Parental advice.

caveman38

I am looking to give advice to my lad, who is to embark on his first house purchase with his partner. As we live in the SE the prices are crazy and the mortgage he proposes frighten the life out of me.
Firstly as I realise that interest rates are at historic lows, what rises are invisaged within 3/5 years by the professionals.
Also would I be right in assuming that if he got a 3/5 year fix at say 3% with a LTV at 80%. If house prices fell by say 10% over the next couple of years. When they come to renew their mortgage would the LTV be nearer 90% and they would be penalised by a higher rate plus any interest rate rise that would of occurred as a result of BoE rises.
Would I be too pessimistic to think that under those circumstances their rate may be nearer 9% in 3 years if the worst was to happen ie. 2% rise in BoE rate and HP falling 10% affecting LTV.
Am I thing right as I haven't had a mortgage for 20 years and would love to steer them in the rightr direction but don't want to appear as a panic merchant.
Help with advice or am I right?

beecher2

There are no 3/5 year fixes at 3% as far as I know. At 80% I think they'd be closer to 5% - best deals are for less than 60% or 75%

Get your son to put some figures into a calculator tool such as
http://www.moneymadeclear.fsa.gov.uk/tools.aspx?Tool=mortgage_calculator

Show him what the payments would be if rates go up 5% - you can advise him to make sure that he can afford rates at 10% at a push. This isn't being a panic merchant - it is presenting a possibility, and making sure that they could cope. Other than that you've got to let him make his own choice so I guess you step back if he and his partner decide to go ahead.

[Deleted User]

caveman38 wrote: »

I am looking to give advice to my lad, who is to embark on his first house purchase with his partner. As we live in the SE the prices are crazy and the mortgage he proposes frighten the life out of me.
Firstly as I realise that interest rates are at historic lows, what rises are invisaged within 3/5 years by the professionals.
Also would I be right in assuming that if he got a 3/5 year fix at say 3% with a LTV at 80%. If house prices fell by say 10% over the next couple of years. When they come to renew their mortgage would the LTV be nearer 90% and they would be penalised by a higher rate plus any interest rate rise that would of occurred as a result of BoE rises.
Would I be too pessimistic to think that under those circumstances their rate may be nearer 9% in 3 years if the worst was to happen ie. 2% rise in BoE rate and HP falling 10% affecting LTV.
Am I thing right as I haven't had a mortgage for 20 years and would love to steer them in the rightr direction but don't want to appear as a panic merchant.
Help with advice or am I right?

I think that the outlook for mortgage rates / inflation / house prices / jobs is more uncertain than it has been for years, so much so that I don't think you can trust even the experts to have much a clue in the current environment.
The only advice I can suggest is to minimise the risk as far as possible. If it were me I simply wouldn't buy over the next 3-5 years I would rent instead. Given that your son is likely to go ahead anyway, I would suggest a minimum 5 year fix as the way forward. That way, if prices drop over the short term then there won't be any remortgaging LTV issues to worry about for a while.
I have to say that the mortgages people seem to get these days frighten the life out of me too and this younger generation seem much more complacent about debt and money issues in general than those of us who've been around a bit longer.

VIGILANT22

I feel the most important factor to make "children" aware of who are buying jointly for the first time is the implications of this and if the relationship breaks down how difficult it might be to exit from this and the implications /consequences involved....i would also be suggesting they should see a solicitor to have a cohabitation agreement drawn up....these are areas where parents can give kids direction....much more important conversation than fixed or tracker rates...leave that to the adviser...if yr electrics are broke you dont send for the plumber!