Should we stay or should we go? - move from fix to tracker now?

Lord_Isleworth

Hi – I need the wisdom of the crowds or people who knows a thing or two about the current state of the market.
My wife and I are racked with indecision regarding our current mortgage situation.We stepped off the London property market over (summer 2010) and moved to Sussex.
This has been a brilliant move and allowed us to bank money.
We originally moved just before the property crash late 2007 to a 3 bed house in West London. At the time we fixed with Santander (Sept 2007) for 5 years on 5.69%. We have two small
Children (5 & 2) and we wanted stability and sought advice from independent mortgage advisers at the time. Obviously the rate then went to rock bottom pretty soon after us fixing late 2007.
We struggled a long for 2 years and then decided enough was enough and managed to sell our house at a profit and relocate to Sussex.
Ok some fact and figures:
Our Sussex house was bought for 309k
We pay £900 a month interest only.
We moved late summer and I overpayed 21k to reduce our 215k mortgage down to 194k.
I plan to over pay again in Jan 2011 another 20k to reduce it further to 174k.
This will reduce the monthly outgoing to £800 a month.
Then in 2012 we can overpay again 17k to try and get it to 157k. The mortgage expires May 2013.
I feel slightly sick when I see how low the base rate is and my wife and I know we are lucky because people are going to the wall and we have this cushion financially.
I am the sole breadwinner and work in the NHS, I had a restructure over the autumn and my job is OK for the time being.
I have been in constant employment since leaving University in 1995. I earn 47k.

So why haven’t we moved deals? We have to pay Santander £8k redemption if we move.
Having this bank of equity from the west London house is good and reassuring and we have a plan to reduce our liability from 215k to 155k as you can see above.
We did some figures previously and even applied to First Direct for one of their competitive 2.69% mortgage over the summer. Our LTV would be 50%.This was accepted but we haven't made the leap so this has probably expired.

First direct turned us down at the same time because of my sole income of 40 odd k and two young children etc.
Are we stupid to have left things this long? My fear like 2007 is we change and interest rates start to fly plus we dip back again into recession and we would have effectively lost 8k because with the best will in the world the west London prices will be stronger than Sussex in the long term so it isn’t like the Sussex place is going to see any increase in value for a good few years.
Would people opt for a tracker? If so is there any that makes the move worthwhile? We liked the First Direct one because there wasn’t a massive redemption if we switched but I am still working out whether by 2013 it is worth it all. I don’t want to move and find we wasted money. We can pay the £800 a month at present. Should we just keep our heads down and wait in uncertain times? Are Santander alone in having such hefty redemptions? do they allow a switch if on their own product or can the redemption be challenged

Any help is appreciated.

getmore4less

I have not done the calc for the remortgage.

But as you have this overpayment money available have you considered reducing the term to increase the payments.

How much do you have?
Do the lender charge for changing terms

What are the penalty free overpayment terms.

What is the followon rate

What are the savings rates.

The sooner the money pays off the loan the better.

With all this money sloshing around you need to do more than just a simple comparison for a change you need the full cash flow analysis.

reducing term and overpaying might use up the money more efficiently that the £8k penalty.

Only thing is you may need writen assurances you can increase the term again should circumstances change.

Lord_Isleworth

Thanks for quick reply

How much do you have? Paid 21k and got £55k left
Do the lender charge for changing terms - don't know
What are the penalty free overpayment terms - can overpay 10 of value of loan each year
What is the followon rate - not sure what that is? we would go onto standard variable after 2013
What are the savings rates. - don't know
The sooner the money pays off the loan the better. - agreed

With all this money sloshing around you need to do more than just a simple comparison for a change you need the full cash flow analysis.

reducing term and overpaying might use up the money more efficiently that the £8k penalty.

Only thing is you may need writen assurances you can increase the term again should circumstances change.

Lord_Isleworth

should be overpay 10% each year

[Deleted User]

In simple terms - your ERC is £8k. You have 2 1/2 years left. So it will basically cost you £266 a month for the next twoand a half years if you bail now. If you can get a deal where your payments are £634 a month or less (and that will last and not rise) for the next two years, then you could be slightly better off.

What does the FD rate mean in terms of monthly payments? I would expect it to rise within the next two years - meaning you would need to get an intital monthly payment rate of a lot lower than £634 to compensate for the rise.

A quick and personal view is that you'd probably be wasting your money moving. Overpaying is a more sensible route.

getmore4less

Deleted_User wrote: »

In simple terms - your ERC is £8k. You have 2 1/2 years left. So it will basically cost you £266 a month for the next twoand a half years if you bail now. If you can get a deal where your payments are £634 a month or less (and that will last and not rise) for the next two years, then you could be slightly better off.

What does the FD rate mean in terms of monthly payments? I would expect it to rise within the next two years - meaning you would need to get an intital monthly payment rate of a lot lower than £634 to compensate for the rise.

A quick and personal view is that you'd probably be wasting your money moving. Overpaying is a more sensible route.

It is not that simple because they have a load of cash to use as well.
will work on some examples...........

[Deleted User]

getmore4less wrote: »

It is not that simple because they have a load of cash to use as well.
will work on some examples...........

True - just giving a quick top line view breaking down the ERC into a monthly cost, rather than a one off payment. Would have done more on it but work calls...

herbiesjp

There are however lenders that could potentially agree this for you should you want to look at this further.

Make sure you fit any affordability criteria before applying though.

getmore4less

I will try to pull all the information together.
calculator used
http://www.whatsthecost.com/mortgage.aspx

Some queries in red.(perhaps you rounded some of your numbers)
Asume we start from Dec for the options and expiry of the ERC is May 2013 thats 30month so a roundish calcs.

History.
Sept 07 5 year fix @ 5.69% 20 year term interest only.

The ERC expires May 2013 (why the different date, not sept?)

How is the ERC calculated? (this may be important)
for part overpayments over 10% and the full redemption.
£8k on 200k is 4% is is the outstanding ballance then it shouldbe lower after the Jan overpayment.

Moved house £309k £215k mortgage £900pm (£215k @ 5.69% is £1020?)

Starting point now.
Mortgage now £194k (£194k @ 5.69% is £920?)

Plan (£55k savings)
Jan 11 overpay £20k £174k £800pm (£174k @ 5.69% is £825?)
Jan 12 overpay £17k £157k (£157k @ 5.69% is £825?)
Jan 13 overpay?

OK some numbers.
The first thing that now is a concern is interest only, any remortgage will almost certainly be repayment and switching to repayment may be a one way option.

Your net borrowings are £194k-£55k=£139k @ 5.69% 17y repayment that is £998pm so there is a longer term issue of repaying this loan with this rate.

FD 65% offset tracker is 2.59% so £782pm. (offset keeps some of the savings)

I see a few options but would need some clarification on the above
The ERC calculations for payments over the 10%.
Adjusting the 10% to be acurtate(will do that below)
Actual cuurent payment (use 920 for now)
I would think you could net around 2% on the savings so will use that.

1. calculate the current plan to end of ERC and see the net position.
2. look at a repayment plan with overpayments as 1 to end of penalty
3. look at paying ERC and moving to a new lender( I would try the FD offset tracker to help mitigate the risks of rising rates by keeping the savings available).


So rough guide based on £8k ERC 10% overpayments £920pm from income.
Doing 1 and 3.
Option 1.
Dec 10 £194000 @ 5.69% £920pm £55000 + £000pm @ 2% 1months = £55093
Jan 11 £174600 @ 5.69% £828pm £35693 + £098pm @2% 12months = £37600
Jan 12 £157140 @5.69% £745pm £20140 + £175pm @2% 12months = £22665.
Jan 13 £141426 @ 5.69 £671pm £06951 + £249pm @2% 5 month = £8257
So at May 2013 we have net debt of £133,169.

Option 3.
FD @ 2.59% £194k + £8kerc + fees £99 other say £300 = £202399.
55k offset so net borrowings are 147399

Paying £920pm outstanding May 2013 is £128,766

There is a potential saving of £4400ish
Break even over the full 18 month if the FD rate was 3.8% so room for some rises.

Option 2 should close the gap on option3.


Now what happens after the 30months wel the FD rate is likely to be lower than the SVR of the current lender(which bit of santander are you?)

With the offset you will still have access to the funds and FD seem to let people operate the offsets like Interest only so loads of flexability to mitigate any risks of rate rises, whatever you do the cuurent fix gives you only 30month protection.

Lord_Isleworth

Getmore4less - firstly thanks for the detailed response. It is much appreciated.
I will do my best to add more details where I can.
We were with Abbey and that became Santander.
The term is 5 years so I assume we must have taken it out a bit earlier in 2007. So May 2013 is when we are due to finish.
Current £194,000 mortgage - penalty will be £7,985 (4% plus the £225 fee)
We can repay 10% of mortgage value in any given year but after that a 4% penalty aplies.
When we moved we paid £1033 a month, after the 21k payment in Aug we pay £921 and I have roughly worked out from Feb 2011 (after paying 10 % off in Jan it will be around £825.
Our mortgage term is 17 years at present.

getmore4less

OK lets do option 3 from Jan when the overpayment is made.

£174600 @ 4% + 225 = £7209.

FD @ 2.59% £174600k + £7209erc + fees £99 other say £300 = £182208

savings are now £35693 so net borrowings £146515

new FD outstanding in may will be £128,466