Big fat mortgage - bit scared now!

MascaraMinx

Ok here's my first post and a couple of questions.

My husband and I are in the process of selling our first house to "upgrade" to a better located & more expensive place. We are both in debt so we are taking a 103% mortgage to clear all our debts and consolidate into the mortgage (yes I know we will be paying more in the long run but for now it's about monthly affordability). We are banking on this property making enough back to counter the negative equity we are starting out with (it's in an extremely popular part of London on the Central line and is a top-spec 2 bed place). If the market was to crash, we would be happy to stay in the new place for years (provided we could afford any extortionate interest rate increases). We love the place, and one of the main reasons we are moving is it will improve our quality of life (better commute, nicer area, good schools etc).

I have been nosing through these forums and have now become very frightened by all the doom and gloom about an impending crash.....

I would like people's opinion on whether we should go for a 5 year fixed rate mortgage in case interest rate shoots up, or take it easy with a 3 year so we aren't tied in for so long......

Oh and I was wondering if anyone knows what the latest is on whether the stamp duty barriers are going to be changed?

help!

Cara79

Hi MascaraMinx

You mention the new area having good schools etc. Do you have or are you planning on having children? The only reason I ask is because if you're "upgrading" to a 2-bed place are you likely to want to move house again within the next 5 years to "upgrade" to a bigger bedroom house to accommodate children? This would then have an impact on whether you should go for 3 or 5 year fixed. I personally like fixed, so I know where I am, but I'm still in my first house and still learning and dramatically reducing my mortgage.

With regards to the market crashing, alot of people have different opinions on this site, and you can only make your own conclusions. I guess alot think it unwise to take on a 100%+ mortgage, as the interest rates are now starting to increase notably.

I guess ultimately only you can make the decision, but in my personal opinion, I would not want to stretch myself, with the possibility that the interest rates could rise so much and house prices could fall drastically that you are forced into negative equity and end up losing your home.

With whatever you decide, I hope you are happy.
Good luck
Cx

MascaraMinx

Cara79 wrote:

I guess alot think it unwise to take on a 100%+ mortgage, as the interest rates are now starting to increase notably.

Thanks Cara. I realise the 103% mortgage is not ideal, and in a perfect world we would have a healthy 5% deposit to put down but unfortunately paying for my education and the high costs of living in the south east have prevented this!

I guess this is what I was asking..... we can afford the repayments on the mortgage at the current rate, and could probably swallow a 1% increase. But beyond things would get very tight for us. So would we be better to get a 5 year fixed, that way we will be paying the same for the whole 5 years no matter what happens to the rate in the mean time?

p.s. children are a few years off yet so 2 beds will be fine for us

Cara79

Tell me about the costs of the South East!

Personally, and this is obviously only my view, I would fix for 5 years. This obviously guarantees the payments and at least you'll be safe in that knowledge for the next 5 years. Also maybe things will have corrected themselves by then, i.e. interest rates not rising / maybe stagnated.

I would only go for the 5 year fixed if you weren't planning on moving within that time, or to make sure your mortgage is portable, although there is still no guarantee that your lender would lend on it.

As I've said this is all my view, and maybe others will be along to disagree. If you can only swallow a 1% increase then I would go for the 5 year fixed. I think interest rates will easily rise above another 1% but i guess time will tell.

Cx

ginger_nuts

I bought my present house in 1997 just as the labour government got in .
I was advised to take a 3 year fixed deal as interest rates would probably rise .Interest rates did rise and fall again.By the time my 3 year deal ended my payments droped because interest rates had fallen .I wouldnt go beyond a 3 year deal .

MascaraMinx

Thanks Cara - I must admit I was thinking the same but I will be interested to hear what others think. It is a portable mortgage by the way.

ginger_nuts wrote:

I bought my present house in 1997 just as the labour government got in .
I was advised to take a 3 year fixed deal as interest rates would probably rise .Interest rates did rise and fall again.By the time my 3 year deal ended my payments droped because interest rates had fallen .I wouldnt go beyond a 3 year deal .

I don't know what the situation was in 1997 (was too busy being a student to notice interest rates and the like). Was it comparable to the current situation, i.e. record low rates and all the doom and gloom about expected increases? Why would you not go beyond 3 year - is it in case you get stuck on a high rate and the rates drop, and is this likely over the next 5 years?

Sorry for all the Q's!

ginger_nuts

I think in 1997 I was paying around 7.5 %
which at the time was low .I bought my first house in 1991 and was paying around 11 % . So by 1997 people where saying the low rates wouldnt last .
No one can predict interest rates for the next 3,5 or 10 years .The woman who bought my house in 1997 had a ten year mortgage fixed at 10% .Now ,we all no that was a crap deal ,who can tell what will happen .

jamminjamaica

i am facing the same decision regarding how long to take out the fixed rate mortgage.

meanmachine_2

What's the mortgage?

What are your earnings?

What are the chances of getting a promotion?

Why do you need a "top spec" two bedroom place? Please don't tell me it's an "executive" new build "luxury" flat. That really would be a waste of money.

A two bedroom house on the central line is unlikely to lose its value, even in a correction.

But who knows? If you can only afford a tiny 1% rise in rates, you sound like you're overborrowing to me, but then I'm cautious.

As ginger nuts pointed out rates were much higher not so long ago.

So you really should have some kind of cushion, just in case we slide back into a higher rate environment.

RHemmings

meanmachine wrote:

A two bedroom house on the central line is unlikely to lose its value, even in a correction.

And how would you be able to predict that with any degree of certainty?

meanmachine_2

I can't. All I have to go on is history, and certain parts of London saw NO fall in prices during the last correction.

But we'll have to see.