Mortgage Warning! The Evaporating Equity Trap.

Andy_Hamilton

Hypothetical question;
You buy a house on one of the best affordable housing schemes (discount passed on for life not shared ownership) for £80K
You struggle to get 2.5% deposit (buying the home will actually save money per month)
You get higher lending fees of nearly 2% and a rubbish fixed rate.

2 years later you go in for a mortgage review, they say the house is worth £122K (current market value without the discount applied) and offer rates for 75% LTV and could swap straight away.

Would it be wrong to take the 75% LTV rates? Could they come back to you later and say the offer is void even if the left hand does not know what the right is doing in this company.

Snow_Dog

---lee--- wrote: »

Stick with mortgages that have reasonable rates but without any redemption/early repayment fees, [FONT=&quot]arrangement [/FONT]fees or exit fees etc.

That what I did a couple of years ago when I signed up with ING's tracker. It was not the cheapest rate at the time (<.9% over BR) but it was a good deal as it had none of the above fees.

I was only going to stay with it on a temporary basis until something better came along then I decided to stop looking and stick. Why have the [FONT=&quot]hassle [/FONT]of chasing down the latest deals every couple of years?

Mainly because going through the hassle of chasing down the latest deals every couple of years can easily save £100 per month (a 1% difference on a £120K mortgage) and I for one would prefer that money in my pocket rather than a bank that relies on customers like yourself not making sure you are always on the best deal.

---lee---

Snow_Dog wrote: »

I for one would prefer that money in my pocket rather than a bank that relies on customers like yourself not making sure you are always on the best deal.

I've never been on a bad deal mate! My point was, if your on a reasonable product rather than being lured by the smoke and mirrors of short term discounts with long term tie in’s etc, then you are never on the losing side of the deal.

uzubairu

---lee--- wrote: »

I've never been on a bad deal mate! My point was, if your on a reasonable product rather than being lured by the smoke and mirrors of short term discounts with long term tie in’s etc, then you are never on the losing side of the deal.

That's why we took a 10 year fix at 4.79% with Nationwide in 2006.
Able to overpay up to £500 per month, change term of the mortgage and get back overpayments at short notice.
Ticks all the boxes for us with no messing.
Hope to have paid off mortgage by 2016 when fixed rate end (see signature).

Our LTV has gone from 66% in July 2006 to 69% in November 2008.
The overpayments have kept us close. Our intention is to be mortgage free in 10 years, so LTV doesn't bother us too much, because we don't intend to re-mortgage.

The best new mortgage deals come with large fees or are only available to people with lower LTV, so chasing the best rates may not save you money for a while or even be possible for a lot of people.

minimike2

The longer term effects of overpaying stretch further than "what rate can i get on savings" IMO. For the vast majority of people, they will not be constantly shifting money about and reacting to every market change - the people that can dedicate the time and effort to this, well thats great, but for most, overpaying is the best way. But its not just about what the rate is now...its about the long term compounded effect on the interest where the biggest benefits are imo.

---lee---

uzubairu wrote: »

That's why we took a 10 year fix at 4.79% with Nationwide in 2006.
Able to overpay up to £500 per month, change term of the mortgage and get back overpayments at short notice.
Ticks all the boxes for us with no messing.
Hope to have paid off mortgage by 2016 when fixed rate end (see signature).

I would not be unhappy with that deal. Even if the rates drop down to 2% or lower. It's somewhere in the middle and as you say, it leaves you free to concentrate on overpaying. I used to overpay £500 also but I reduced the term of my mortgage last time I changed provider so I just pay a fixed amount which means currently my overpayment is increasing as the rates go down but I can only afford to overpay around £200 p/m at the mo. Two years ago, I reduced my term to 13 years but my guess is I've got at most 9 years to go - time to whip out the spreadsheet and recalculate! Reducing interest rate is going to help me a bit more.

uzubairu

minimike2 wrote: »

The longer term effects of overpaying stretch further than "what rate can i get on savings" IMO.
But its not just about what the rate is now...its about the long term compounded effect on the interest where the biggest benefits are imo.

If we can pay off mortgage by 2016, we'll save ourselves £60K in mortgage interest. :T

Kez100

We have been overpaying since the crisis started, and despite being on a low tracker we have actually put our payment up to the maximum we can afford (luckily we can offset).

I just want as much extra in there as possible in case we suffer with our jobs and then we can take payment holidays (another option of our deal) or the rate goes up as quickly as it has come down.

I suspect this is part of the reason the High Street is suffering. Many people still with jobs just don't know - after what has happened we start to believe anything could happen - and we are just not spending if we don't have to.

cleve_2

wow good timing Martin - this is exaclty the problem we're facing this month :-)

Just coming off a fixed mortgage with A+L at 5.5% onto the SVR of 6.94%, which is still unchanged after the 1.5% BoE drop - not impressed.

Our LTV has dropped from ~73% to 77%, passing the 75% threshold.

This means I'm in the <85% bracket hence:

They ONLY do fixed deals.
Min is 3 years @ 6.54% with £599 fee !! crazy

So I reckon I have 3 options,

1. Go on to the SVR and hope they are generous with their response to the BoE drop and keep an eye on deals they bring out later.
2. Take the rubbish fixed deal above
3. Beg my parents to loan me £2'700 to take me into the 75% deals - currently 2 years @ 5.79%, but I could end up just chasing the rising LTV. - I still have overdrafts that I would probably be best paying before this too.

I've just become self employed so theres no chance of getting another lender.

Any thoughts? At the moment I think I might sit tight and go on the SVR for a while.

John

silvercar

Worth seeing a broker, with a good employment history and good credit the fact you've just gone self-employed may not rule out every lender particuarly, if you are working in the same field.

If you borrowed that £2,700 (only if you parents can well afford it themselves), you would save £1500 over 2 years on a 100k mortgage plus the difference in any fees charged.