First time buyer mortgage issues

stavross_2

This is the mortgage we have been offered

2year fixed rate at 4.89
product fee £990
valuation fee 355

we are mortgaging 136000 over 25 yrs with payments of £790


My concerns are that we can handle this payment but after the 2 years have expired what if interest rates are much higher?

Does this seem a good mortgage deal for first time buyers?

TrickyDicky

If the interest rates are much higher, then your payments will be higher. But you should be able to remortgage before the end of the term (assuming deals are available).

At the end of the day, interest rates can only increase from where they are now.

As for being a good deal - how much deposit do you have and what is the property price?

stavross_2

We have an 84% LTV on the property, cant put in much more than the 27K deposit as the property needs alot of work on it. This i feel will def increase price of property and make it a place that will be easy to sell.......In the town we are buying property is sought after and people dont seem to struggle selling.

TrickyDicky

Improvements will add less to a property value than you paid for them, so be careful. If the mortgage is a stretch for you now - whats going to happen when the fix deal ends and the mortgage rate is higher?

pinkteapot

What about doing a longer fix - 3 or 5 years? When we looked for our mortgage (though it was back in March) the rates were only a little higher from 2 to 3 to 5 years. However, this may have changed due to expectations of where interest rates are going. It would at least mean that you know exactly what you'll be paying.

It's good you're thinking about affordability in the future. When your 2 years ends the rate will revert to the lender's SVR. There is a simple calculator here where you can put in the loan amount and see what happens to the repayments at higher interest rates. Can you afford repayments of say 5 or 6%?

http://www.guardian.co.uk/money/mortgage-calculator

When the 2 year rate finishes, you could apply for a new mortgage to get a fresh fixed rate. Assuming the mortgage you're going for is a repayment mortgage, you'll owe a bit less so take a slightly smaller mortgage. However, if house prices were to fall your LTV could even be higher than it is now (the new mortgage would be done against a valuation survey at the time), so it's not 100% guaranteed that you'll be able to remortgage.

No one can know for sure where interest rates are going. Personally I think fixed rates in two years will be slightly higher than they are now, but that's just me.

LittleMissAspie

I would make sure that you can comfortably afford it at 6% (£886), that you can afford it at 8% (£1061) and that you can uncomfortably afford it at 10% (£1248).

And since you'll be able to afford it at a higher rate, you can start overpaying immediately and be in a much better position when (not if) rates rise.