FTB, Great Deposit, Mortgage Advice

LeafGreen

Hi All,

I'm looking for some mortgage advice as I am looking to buy a house for the first time at some point in the next year. I'm in a very fortunate position in that I have a substantial deposit (obtained entirely through good old fashioned saving for 10-15 years!) so will only need to borrow a relatively small sum, but even so I am not sure about the best approach to take.

I'm 36, no wife or kids, now earning ~ 32K pa + occasional OT.
£55K cash ISA @ 3.2%, £15K shares, £50K instant access savings avg. 2.5%
Total Savings = £120K plus a few K for moving expenses

I'm looking to spend around £150-160K on a house.

So - would it be worth looking at some kind of offset mortgage, or best to stick with traditional repayment? I think I would like the ability to overpay without great penalty if possible, and I would like to retain say 25K or so cash rather than banging the whole wad down as deposit.

With such a great deposit, I am sure I would qualify for the best interest rates, but which type of mortgage and which lenders should I be looking at to achieve this goal?

TIA,
Graham.

DVardysShadow

OK, you are accumulating 10k/year and you are looking at borrowing 50k. So you are now looking at a mortgage of possibly £300/month [5% 25 years]. It appears to me that you are going to be accumulating cash nearly as fast as you always were - depending on the change in living costs [possibly slightly faster, if you are renting your own place].

If you are likely to pay down your mortgage, there are 2 ways to go

• look for a mortgage which accepts overpayments and accept that it may be at a higher rate
• look for a really low rate mortgage with limited or no overpayment where the rate is less than you can get on further savings and save instead

Don't fall in the middle of these 2 options, with a mortgage rate higher than your savings rate and no scope for overpayment.

casper_g

DVardysShadow wrote: »

OK, you are accumulating 10k/year and you are looking at borrowing 50k. So you are now looking at a mortgage of possibly £300/month [5% 25 years]. It appears to me that you are going to be accumulating cash nearly as fast as you always were - depending on the change in living costs [possibly slightly faster, if you are renting your own place].

If you are likely to pay down your mortgage, there are 2 ways to go

• look for a mortgage which accepts overpayments and accept that it may be at a higher rate
• look for a really low rate mortgage with limited or no overpayment where the rate is less than you can get on further savings and save instead

Don't fall in the middle of these 2 options, with a mortgage rate higher than your savings rate and no scope for overpayment.

Alternatively, as a slight variation on the first option above, could an offset mortgage be a good idea? You could build up savings in an offset account. The interest you would be paying would quickly reduce, as with overpayments, but you could perhaps have the option of drawing on the funds later, say if your relationship circumstamces changed and you wanted to have kids etc?

Soot2006

• look for a mortgage which accepts overpayments and accept that it may be at a higher rate

This is what we did when we were in a similar situation. Similar deposit, bought £175k house (advertised for £190k). Small income, so borrowed what we needed, used most of our deposit minus £15k for emergencies and house decorations, furniture, etc. Mortgage around £300/month + £130 council tax + £200 various bills and insurances (motor, pet, health, house, etc) ... We have complete flexible overpayment on a 5 year fix, so we pump a little extra into the mortgage each month to reduce the term and over two years, it's made a whopping difference to the total repayable interest. I now read my mortgage statement with relish rather than dread.

killick_becki

I was a first time buyer a few years ago. We didn't have as great a deposit as you do (well done) but i knew we would be saving alot of the first few years (same as you no kids). The mortgage advisor that we went to see talked us out of getting an offset mortgage and i'm now regretting it. I can only overpay £500 a month without incuring a penalty. When interest rates are as low as they are it is driving me crazy.

Thrugelmir

killick_becki wrote: »

The mortgage advisor that we went to see talked us out of getting an offset mortgage and i'm now regretting it. I can only overpay £500 a month without incuring a penalty. When interest rates are as low as they are it is driving me crazy.

Maybe your mortgage advisor obtained you a better deal at the time. Hindsight is a wonderful thing. No one could have foreseen the situation as it is today.

anh1904

Then just make the maximum overpayments, and any extra you can afford, accumulate until the overpayments are allowed penalty free.

You may, depending on the level of penalty, still be better off making the overpayments and incurring the penalty, as the overall cost may be less than you gain by reducing future interest payments.

Penalties are not necessarily a no-go.

vacheron

I would consider the following points.

1: Do you want to make "significant" overpayments?
If you have 100K+ for a deposit you may only want to borrow 50K which (if a 10% max overpayment was all that was allowed) doesn't add up to much when you may be saving an extra 10K PA!

2: Do you want to keep your cash ISA as an ISA rather than "unwrapping" it for the mortgage deposit?
If so, why lose 10 years of tax free allowances when you can offset the ISA inside it's wrapper AND continue adding your allowance to it each year (The Barclays offset allows this).

If either of the above are yes, I would go for the offset, but IMHO, don't just apply for the 50K. Instead apply for the maximum your affordability / LTV will allow. i.e on a 160K house with 70% LTV offset borrow 112K with a £48K deposit from your instant access savings and then immediately offset all of your reamaining cash savings and your ISA. This will not cost you a penny more and you will end up with an instant access 50K+ contingency fund for any future projects or in the event of redundancy it can pay your mortgage for years! You savings achievements clearly shows you have the necessary finincial discipline for this.

Also, if savings interest rates ever outstrip your mortgage rate, you can "unlink" your ISA for better returns elsewhere.

This is what we did and I cannot recommend the security / freedom it provides highly enough!

LeafGreen

Thanks for the replies everyone, some really great food for thought there - I shall be doing some more research based on the suggestions.

I am presently house-sharing with friends and pay £350pcm including bills, so I imagine my expenditure will increase by a couple of hundred pounds, but I'll still be able to put aside the best part of a grand a month unless the boiler goes pop or I get smitten by a high maintenance girlfriend :-)

Just booked my first viewing on a place for Wednesday - the agent asked if I would like a free appointment with their mortgage advisor. Is this generally regarded as a good idea or would I find the best deals by searching the market myself? In the latter case, do any of you have suggestions as to lenders who may be the best for my circumstances?

Thanks again.
Graham.

dimbo61

Barclays offset if you want to keep your ISA,s and First Direct have good offset trackers. YBS do good long term fixed offset of 3/5 years. The mortgage person in the estate agents will only sell his/her companies products !

powerwin

grahamgoo wrote: »

Just booked my first viewing on a place for Wednesday - the agent asked if I would like a free appointment with their mortgage advisor. Is this generally regarded as a good idea or would I find the best deals by searching the market myself? In the latter case, do any of you have suggestions as to lenders who may be the best for my circumstances?

If it was me, I would do more research about mortgage deals myself before speaking to anyone. If you are going to take advice, then you should also research the advisor too IMO, and not just go straight to the estate agent's in house advisor. If an advisor is paid via the commission on the products they sell, bear in mind this might affect their judgement, and you can if you wish instead find a fee based financial advisor, that will charge you a set fee for their help and advice.

This is not professional advice ...

Rgds