25% or 20% and fees

lkmc01

Hi

We had an appointment with a mortgage advisor a month or so ago and they said that we could go to 90 grand over 25 years or 105 grand over 35 years. I live with my partner and 5 year old son.
I have 18 grand worth of student loan debts, but we have no credits problems and no other loans. We have £21300 worth of savings with another few hundred expected in the next month or so. This is all our savings. Out rent is currently £500 a calendar month. We have put an offer in on http://www.rightmove.co.uk/property-for-sale/property-32373602.html of 85 grand and it has been accepted. It ticks all thr right boxes.

My partner works full time and is contacted for 38 hours a week on a permanant job currently at £8.38 an hour, so £16,558.88 annually. I do not work at present but am job searching, having just finished my MSc. We get child benefit and tax credits of £2500 a year. My partners wage is going up 4% at the start of May to £8.72 an hour, 38 hours a week (£17221.24 annually). BUT he always works more than 38 hours a week, often up to 53 hours a week. His last 3 months of pay slips (based on £8.38 an hour) show a annual wage of £20,000.

The mortgage advisor couldn't give me a straight forward answer, but only send it depends.




Would a mortgage provider base my partners wages on: -

• his current wage (£8.38ph) for 38 hours a week
• his soon to be new wage (£8.72ph) for 38 hours a week
• his last 3 months wage slips which show £8.38ph
• his last 3 months wage slips, but calculate this to take into account his pay rise?

Also...


My dad is paying for the survey and removals. With the £21600 savings do you think we are best to: -

• use £21250 on 25% deposit and put the mortgage arrangement fee onto the mortgage and pay the solititors with the remainer

or

• use £20000 on 20% deposit and use the rest to pay the mortgage arrnagement fee and the solitiors

I was thinking the first option. Any more money we need, for example the land registry fee we will borrow from our parents with no problem.

kingstreet

Each lender's method of calculating income is different. Some take basic only and ignore overtime and bonus. Others will take 50% of variable earnings, some accept tax credits and child benefit.

I'm a little puzzled to be honest. You've already been told how much you can borrow and you've found a property at £85k. You'll need to borrow £65k at worst, which is under 4x your partner's gross basic annual income without any payrise, bonus, tax credits or anything else taken into account.

As far as your other question is concerned, borrow as little as you can. If you reduce your mortgage by £1,000 and then add a £1,000 fee to the loan, you're back to square one.

You should try to avoid mortgage products with high set-up costs. The relatively small amount you're borrowing makes the rate less important and there's no point cutting your mortgage payment by £20 a month if you add a £2,000 arrangement fee to the loan!

Solicitors costs, including VAT and disbursements should come to less than £1,000 for a purchase at £85,000. Make sure you shop around and don't ask three solicitors in the same town. You'll be astounded to see they all come out at within a fiver of each other.

lkmc01

I was looking at this mortgage

http://www.ybs.co.uk/mortgages/current_products/products/10yr_fix_01.html

What do you think? If I take it over as long as possible then am I right thinking that I have less arrangement fees as for 10 years of paying I will have paid one one fee? Am I best using my arranged overdraft for my arrangement fee allowing me to have 25% or adding it to my mortgage?

Also with a 10 year mortgage I am move 2 or 3 times, do I just take the mortgage with me?

Thrugelmir

Here's a link to the FSA mortgage comparison website. Will enable you to compare the products on offer from the main lenders in the market.

http://tables.moneymadeclear.org.uk/Comparison-tables-home/Mortgages/Compare-mortgages/

Try and keep your mortgage beneath 75% LTV.

kingstreet

As Thrugelmir points out, you have to keep the mortgage under 75% of the value of the property. That means you can't borrow any more than £63,750 if you want that Yorkshire deal, as it's only available under 75%.

If you want a 10 year deal, YBS has two. The one you've picked, which is 4.99% with a £1,495 fee and a 5.49% offer with only £95 fee. A £63,750 mortgage over 25 years costs £372.30 per month on the cheaper deal and £391.10 per month on the higher one.

If you add the fee, the interest on that fee increases the cost to £379.90 per month and that will of course apply to your mortgage for the whole 25 years, not just for the fixed period.

As to your choice of a ten year fixed rate, that's only something you can decide suits you best. The heavy penalties to repay early, through 7% in years one to three, then 6% in years four and five would make this a costly mistake if you need to get out early. They do get better in the later years dropping to 4%, then 2% then 1% but if you chose a five year fix you'd have lower penalties during the five years and none thereafter.

How about something slightly different?

Barnsley BS has a 4.59% five year fix which would cost you no more than 5% to repay early, dropping each year. Monthly payments of £357.61 and no arrangement fee to pay.

Other deals have free valuations, cashbacks and your legal fees paid. These may also suit you better than a deal with a high fee, as you do not benefit much from a keen rate, as you saw earlier.

lkmc01

What about using an arranged overdraft to pay any high mortgage arrangement fees. I could have it paid off in 6 months

kingstreet

lkmc01 wrote: »

What about using an arranged overdraft to pay any high mortgage arrangement fees. I could have it paid off in 6 months

You're still paying it. If avoiding fees is a better option, a different way of paying the fee isn't necessarily a sensible solution.

Only you can determine what's the best route for you and your mortgage. I would normally advise my clients borrowing a small amount to choose deals with no fees and cashbacks in preference to lower rates with fees attached.

It does get a bit cloudy over longer terms though. Hence if a ten year fix is your thing, the lower rate deal is better for you overall. Especially if you ignore the fact you'll owe that £1,300 from years ten to twenty five.

Not an exact science!

lkmc01

Don't quite get why I would ever need the option to repay early. Does this mean that if I come into some money (ie through lottery win!! :rotfl:) and I paid off the house they would charge me to do so.

kingstreet

You're penalised for full and part repayments during the fixed rate term, above a certain level, 10%pa I believe.

If you can categorically state "I will need a mortgage for the next ten years and can't envisage needing to be mortgage free" then go for it.

I'm an adviser. I have to try to make things as pessimistic and as miserable as I can. No-one else gets to keep you young FTBers' feet on the ground.

Thrugelmir

lkmc01 wrote: »

What about using an arranged overdraft to pay any high mortgage arrangement fees. I could have it paid off in 6 months

and what if you don't? Because an unexpected financial commitment pops up or the overtime dries up.

Buy for the long term when the time is right.

ViolaLass

lkmc01 wrote: »

Don't quite get why I would ever need the option to repay early. Does this mean that if I come into some money (ie through lottery win!! :rotfl:) and I paid off the house they would charge me to do so.

You might want to sell, for example.