First time buyer with decent deposit (a few questions)

Grofit

Hello,

Originally posted in the wrong part of the forum, so apologise for that...

I will try and give some background before i start asking the questions so you have the full scenario.

I have been thinking about buying for a while, but never had a *need* to buy. My partner and I have been saving over the years and now have just over £65,000.

I am possibly going to be moving jobs soon, and although I dont mind commuting for a few months we were looking at buying a place closer to the area. There are a few nice houses that are around the £150,000 mark and a friend of mine lives a street over and has mentioned that it would probably go for about £135-140 if haggled down.

Now I understand fixed, tracker and to a degree variable mortgages (I dont really understand how they work out the lenders SVR), and will probably want to put £55000 down as a deposit, meaning if I got it for £140,000 I would owe £85,000.

We are currently debt free and dont like debt, so I like the idea of a 5-10 year mortgage so although im paying a higher amount per month I only pay a small amount of interest, lets say on the £85,000 mortgage @ an average 4.0 APR im looking at paying about £18,000 interest back in 10 years and a fraction of that if i did it in 5 years, which still makes me feel a bit ill but its far better than a 25 year one where my monthly payments are low but I end up paying the bank around £50,000 interest.

Anyway now to the questions.

- Is it even possible for me to get a 5 year mortgage as im a first time buyer? I do have over the 40% deposit, and dont have a bad credit history.

- Is it worth going for a 5 year mortgage with the lowest interest rate possible to pay off as much of it as I can as quickly as I can? Then lets say I hit a problem and need to reduce my monthly payments I can just ask the bank to extend my mortgage to a 10 year or further, but the bulk would be paid off anyway.

- What sort of fees am i going to get stung with other than the mortgage? I hear of surveyor fees and admin fees, entry fees and other things. Ideally i want to have as close to £10,000 stored up as possible incase worst happens, but i dont want to eat into the deposit too much..

- Lets say I am able to get my cake and eat it, get a 5 year mortgage with 2.5% APR and after 2 years I lose my job and get a lesser one and cant really do the whole £1,500 repayments a year. Lets say i owe them £50,000 still, can i realistically get the bank to extend it by another 2 years to drop the monthly payments?

- How does it work when you sell up your property before you have finished your mortgage payments? Lets say I still owed £50,000 but sold my house for £150,000 do I just tell the bank and they take £50,000 out of my account and we call it quits (sounds too easy) or is there some crazy process where the bank takes an extra cut for no good reason?


Im sure i will have other questions but thanks for any advice!

andrewmp

Try and get a mortgage product that offers unlimited overpayments, take out a 25 year mortgage and overpay, this way you get the best of both worlds?

dimbo61

Yes you can get a 5 year mortgage term.
Please use "whatsthecost" to work out how much £85,000 would cost over 5 years to repay.
Now does this monthly figure seem a bit high compared to your income.
Dont forget to take into account council tax, gas,elec,insurance,food,water,repairs,TV licence,phone & broadband ETC
If you took out a flexible offset mortgage over say 10 years there is nothing to stop you overpaying big style and clearing the mortgage in say 5 years.
First direct and YBS do offset mortgages

Grofit

Sorry should have also included my stuff from the other thread i started...

Currently between my partner and myself we have around £3000 in our pockets each month. The 5 year mortgage cost seems to be around £1,400 - 1,800 depending on the interest rate.

We have checked our current out goings and currently spend £600 on bills food etc. Only thing not accounted for that is personal spending (such as mobile phone contract and petrol) which comes to around £150 a month, so total spending seems to be around £2500 which would leave us £500 a month to save, on top of our planned £10,000 safe amount.


I will admit that im a bit unsure about how overpaying works... i know the main idea is that you can pay off more than you need to and cut down the length of your mortgage, which seems great. However if i was to get a 25 year mortgage and then decided to overpay by up to £1000 each month, am I still going to have to foot the stupid interest amounts, or does the overpayment ignore the interest owed and pay it off the actual owed amount?

Its just if you look at the £90,000 figure (Which is what we are expecting to need) done on a 5 year mortgage with an average 4.0 APR im facing paying the bank about £10,000 in interest. However if i was to do it as a 25 year mortgage im going to be paying almost £53,000 in interest.

So theoretically if I had a 5 year fixed term at 4% and paid it all off at £1,600 a week, or got a 25 year fixed at 4% and overpaid to make it basically £1,600 a week would both mortgages be done at the same time with the bank taking the same amount of interest?

Sorry if this is well known information, im just a bit confused by some of it...

andrewmp

Overpayments come straight off the capital owed.

If you overpayed (to make the payments the same amount as a 5 year mortgage would be) it would be paid off in the same time as a 5 year mortgage. Obviously early repayment charges etc might apply.

Pincher

When you overpay, you are annoying the lender, because they have a schedule they are keeping to, and you paying back more or less upsets the rhythm of the clockwork, especially when it's a fixed rate mortgage. So some of them don't allow overpayment, some only allow 10% a year; unless it's designed for flexibility,
in which case you can do pretty much what you like, usually with an offset mortgage.

Grofit

Currently from what i've seen looking around tracker and variable mortgages seem to offer the best rates, although im unsure as to when the base rate will shoot up again, as im sure everyone is.

So what I initially thought was to go for something like a REALLY low interest rate, and blitz the payments for the first 2 years paying off as much as I can. Then when im getting the amount owed down to about £50,000 then maybe extending the mortgage or swapping it as the interest rate would probably have gone up by this point, however i wasnt sure how easy it was to just change... as when i get to £50,000 and below on amount owed it seems fairly cheap as far as monthly repayments go and the amount of interest the bank takes is not too much.

However after you have mentioned that offset mortgages (which im not 100% sure about how they work) would be more flexible and allow overpayments, would this be a better solution if i could get it to give me a decent rate for 5 years and just overpay as much as i can?

dimbo61

I have had a 5 year fixed rate offset mortgage with YBS and have done just this!
I took the term out for 22 years at the start and then reduced it to 10 years which I am overpaying on!
Total flexability!

VT82

Grofit wrote: »

Currently between my partner and myself we have around £3000 in our pockets each month. The 5 year mortgage cost seems to be around £1,400 - 1,800 depending on the interest rate.

We have checked our current out goings and currently spend £600 on bills food etc. Only thing not accounted for that is personal spending (such as mobile phone contract and petrol) which comes to around £150 a month, so total spending seems to be around £2500 which would leave us £500 a month to save, on top of our planned £10,000 safe amount.

I recently got declined for a mortgage from HSBC on their affordability criteria. They would not allow more than 60% of one's in-the-pocket income to be going out as mortgage payments and regular bills. You are talking about 83% going out with this plan. It is unlikely you will be accepted by any lender who asks you the right questions, with your suggested repayment plan.

If you overpay, you are saving interest on the amount overpaid straightaway. If you want to extend the term in future, there will be an admin fee of about £50, and you will have to ask nicely and explain why you want to extend your term - they are under no obligation to accept your request.

If you want to redeem the mortgage before the contractual term (after overpaying), there will be a redemption statement charge of about £150. The difference between the two possible fees is small beans compared to the rest of the mortgage costs. Think of it as insurance against wanting to be able to reduce your payments in future (by cutting back on the overpayments). This will also be payable if you sell and move (or a porting fee instead if you keep the mortgage). Better yet, get an offset mortgage if you can (not sure if they will still charge the redemption statement fee though).

Good luck - you are in a great position to buy. Just don't sacrifice too much of your lifestyle to avoid a bit of mortgage interest (which usually isn't 'bad' debt after all).

jockosjungle

I think HSBC will allow unlimited overpayments on certain products, you have to look at it from a lenders view. They'll question whether you can afford to pay it off in five years. Taking it over longer will give you both more flexibility

R

Grofit

So far it seems that a 10 year tracker may be the best bet, and just overpay as much and as frequently as I can...

I saw a bargain on First Direct where its only 2.29% interest rate, and even if the rate did go up by the predicted 2% within 2 years, that's still a fairly average 4.29% which i could just lower my overpayments. Worst case just swap mortgage...