FTB - Fixed or Tracker help please....

LookingForward_2

Hi,

I've seen a few similar posts so thought I'd jot down our situation to see what other people think please.....My boyfriend and I are buying our first property for £150k with a 10% deposit. The two best mortgages we can choose from are either a 2 year NatWest tracker at 4.19% above base, or a 3 year Alliance & Leicester fixed at 5.99% - so not a huge difference. Both have an upfront fee of £250. We can afford the monthly repayments easily and the difference between the two is £100 with the base rate as it is and the base rate would need to get to 2% before the payments are more than the fixed.

Generally I would have no hesitation with taking the tracker as we would have a comfortable amount to cushion us but we are borrowing the deposit from my parents and have agreed a monthly repayment amount with them, so the two monthly payments bring us quite close to our available monthly amount. The tracker would mean that while the base rate is low we would be able to pay my parents off quicker but there's always the risk of the rate going up. The fixed would mean a slower but surer pay off to my folks.

Any comments/suggestions here please??

Thanks for any help, I feel like I've walked into a whole new world with this mortgages lark!!

uzubairu

The fact that you are borrowing the deposit from your parents means that you really have a 100% mortgage and not much room for flexibilty.

You sound to me like you need the security of a fixed rate.

At the end of either deal, you may still have a high LTV and not be able to get a good re-mortgage deal (if rates increase).

How long will it take you to repay your parents and are you paying them any interest?

LookingForward_2

Thanks, I'm leaning towards the fixed rate I think. We will have paid my parents off in two years and they haven't asked for any interest on top, after this point we will have an extra £500 per month. At the end of the 3 years (if we go for the fixed rate) we will fully own the 10% plus any extra amount we will have paid off the capital -appreciate this won't be much for the first few years of the mortgage! The house price will have hopefully gone up a bit by then, giving us a bit more equity when we come to remortgage.

getmore4less

10% £15k £500pm 30months 2.5 years.

What are the follow on rates with these 2 deals?

How flexable would the parents be on payment schedule?

Depending on the above, I would look at the cheaper rate and overpay I think rates are staying low for a bit yet.

g_attrill

I think you will get problems when it comes to the paperwork - many (most?) lenders won't accept anything except savings or cash given as a gift as a deposit. A deposit loaned from parents will either mean you are turned down, or at best they will factor the repayments into the affordability. When working out what you can afford, have you included the parents' loan repayments in the online calculators?

Son_of_a_beesting

g_attrill wrote: »

I think you will get problems when it comes to the paperwork - many (most?) lenders won't accept anything except savings or cash given as a gift as a deposit. A deposit loaned from parents will either mean you are turned down, or at best they will factor the repayments into the affordability. When working out what you can afford, have you included the parents' loan repayments in the online calculators?

I would be interested in the answer to this as well. Have you spoken to IFA about the deposits?

Peelerfart

Usually I would say tracker, as I'm not a fan of fixed but in your case I'd agree with uzubairu and go for fix.

I think you need stability to pay off your folks and then evaluate your position in three years having paid your debt

housesitter

Do you think that the parents of the OP probably trust them to pay them back?
So its a gifted deposit then isn't it. Or it's savings.
The money should come from the OP's account to solve any issues like that.


I'd say fixed too as you know what to budget for.
However, I would also build up a war chest of savings, so if at the end of the fixed rate the interet rates are nuts you have choices.
As you say, you are going to be cutting it tight, so skim on some luxuries and buy a bigger safety net long term.

LookingForward_2

Thanks guys, your responses have been really helpful. To answer some questions.....I have shares I can sell in a year, which will hopefully make a big dent in our loan and we've agreed that any bonuses we get are going straight to my folks to pay them off sooner. Neither of us have any debt, so we'll be tightening our belts and saving as much as we can, on top of the monthly payment, to make the loan disappear.

The follow on rates for the fixed and tracker are 4.24% and 4% respectively.

As far as the paperwork goes, my parents have full faith in us in paying them back and are therefore purely transferring the amount into my account. I've taken both the mortgage and loan amounts into my calculations and are comfortable we can pay both.

We've got an appointment with A&L on Friday to sort things out for the fixed and thanks housesitter, that's exactly what we're going to do to cushion us as much as we can for the end of the term.

Thanks again! :T

Spangled

The tracker at +4.19% above base seems like an awfully high margin to me. What if the BoE base rate went back up to 5.5% (which was what it was pre-credit crunch)? You'd be paying 9.69%. Could you afford the repayments at that level?

I realise tracker choice is limited in the current economic climate but that sort of margin is taking the michael!

Good luck with whatever you decide.

LookingForward_2

Thanks Spangled, we've decided on the fixed for the security.