FTB, Large Deposit, Total Newb, Lot's of Questions!

efunc

OK, where to begin!!

I really am very green, so I'll launch in with my stats, my priorities and then ask for guidance if possible. Thanks for reading.

Salary £40-50k
Seeking 3/4 bedroom semi in London for less than £300k
Deposit £80k currently, hopefully £100k by the end of the year
Seeking 20 year mortgage max (or less!)

OK, I want to pay the absolute least possible interest over the term of the mortgage and playing with the calculator on this site was intriguing. ie if I overpay 50-70% a month it suggests I could potentially pay off a mortgage in 10 years. That's certainly possible for me to do at current interest rates, and very attractive. I would much rather plough all available money into this than accumulate poorly performing savings.

I guess most mortgages penalise you for overpaying more than 10% though, so how should I go about looking for a good over-payment mortgage with a good starting rate?

Secondly, like everyone else I'm currently torn between a looking for a very low tracker and taking advantage of current interest rates, or locking in low rates with a long fixed mortgage. To my mind there is absolutely no advantage going for a 2 or 3 year fix; I would personally be looking for a 5 year, but notice that there are a number of 10yr fixes from co-op and Britannia for example offering 5.7%! That seems a steal right? 10 years is a long time, but who's to say we won't be paying twice that much in 2021?

My other question is more regarding market prediction. I was not intending to begin shopping around until the end of the year when I ought to have a £100k deposit, or about 35%. However, with talk of interest rates rising and good fixed mortgages about to disappear I feel I ought to pounce prematurely. If I do so it would be on the understanding though that any mortgage offer would remain on the table for 6 months and I could actually look to buy around Sept/Oct time. Does it work that way, or are mortgage terms not honoured for that long?

Finally, I'm wondering if a fix is really the wise move after all. Taking a step back and a more sober view I wonder if interest rates will ever really shoot up in the medium term. according to: http://www.thisismoney.co.uk/interest-rates#ixzz1FrjOcRFK

"Despite the recent concerns, I believe the bank rate will rise only slowly this year and remain low for several years."

The site speculates 3% at the end of 2013. Idle speculation perhaps, but food for thought, and I'd be daft to ignore the experts. So perhaps a low tracker is still a good option for the next 3 years.

However, I'm still trying to figure out how to compare the different deals on a site like http://www.moneysupermarket.com/mortgages

Nationwide BS 5 yr Tracker £99 Fee 70, listed there for example, has an initial rate of 2.75% and a Lender's Base Rate of 3.99%. So presumably you pay 2.75% for 5 years, and then 3.99% thereafter? Is that 3.99% on top of the BoE base rate, so potentially 7% or more?

Thanks again for reading. All advice very welcome.

ryan86uk

Hi,

Well you certainly seem well informed and have clearly done your research. However, there is not much in terms of advice from what I can see that people could give you. The majority of your questions are impossible to answer (unless you are mystic meg of course). I will though give you my opinions.

Your deposit is by far one of the best I have seen for a FTB and no doubt you have worked hard for it. Although you want to have a deposit of 100k I can't see it benefiting you in terms of what deal you get as your deposit is impressive enough as it stands (well below 75% LTV).

I have recently just moved into my first house (thankfully) after spending a good year doing market research on house prices and interest rates. I have gained a reasonable understanding of the market and the effects interest rates have. The most important thing I have learnt is there is absolutely no pattern in house prices and certainly interest rates are not that predictable. On the contrary some people may disagree. Not many people predicted interest rates dropping from 5% to 0.5 in 5 months two years ago, did they?

I'm kind of getting off topic a little now but the point I am trying to make is that it really is a guessing game and like spinning a roulette wheel with mortgage deals. I personally opted for a 5 year fixed deal at 4.89%. This was for a variety of reasons, predominantly being the fact I am employed as a contractor and don't have the security of a permanent job. So I know exactly what I need to pay every month and hopefully I will be in a better position to budget my monthly expenses should I be unfortunate and lose my job. Also, the interest rate of 4.89% over 5 years I thought was a reasonable offer.

I agree with you though 2 or 3 years at a fixed rate at the minute doesn't really tickle my taste buds. Then again I wouldn't really want to be locked into a mortgage for 10 years either!! So, you can either take a gamble and go for the tracker and stick with a fixed and know exactly what you are required to pay every month.

In response to your final question 3.99% for the remainder is the lenders SVR which can and will most likely change when the BoE change the base rate. The 3.99% is inclusive of the BoE base rate too so it wouldn't be 7% in real terms.

Wh05apk

Efunc,

Well done on getting your large deposit, sounds self saved as opposed to inheritance?

I agree with your comments on interest rates, I cannot see them rising dramatically, and probably not at all, until we are officially out of ressession (that'l be 2015 then! :rotfl: ) personally can't see much point in short term fixes for most people, the rates tend to be high, if you want a fix for security you should be looking at longer term, however the 10 year rate to me seems high, rates have rarely been much above 5.7% for a long long time, and to pay that rate now is a very high premium for "potential" security in the future.

With regards to over paying, if you have a £200k mortgage over 20 years that will be £1k+ pm, do you really anticipate being able to overpay more than 10% (£20k?)

As Ryan says, not a lot of benefit saving more now, as rates will not differ greatly, if you feel prices have further to fall then fair enough, but if they have bottomed, or starting to increase, you may be best buying now.

SilverSix

I was/am in a similar situation to yourself. FTB and I inherited 80/85% of my desposit and plan to overpay what I can afford on the small mortgage I will need.

You mentioned the baserate tracker being 2.75% for 5 years. As it stands yes, however when baserate rises so will this. As I think the particular mortgage in question (if it's the same one I have) tracks at 2.25% above base rate. So I don't think it's unreasonable to expect the BR to rise by .5/1% this year (if we just assume it does to cover ourselves or when it eventually does) so you will actually be paying 3.25/3.5%. The rate above BR is fixed, not the rate itself.

That particular mortgage also has unlimited overpayments with no charges and will also allow you to switch to any of their fixed mortgages whenever you like with no charges or fees. (Free legals & valuation too). (Nationwide 'Flexclusive' 5 year tracker)

It was perfectly suited to me and sounds quite good for you too.

efunc

Thanks all for some very helpful replies. In the space of one evening I'm now in the midst of a U-turn and strongly favouring a tracker like the Nationwide one mentioned above. Unlimited overpayments sounds ideal! Benny, how did you come by this particular mortgage? Through your own research or via a broker? Did you consider any other equally attractive ones you might recommend?


Wh05apk, it looks like my mortgage payments on this kind of deal could be anything from £1000 to £1200. I could certainly afford to pay double that amount, for 2 to 3 years at least, but maybe I'm being too optimistic. Eitherway the rewards for doing so are quite attractive so I'll set that as a high priority. I want to clear the debt as quickly and cheaply as possible.

I originally wanted at least 50% deposit before buying since a pound borrowed is £2 pounds paid back in interest. I figured that more I can pay up front the less of a millstone I'll have around my neck, so I've worked hard and saved hard. I was on track to achieve a 50% deposit as well but I gave half of it away to clear a relative's debts so my targets are more modest now. However the most attractive rates (1.99%) seem to be reserved for 409% deposits, so I would really like to have about £120k under my belt at least.


ryan86uk, what don't you like about the 10 year fix at 5.59% out of interest? That seems a very interesting prospect seeing as we are in a period of historic low interest rates. I recall when rates were 15% and for much of the past 20 years or so 7% has been average or respectable. It seems that over the next 10 years we will experience some truly horrific economic times and are genuinely in decline (loss of manufacturing, low growth, rise of china/india/brazil, competition, spiralling energy, increasing cost of food, poor education, etc). To take advantage of the current freak low interest and lock it in for 10 years as protection from encroaching pressures seems attractive in many respects.

ryan86uk

efunc wrote: »

ryan86uk, what don't you like about the 10 year fix at 5.59% out of interest? That seems a very interesting prospect seeing as we are in a period of historic low interest rates. I recall when rates were 15% and for much of the past 20 years or so 7% has been average or respectable. It seems that over the next 10 years we will experience some truly horrific economic times and are genuinely in decline (loss of manufacturing, low growth, rise of china/india/brazil, competition, spiralling energy, increasing cost of food, poor education, etc). To take advantage of the current freak low interest and lock it in for 10 years as protection from encroaching pressures seems attractive in many respects.

When you put it like that I can't really argue to be honest. There is no real reason why I wouldn't want to be locked into a 10 year fixed. I just think it's a long time to be locked into one particular mortgage deal. However, you are right in everything you are saying.

efunc

Well, I don't really know enough about economics and complex systems theory to understand the ramifications of our global changes and the long term impact on interest rates. I guess we'll be on a massive inflation trajectory, and that probably precedes large-ish interest rates. Anyway, if Ben Bernanke and Merv King don't know what's going on, then I certainly don't.

The more interesting (high risk) approach seems to be to ride the low interest rate wave for as long as possible (2.5 more years?) with a tracker and overpay like crazy! It would be silly not to take advantage I guess, and at that point I will have started to make a real dent in the mortgage capital and I can then take stock and explore fixed or other options.

ViolaLass

Have you actually investigated whether you would be able to borrow £200k on a salary of £40-50k?

efunc

no, not yet. I'm just at the research stage, I will start to apply for mortgages or speak to a broker shortly. This whole thing was prompted by imminent interest rate hikes. Otherwise I wasn't really looking to leap until the end of the year. I'm having to ramp up my efforts now so am a bit unprepared. £200k may be optimistic. I may only be able to borrow £160k.

Wh05apk

ViolaLass wrote: »

Have you actually investigated whether you would be able to borrow £200k on a salary of £40-50k?

On the income quoted (provided all basic?) £200k should be possible.

ViolaLass

Wh05apk wrote: »

On the income quoted (provided all basic?) £200k should be possible.

I agree, if it's basic (actually doesn't matter what I think, you know more, but might not £220k, if the salary is more like £40k, be pushing it?)

The fact that OP quoted a range made me think some (or all) of it might be commission/bonuses and I also thought that he should bear in mind that it should form part of the research he should do (not much point checking what interest rates you could get if you haven't checked whether you could borrow the amount first!).