New home

chezza12345

Hi All,

I just wanted to get some opinions on my new and first mortgage deal...

I'm buying with my partner. We both earn £25k
Our new build home cost £135,000 however was valued at £145,000.
We have a variable rate mortgage on 90%, £121,500. The mortgage could only be given to the cost price not the evaluation.

And our interest rate is 5.7%, the deal is for 2 years with the Abbey.

We are both first time buyers and I just want to see if our deal is ok?

Can you please let me know your thoughts?

GMS

LEnders will generally base their lending against the LOWER of the valuation or purchase price. There are circumstances where they would use the valuation, if higher than purchase price such as Right to Buy, Sitting Tenant or family undervalue sale.

Without knowing the full details of your circumstances it is difficult to say if you got a good rate or not.

Did you choose a variable rate? Are you aware that this can change at any time possibly increasing your payments? Did you consider a fixed rate?

Other issue you have is the new build property. Many lenders will restrict Loan to Value. Abbey is 80% except for First Time Buyers ehen they allow 90% as you will know. The 90% requirement could well take lenders out of the equation.

chezza12345

I do know that the interest can change but i was advised to take the variable as the fixed was 1% higher and described as 'dead money'. He also said that it's very unlikley to have 4 increases in 2 years as the rate only increases by 0.25% each time.

There werent many mortgages to choose from as we are both 1st time buyers, we needed 90% and it's a new build!

Our advisor gave us the impression that we are in a good position and I felt quite positive, I just wanted some back up to what he had advised.

GMS

Was this an adviser from Abbey/Santander or an independent broker?

How can anybody describe a secure fixed rate as 'dead money'? If the client wants security of knowing what payments are then it is a personal choice.

I would also like to know when the 'adviser' thinks rates will rise, and how he knows in what increments. Rates can rise by any amount, there is no rule to say 0.25% per time.

If you are on a Standard Variable Rate the rates can change at the lender's discretion regardless of bank rates. If you are on a Tracker rate the rate will 'track' Bank of England or Libor.

If you want a variable rate then fine. If you wanted a fixed rate you should not be talked into anything else.

chezza12345

It's an independant financial advisor, they were recommended by persimmon homes? Lifetime planning, a company based in Glasgow.

GMS

If you are happy with the product then there is no problem.

Are you happy with the risk of rising rates?

chezza12345

I just called and checked.

It's a saving of around £80 per month, £1920 over the 2 years. I'm just not that clued up on the interest rates.

And we are on a tracker, not a variable (my mistake) at 5.75%.

We have the option to go fixed at 6.75% though... Just not sure what to do given all the stuff in the papers?

GMS

The 'saving' per month as you put it may well last for years. The opposite side to this is it may rise at any time. If you are on a Tracker you will move up and down in line with Bank of England base rates.

Rates dropped like a stone when the credit crunch kicked in so they could do the same in the opposite direction. You do not have a massive margin with the tracker you mention, only 1%.

If you are happy to pay the extra for the security of knowing your payments then you should consider it, but if you are happy to take a chance then do so.

Do not look on the tracker payments as being a saving though. Factor in what you would pay if rates went up by 2%, or even higher. £1920 less over the 2 years is as of today. You may well be £1920 better off over 2 years, but you could also be £1920 worse off, or more.

It is a personal choice. As long as you are aware of the risk and comfortable with it then you have no issues

chezza12345

GMS wrote: »

The 'saving' per month as you put it may well last for years. The opposite side to this is it may rise at any time. If you are on a Tracker you will move up and down in line with Bank of England base rates.

Rates dropped like a stone when the credit crunch kicked in so they could do the same in the opposite direction. You do not have a massive margin with the tracker you mention, only 1%.

If you are happy to pay the extra for the security of knowing your payments then you should consider it, but if you are happy to take a chance then do so.

Do not look on the tracker payments as being a saving though. Factor in what you would pay if rates went up by 2%, or even higher. £1920 less over the 2 years is as of today. You may well be £1920 better off over 2 years, but you could also be £1920 worse off, or more.

It is a personal choice. As long as you are aware of the risk and comfortable with it then you have no issues

Thanks so much for your help.... It's a gamble I guess..

I get the keys on Friday and keep having mini meltdown...

This is for discussion tonight.... Really appreciate your input!