FTB worrying about the future

leanne86

Hiya everyone,

Myself and my boyfriend are currently saving for a 10% deposit and planning on buying next year. I've been swotting up on these boards and trying to learn about everything, but i'm still a bit concerned and would appreciate a little help.

I have decided i want a fixed mortgage for 5 years probably, as i want the security that the payments can't rise.

What happens after the 5 years taking into account the current climate? Is it a possibility that as house prices go up etc that so will interest rates, so that if our mortagage paments are £800 a month for 5 years, that they could go above £1000, or even further?

I'm worried that we will be signing up for the unknown, as what we are saying we can afford to borrow now, we might not be able to in 5 years if the payments double.

Sorry if this is an obvious question, but i can't seem to find the answer to this anywhere and it's worrying me!

Many thanks in advance.

beecher

Set the mortgage you get at a level which allows you to afford payments at 10%. Don't overstretch yourself, and try to build up a higher deposit than 10% as that'll open up more options for you. You may find that after 5 years your property is worth less than it was - who knows? Certainly don't bank on still having a 90% LTV.

Play around with this

http://www.moneymadeclear.fsa.gov.uk/tools.aspx?Tool=mortgage_calculator

and see how much the payments would be at 10%

opinions4u

leanne86 wrote: »

Myself and my boyfriend are currently saving for a 10% deposit and planning on buying next year. I've been swotting up on these boards and trying to learn about everything, but i'm still a bit concerned and would appreciate a little help.

Push the boat out, go for 15%! This should help you access better value deals.

I have decided i want a fixed mortgage for 5 years probably, as i want the security that the payments can't rise.

Don't forget that there are longer options out there. Make sure you take a "portable" option that allows you to take the rate to a new house without penalty if you choose to move.

What happens after the 5 years taking into account the current climate?

It's not the current climate you need to worry about. It's the climate in 5 years time. Asking Mystic Meg may be more use!

Is it a possibility that as house prices go up etc that so will interest rates, so that if our mortagage paments are £800 a month for 5 years, that they could go above £1000, or even further?

Yes. Or prices could go down further and you could be in negative equity. The most I have ever paid on a mortgage is 15.4%. Over a typical 25 year term, there is no reason why that can't happen again. And there's no reason why rates may go nowhere near that level again.

I'm worried that we will be signing up for the unknown, as what we are saying we can afford to borrow now, we might not be able to in 5 years if the payments double.

Don't worry about it. Plan for it. Build some slack in to your finances. Have an emergency fund. Consider overpaying your mortgage while rates are fixed at a lower rate. Always have slack in your budget to allow for a rise of 2% in interest rates. And if it happens, build in a new slack just in case it happens again.

As you get in to year 5 of your fix, keep a close eye on what your rate/payments is likely to be at the end of the fix. Plan ahead.

The only certainty is that something unpleasant will hit your finances from time to time, be it higher mortgage payments, a cut in overtime, a car falling apart or a wife (or husband!) who thinks you should have two foreign holidays a year.

Be prepared. Be ahead.

kerry13238

have you looked into new build they pay your deposit 25% on flats and you have to pay it back in ten years at todays prices. in 5 years you will prob be earning more so will be able to afford if the rates have gone up try not to worry i think now is the time to buy

beecher

kerry13238 wrote: »

have you looked into new build they pay your deposit 25% on flats and you have to pay it back in ten years at todays prices. in 5 years you will prob be earning more so will be able to afford if the rates have gone up try not to worry i think now is the time to buy

Sorry I don't think this is good advice. People saying 'I'll probably be earning more in the future so I'll take a gamble' is part of the reason we're in the situation we're in now. The OP is wise to be concerned about what will happen in the future and is doing the right thing by saving up a deposit rather than hoping they can afford to pay it back in 10 years time.

benjo

As opinions4u mentions - there are longer term deals available, I went with a 5 year fix (4.49%) - if I could have found a suitable 10 year fix with rates that made me smile I would have gone for that, but it wasnt to be for us at this time.

Without the aid of a crystal ball Im going to take a punt that interest rates in 5 years will be higher than they are today, not sure how they could go lower and stay lower than they are today - and honestly, I would be really happy if I was wrong.

It isnt possible to be sure by how much interest rates will rise, but Im also willing to guess that my next fix will probably be nearer to 8+% than 4%.

With that in mind the options open to me are to over pay as much as I possibly can afford now (not going over the allowed overpayment limit) in the knowledge that although I will be paying more interest it will be on a lower amount of capital borrowed.

Beecher is right - gambling on earning more in 5 years is risky, you could loose your job, your husband/wife might leave you, you could get hit by a bus and forced, due to ill health to survive on benefits - it does happen.

Save for the biggest possible deposit you can, you will have more choices in lenders/products and the better LTV you have the lower interest rates you will pay = you have more chance to make overpayments/have a higher emergency savings pot = you have more of a buffer when interest rates do rise.

SelbyJay_2

I think it's a good thing your worried, as you're less likely to get yourself in to trouble. No body knows what's going to happen. I've read an article in The Times this morning and some economists dont think interest rate's will rise significantly for another couple of years. Does this mean that the banks wont increase their rates tho? Who knows.

For me, i would be building in affordabilty with interest rates being at around 10%. This should help cushion a blow if rates do shoot up. It's not sensible (and do not rely on it) but chances are, your salaries will be higher in 5 years time and you could also consider taking in a lodger or getting a second job if you have the space and your mortgage payments really do get too much.

There are always ways to survive, you just have to be willing to fight.