FTB Mortgage

j0nathon2

I am currently looking at buying a house and obtaining a mortgage.

I am thinking of using a £50 000 deposit on a £110 000 house, hence I need a mortgage of £60 000. I am single no kids so I only have my own living expenses after mortgage to consider. I earn around £31 000 a year.

I am finding it hard to decide wether to fix, in anticipation of a rate increase or to stay variable, and assume rates will not increase too much over the term - although to be fair, the mortgage is compartively small and I could probably absorb a reasonable rise, I'd rather not pay more than I need to in the long run:mad:

herbiesjp

You will have the pick of the rates on that basis.

What you need to do is try and work out what limit you would want to put on increases, if you did opt for a variable/tracker rate of some sort. See what those increases would mean in terms of monthly payments to you.

Then compare against the safety of a possibly longer term fixed rate over 5 years.

If you did opt for a variable/tracker but then decided to move to a fixed rate, you would have to take into account the exit fees, and set up fees of the new deal as well, when looking at whether or not it was worth going fixed from day one.

j0nathon2

I know people are not allowed to give advice here, but if I was to say do something along the following lines, would it be stupid/mad?

Britannia have a 10 year fix at 5.29%. Take out a mortgage on a 15 year repayment term on this mortgage. This means for the next 10 years at least, paying about £490pm. After 10 years, a lot of the loan will be paid off.

It sounds mad, paying such a high interest rate, I just fear they will go sky high and I'll end up paying even more!

jw2003

That's the gamble with fixed rates however the base rate did rise to 5.5% in the not-to-distant past and if it did so again in the near future you would be protected. Personally, and this is from a part-time employed housewives point of view not a financial whizz's, it sounds like a good plan. Repaying your debt over a shorter period will save you thousands on the interest and a fixed rate will protect you from rate rises for the next 10 years.

If the base rate stayed this low you'd be paying over the odds, however if interest rates rose to 15% like they have done before then you'd be really pleased you chose it. Could you afford rate rises pushing your mortgage to above £490?

Liz33

It sounds as though you really don't want to risk the interest rates going up so maybe get the best fixed rate you can find with the option of overpayment as well then pay more off if you can afford each month as well to pay off early or have you thought of a discount or tracker rate? Or can't you split the loan and do half fixed and half repayment then you would be less affected by any increases, not sure on this but someone will be able to tell you.

If you go to a fees free whole of market broker you can discuss all your options with them and they will give you the best advise for your circumstances but like someone said with a big deposit you should have a good pick.

herbiesjp

j0nathon2 wrote: »

would it be stupid/mad?

!

No it wouldn't - as it is giving you exactly what you are looking for.

In actual fact, others would call it wise/shrewd.

j0nathon2

Thank you to all for your responses.

I could afford an increase, of quite a bit actually, which does make me wonder whether I should take the risk. I think with me, it's not so much the risk of not being able to afford it, it's the risk of ending up paying too much (i'm tight!). Looking at it the way I proposed too, a flat in a city centre is about £500 rent and nothing to show at the end of it, which was another thing I was looking at to start off with, renting.

Plus, £110 000 is sort of the average prices I have been looking at, but I reckon I could knock this down a bit, and even add to the deposit depending on exactly when I find a house. After the deposit and fees, I would still have approx another £20 000 in the bank which obviously I would need to get started etc.