How does mortgage work?

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    (Original post by threeportdrift)
    Begging them wouldn't do any good at all. Read up on how many people think the 2008 economic collapse happened - it was because US banks lent more on mortgages than people could afford to repay and their mortgages were worth. Ultimately, if you can't make your mortgage payments, the bank takes your house. But if the house is worth less than they lent you, the bank bears the loss.

    So Banks are very much tougher on mortgage lending nowadays, both because they want to be, and new laws make them.
    If the bank don't get back the full amount that they have lent you when they sell your house, you still have to pay that debt back. The bank doesn't bear the loss.
    https://www.citizensadvice.org.uk/de...ortgage-debts/
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    (Original post by Candy55)
    So do you reckon I can buy a £70,000 house with a salary of £15,055 ( over 25+ mortgage years)? I'll earn about £1200 or so a month and the monthly mortgage is only £338. Is it possible? Oh and i'll pay the deposit before hand, i think i can def manage that.
    The problem with those calculations is the value of the house you've quoted - as I mentioned, £70,000 really won't get you anything. It might buy you a small garage in Kensington...

    Seriously though, mortgages are granted now on the concept of 'affordability' as well as a multiple of your income. So the maximum available mortgage to you on a salary of £15K would be about £77K, but that would be reduced if you have student loan repayments, have other outstanding credit commitments, have an expensive lifestyle, etc etc. As such, it's not possible to say exactly what a bank will lend. Also remember that there are other costs involved in getting a mortgage and moving house. Mortgages usually have set-up fees (though you can usually add these to the loan). You would need to pay a solicitor for conveyancing, there would need to be a survey for the mortgagor and removal costs.
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    (Original post by hamzaahmad786)
    I have a question. If you take a £250,000 mortgage, after a couple years the house price rises to £300,000, can you return the house to the bank (pay related fees) and pocket the gain?
    You can't 'return the house' - you could sell it though on the open market. However, it you did that, where are then you going to live...? You've got to live somewhere, and if your house had risen in value, then all other houses will have risen by a similar amount. So if you wanted to pocket the difference, you'd have to downsize your house! This is the fallacy when people feel rich because house prices are rising.
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    (Original post by lilibet01)
    If the bank don't get back the full amount that they have lent you when they sell your house, you still have to pay that debt back. The bank doesn't bear the loss.
    https://www.citizensadvice.org.uk/de...ortgage-debts/
    I was simplifying for the purposes of an OP who didn't have a clue. Declare yourself bankrupt, which you will almost certainly have to, and the bank bears the loss.
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    (Original post by Reality Check)
    You can't 'return the house' - you could sell it though on the open market. However, it you did that, where are then you going to live...? You've got to live somewhere, and if your house had risen in value, then all other houses will have risen by a similar amount. So if you wanted to pocket the difference, you'd have to downsize your house! This is the fallacy when people feel rich because house prices are rising.
    Yep, understood. Another question: If one applied for bankruptcy the bank would have no choice but to take the house back right? In that case, would the £50,000 gain be realised, if so who would it go to?
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    (Original post by hamzaahmad786)
    Yep, understood. Another question: If one applied for bankruptcy the bank would have no choice but to take the house back right? In that case, would the £50,000 gain be realised, if so who would it go to?
    You can't file for bankruptcy if you are solvent ie you have money. If the house has appreciated/increased in value, then you are solvent!
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    (Original post by hamzaahmad786)
    Yep, understood. Another question: If one applied for bankruptcy the bank would have no choice but to take the house back right? In that case, would the £50,000 gain be realised, if so who would it go to?
    Bankruptcy is a very serious thing, only suitable for a small number of cases and very much a last resort. However, the answer to your question is as follows:

    As soon as the bankruptcy petition was approved, you would cease to control any of your assets (even the cash in your pocket) and control would pass to the Official Receiver, who is a civil servant tasked with getting the best outcome for your creditors. However, the bank who advanced the mortgage has a 'charge' on the home - this essentially means that the house is security for you defaulting on the mortgage loan. They would seek to sell the home to repay the mortgage - if there was a surplus after the sale, this would not be returned to you but would go into the general pool of your assets to be shared out to the next creditors in the queue. If after paying everyone there was still a surplus, then you were never technically 'insolvent' and you would then apply to have the bankruptcy annulled - it would be a bit late though, seeing as you would have lost your house by that point.

    More to the point, it would be unlikely that you would secure another mortgage for quite some time if you'd had a house repossessed. It's more an academic thought experiment than something that could ever happen.
 
 
 
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