and stamp duty.

[NickCQ]

ozzuk said:

The market is pretty unstable at the moment, and although I think long term prices will still rise that isn't a certainty - so you could find that 30k equity gets wiped out, or worse.

In the UK your mortgage has personal recourse so it matters less whether you put the £30k in as overpayments or hold it as investments somewhere else - if you default the bank can come after it. You own the negative equity risk either way.

[Jcwjosh]

Thanks for all the replies so far.

I wanted to throw something else at you here.

So next year will probably still have around 35k equity, not much i know. I may also be in a position to put an additional 25/30k down instead of making a lump sum overpayment.

Would this be enough to try and step up to the 'next level' ie a more spacious property ?

I am in a 2 bed end of terrace at the moment, 2nd bedroom is a box room, bathroom middle of house very small no natural light, small rear garden just generally very small, great for professional couple not so much couple plus baby or for having large family visits.

Would be looking same area at 3 bed semi - with improvements on all of the above driveway bigger garden etc just more space in general, these start at around £350,000

Joint salary with partner around £66000 PA no debts other than mortgage.

Am i trying to stretch too soon ? In all your life experiences, should i build up a bit more or up-size as soon as possible.

I understand it is subjective and everyone will have different goals/opinions in life, i still want to enjoy my life and improving quality of life must be part of that i guess and having more space would be nice.

[red_slr]

How old are you?

[Jcwjosh]

red_slr said:

How old are you?

I turnt 30 this year.

[red_slr]

My own personal view is for someone at your age is to take a bit of risk and try and move as far up the ladder as possible in one jump.

Lending is at historical lows. c.2% mortgage rates. I would borrow the maximum you can get. Property values are stable ish.

Normal caveats apply in terms of affordability but if your life goal is to get into a nice house and have a family then now is the best time. A 30 year mortgage will take you to 60. You can overpay / remortgage later.

Don't forget to do some pension planning etc.

I bought my first house at a young age and at the time I could have afforded a larger place and looking back now I should have just gone for it and ignored the oldies who were telling me start small, work your way up - that's what people do.

That worked for them but we don't live in that time any more. Maybe it will work that way one day, in which case you will also be in a good position to trade up again. But until then I would just try and get the biggest jump in property you can for your money and then get your head down and get it paid off.