First Time Buyer with 20% Deposit, understranding mortgages

Tony_R

Hello,

It has been a long time waiting but I think we have finally got our deposit together and are ready to start looking.

We have a deposit of approximatley £55,000 and houses which we like and appear to be in our price range are currently priced between £215,000 and £235,0000.

If we were to go for a 75% LTV mortgate we'd need that whole £55,000 just to get £220,000 mortgage which would practically leave nothing for anything else so we have decided to go for a 80% LTV as rates seem to be getting slightly better. That means we could put down £46,000 on a £230,000 house and still have £9,000 of the deposit plus slightly more for other fees/decorating/white goods etc.

Now, I think I want to go for a fixed rate for the security over the starting years and the option to overpay.

Last week I saw that Abbey/A&L had a 4.49% mortgage but that has since been increased to 5.19% and I think that's only for 2 years fixed and not 3 which is what I would prefer.

A friend at work recommended a mortgage advisor who only charges by taking the comission and I've emailed him. He has mentioned that he thinks the Abbey one is good in the current martket as it has no fees, I saw that it had a £999 booking fee but you get £250 cash back, whichis only on completion and it has no valuation fee which is important as deals fall through.

I have also found two other deals myself, through moneysupermarket.com and think they look better. But I may be missing something blindingly obvious?

The first is with the Post Office.

Post Office (3 year fix) @ 4.99%
Valuation Fee - £310
Booking Fee - £599
Cash Back £0
Total £909
Subsequent SVR 2.49%
Overpayments 10%

The second is with the Newcastle Building Society.

Newcastle (3 year fix) @4.40%
Valuation Fee – Free
Reservation Fee £99
Booking Fee £895
Search Fee £60 (this is what you normally pay the solicitor? seems strange paying them?)
Bank Transfer Fee £30
Subsequent SVR 5.99%
Overpayments = £500 per month.

The Abbey one is:

Abbey. (2 year fix) @ 5.19%
Valuation Fee – Free
Booking Fee - £999
Cash Back (money they give us) £-250
Total £749ish
Subsequent SVR 4.24%

Personally I think the Newcastle suits better,

a) it also has no valuation fee, but it does have a £99 arrangment fee, which would be lost if it fell through?
b) The interest is 0.6% lower.
c) It allows higher overpayments.

The downside is it has a far higher SVR at the end of the 3 years. But I'd probably overpay a much as i can in 3 years and move after that anyway.

The Post Office mortgate again has a slightly lower interest rate and lower booking fee, but has a valuation fee which might be lost if the deal falls through for whatever reason.?

The two houses I plan to look at are chain free and we are first time buyers, so there will not be a chain which may collapse, but could the deal fall through for any reason?

Which deal does looks the best to you? Is it worth getting the mortgate in principle first, or just look at the houses and then worry about the mortgage?

Thanks for any advice.

kinglewis

I think you've pretty much got it sussed regarding the rates etc.. the smaller details becomes your choice more than anything.

The main reason a sale can fall through for a first time buyer is if the survey doesn't value the house at the correct amount or the seller pulls out... or if solicitors find something dodgy.

Personally.. when choosing a mortgage I would carefully consider the svr as people have found out recently.. if banks don't want your business they will charge high fees to price themselves out of the market.. forcing many people to remain on their lender's svr. 2.49% is one of the best svrs on the market at the moment..5.99% is very high in comparison although it is true the initial deal apprears to be cheaper.... worth considering imho.

Tony_R

Thanks for your reply, the subsequent SVR for the Newcastle Building Society is the one thing that goes against it, as you say if we can't get a mortgage later on it could be problematical. 5.99% on a base rate of 0.5% very offputting.

The Newcastle also have a 5 year fixed at 4.89, which might be better as more would be paid off in that time.

One more question. I know there isn't any strict rules, but typically how low below the asking price should your initial offer be?

kinglewis

It does really depend how much you want the house!! Just do loads of research on recent sale prices and even put in a few low offers to test the waters..

On a house of £235k... i'd offer 210k... but then again.. id offer 200k if I thought that was what it was worth!!

Its all a very stressful game!

Good luck!

astreix

Are you sure you don't want to consider variable rate? Post office variable rate with the same 80% LTV is Bank Base + 2.79% (i.e. pay rate of 3.29% vs 4.99% for fixed). I believe that over the next 2/3 years base rate is likely to rise from 0.5% level currently. However you'd be better off till the rate rises by 1.7% from current level, if you take a variable product.

Most economist estimate (for what these are worth) rates are likely to remain low till end of 2010 and then rise gradually. If you are paying a low rate for a couple of years and a higher rate thereafter, overall you might still be better off with a variable rate over the 3 year period.