First time buyer with 25% Deposit...

Bean_69_99

Hi all, will keep it brief for now as im leaving for the mortgage meeting now to see what the amount we can borrow is, however scenarios is...

Looking for £100000 house, £25000 deposit, assuming we are earning enough to get the £75000 mortgage what is general advice on best product?

From what weve seen the best tracker is the +1.89% offered by the cooperative bank

This saves us about £100 a month compared to the 4.99% fixed deals.

We only want to be tied in for three years and i cant figure if the tracker is worth the risk.

I appreicate that base rates are not as predictable as we might like to think over three years but i would appreciate some input!

Thanks and wish me luck!

Matt

Bean_69_99

any input?

Bean_69_99

As also referenced in the Inflation / Rates thread.

RufusA

Seeing as no-one else has responded.

My personal take is that it will be politically foolish for the Government to suggest to the BoE that inflation has more precedence over recessionary pressures before the next general election.

So IMHO interest rates will be static for the next 12 months.

Inflation IS likely to rise due to exchange rates caused by excessive Government debts, and increase in money supply.

Recession however is unlikely to end until unemployment and increased debt works it's way out of the system. I suspect unemployment to increase until tag end of 2010, with mild increases in consumer spending starting mid 2011. The Government is unlikely to allow high interest rates until the recession has been seen to turn the corner.

Around then inflation will need to be controlled and IMHO interest rates will rise in stages probably to no higher than 5%.

As to which mortgage to choose it depends on your attitude to risk. If BoE interest rates rise to 5% (and the tracker mortgage is 6.89%) you'll still only be paying approx £100 more than the fixed.

Over three years with rising interest rates the total cost of the mortgages will probably be similar.

You could just as easily put the money saved on the tracker in to a savings account to act as a buffer to pay for higher interest charges in year 3 (if you are disciplined enough).

It all comes down to:

1) Your attitude to risk - are you willing to pay more to reduce risk? Could you afford an extra £100/month if interest rates did rise?
2) Your personal circumstances - are you likely to need to move / sell in the next three years.
3) Each mortgage's other features - what happens after the 3rd year. What rate does the fixed go to. Can you make overpayments, underpayments, port etc.

No answers I'm afraid, the choice is entirely yours, and there are no wrong answers!

Don't however assume that the house price will remain constant and you can easily change mortgages in three years time!

HTH - Rufus.

Bean_69_99

thanks for the help, i wasnt so much after answers, more other peoples take on the situation.

After discussions with my dad whos been in property for more years than ive been on this fine earth and also more readings on here... ive come to the following.

Go on the tracker, and overpay as if we were on the fixed. This is £100 a month over paying which with the co-op can be used as a backup for underpayment in the future. Interest is also calculated daily, so more pro's there.

Im convinced that interest rates will remain the same until atleast next year march time and it will be the extent of the growth over next year after a poor hard hitting christmas for much of the u.k. that will determine any rises in base rate.

I am a little concerned over what state we're going to be in, in three years time, however, i dont think this is reason not to get on the ladder. Maybe more reason to make sure thet property has some room for improvement as we cant rely on prices going up to increase our equity and our deposit is made up of a family loan that will have to be paid back at some point, we need to be able to make this equity back to maintain parity for the future.

Your point about rates having to wait for the economy to turn the corner is very different from what many are seeing as the economy returning to flat... And i feel that something has to come good in the economy with many thing rather than just stop getting bad...

Simple terms but thats how im seeing it at the minute.

Result being, we should be able to afford any 'normal' market rates up to 7% as by the time this happens we will be in a position where we should ahve paid off a substantial amount in overpayments and our personal job situations should be better in terms of £££ (im on an 80% working week!)

Thanks again

beecher

Bean_69_99 wrote: »

Maybe more reason to make sure thet property has some room for improvement as we cant rely on prices going up to increase our equity and our deposit is made up of a family loan that will have to be paid back at some point, we need to be able to make this equity back to maintain parity for the future.

This bit concerns me - have you allowed for how you're going to pay back that loan? As well as overpaying by £100/month, make sure you can save at least a further £100/month as a cushion for when rates do go up. You need to be sure you also have some extra money to start paying that £25,000 back. Personally I couldn't sleep at night with those sorts of sums unless the salary ratios you're looking at are tiny. Too many 'shoulds' and 'hopefullys' are warning bells.

Bean_69_99

i appreciate where your coming from, didnt explain myself very well.

The 25k is only half borrowed, half is my own.

The overpayment facility on the Co-op as far as i understand means that the overpayments can be used up in the future... So if we overpay £100 a month, that amount can then be used in the future to underpay... its there if we need it.
Its a situation i think of as:

' I'm covered in things go bad, im overpaying if things go good, and if things go really bad, we're all F***ed so theres not much i can do about it '

Not as flippant as it sounds but you get the idea.

Feel free to correct me where im wrong thats what im here for!

As for paying the loan back. The income that I'm currently on is 'temporarily' restricted to an 80% working week. Living at home i have little way of earning some bits on the side, when ive had space ive made profit on cars. Just as an example really, but if im back on a 100% working week (American owners restricting until we hit turnover and prime margin targets) i will be over £150 a month better off. If im stuck on this 80% with a house, i will have time and space to get back on the entreprenerial ideas ive got and the loan can be paid off when we can. Although i cant be 100% sure ive got the loan as long as i need it, i cant get on the ladder without it and although its not critical now to get on the ladder, i think it will be over the next twelve months.

Thanks for your input, much appreciated

Bean_69_99

Anyone else care to voice their opinion on this situation? Im all ears

emma2009_2

not much in terms of advice, but i am in the same position as you. we are looking tobuy a property for £127,000 with a deposit of 20%. the best tracker we found was 2.99% with RBS and Natwest. compared to the fixed rates of 5%.

We were having the same dilemma, what if the rates go up??? and some people on here were really scaring me saying that rates can go up as quick as they come down. but our personal opinion is we take the tracker, risking the rates. but overpay each month so that should rates go up we wud have some back up.

I am no financial expert by any means, but i just cant see the BOE increasing rates quickly as so many people will find themselves struggling and losing their homes. i reckon they will stay same until after christmas and when they do start increasing it will be in small increments of 0.25% at a time. which if u have overpaid should not be too bad!!

good luck, i hope all works itself out

Bean_69_99

Thanks, best of luck to you too... no doubt i will become a more frequent member once moved out and all that!

My thinking so far is that Base rates can only rise if lending becomes in more demand for houses... this demand means a rise in house prices, so if the house rises with the base rates and ive overpayed as if i was on the fix i should be ok for the three year term.