5% Mortgage First Time Buyer

Christie22

Hello everyone,

Im looking for some advise hoping someone can help me!

Sorry now if I confuse you!

My boyfriend and I are looking to buy a house at some point this year.
As im sure your all aware there is no stamp duty on properties under 175k if you buy before Sept.
We were planning to save a 10 percent deposit then some backup savings and some extra for fee's.
We have been to a mortgage advisor we told us that if we layed down 10% we would be looking at an interest rate of 5.8% if we layed down 5% (on a 2 yr fixed deal) we would pay 6.89%.
Over 2 years if we layed down a 10% deposit we would pay £24,192.. if we layed down 5% we would pay £21,864 so a difference of £2328.

However if we wait to save a 10% deposit we will have to wait till next year and will more then likely have to pay stamp duty which would be £1500. Where if we act now we will not have to pay it!

Am I right in thinking if we layed down a 5% deposit and did a 2 year fixed deal.. after this 2 year point we can get a new mortgage deal at a new lower interest rate?
We would pay £2328 extra in interest but could minus the £1500 stamp duty so it would only cost us £800 quid more to move out nearly a year earlier and get on the ladder!?

Im really sorry if im confusing!! If someone could help me it would be very very much appriciated!

Many Thanks

Christie

downs523

all sounds ok, but in 2 years will house prices rise or fall, if they fall more you will be in negative equity and may not be able to get another mortgage deal, maybe having to stay on a variable rate which could be alot higher in 2 yrs. its very risky only putting 5% down, cant you get a longer term for the fixed rate so you have enough time to knock some capital off?

Soot2006

ladder

Or to start falling down the snake?

You haven't taken the current market into account in your calculations.
e.g. you have not included the equity loss that is likely to occur. It sounds simple enough to pay 5% deposit, accept a higher interest, and then remortgage to a better interest rate in two years, but the most likely outcome is that no better interest rates will be available to you in two years. Overall, it is possible that interest rates will have increased by then. In addition, if your equity has decreased below 5% (Very likely to happen, even before the end of the year), then you may not be able to remortgage at all ... thus negating all the virtual savings you might have made by buying this year.

Stick to the saving ... or look for a cheaper house to improve the % of your deposit to at least 10%-15% ...

Mini_Bear

5% deposit really doesnt protect you against house price falls (currently up to 2%/month).
I would be wary of thinking that the government will put the stamp duty threshold back to 125k - this will put a lot of pressure on houses around the 175k mark to lower and it will also deter first time buyers like yourselves from buying as you will have to save for longer to pay this tax.
My advise would always be save as much as you can for a deposit. You will regret not saving for a couple more years when house prices continue to plunge and your ltv is 100%+
Good luck and keep saving!

Cannon_Fodder

If there's no single house that you are waiting to come onto the market, or having/wanting to go for now, then you can play the waiting game for a bit longer and see what develops.

Prices are likely to continue falling through this year, due to credit crunch and recession. Waiting until September could save that £1500, just on the price you pay, or perhaps more...

The last Interest Rate cut has not filtered through into new mortgages deals, fully.

See what deals are around in May/June/July...?

Don't forget to check the maths on longer terms deals, as they may have slightly higher rates, but counteract that by having the single fee in (say) 5 years, while your 2 year fixed deal expiring will require you to pay another fee in two years time, should the best deal be with another lender...

You might get a nice pay rise and save your deposit faster than expected, or lose your job and scrap the whole idea...

No need to rush such a decision.

beecher

As others have said, you're going to be in danger of being in negative equity if you only put a 5% deposit down. You need to factor in falling prices as your stamp duty costs will fall slightly as prices go down.

Can I ask why you're looking at 2 year deals? You're better off looking for a longer deal as interest rates will rise at some point in the future. Definitely don't bank on rates being lower in 2 years time than they are now.

Keep saving as others have said.

lukekelly_2

Am I right in thinking if we layed down a 5% deposit and did a 2 year fixed deal.. after this 2 year point we can get a new mortgage deal at a new lower interest rate?

You are I'm afraid wrong in thinking that! After the two year point if you were in negative equity you would be moved to their SVR, which could be higher or lower than at present. Otherwise you could move lender and get a new deal, which again would not necessarily be lower than your first deal. I'd suggest that the negative equity and SVR at a higher rate than present is the most likely scenario, and is certainly a possible one.

Rick62

As others have said, you are likely to be in negative equity in two years.

The economy is going to be dreadful this year. Keep saving and wait at least a year.

Why is you broker recommending a 2 year fixed? You should probably be looking at longer, eg 5 years plus.

Christie22

wow thankyou so much for all of your help!

I think ill stick to the origional plan and save 10% and 6 months extra mortgage payments as backup

Thanks alot everyone you have been a great help!

downs523

£10,500 by dec 09 thats gunna be tough mate. goodluck!!!!

iB1

Just to add - I severely doubt with the housing market the way that it is, that the £175K stamp duty limit won't be re-instated when it expires...