Trouble finding a good mortgage with minimal deposit

Gra76

First time poster so please go easy on me, hopefully this is the right section for this thread!

A bit of background, if it helps.

Myself and my wife moved into our first home together 9 years or so back. We have since remortgaged twice to improve the house.

We currently have approx £20k equity in the property and a mortgage of around £110k left to pay. We originally remortgaged up to £131k.

We are on a Natwest offset tracker mortgage and as an 'Advantage Gold' customer we get a slightly better rate. I think we're currently paying either 3% or 3.5%, I couldn't tell you without ringing them up to find out.

We've been overpaying the mortgage since the interest rates plummeted a couple of years ago, we just kept our payments the same and I believe we're overpaying around £250 a month.

Here's the problem - when we moved into our modest 3 bed semi back in 2002 it was spacious for the two of us. Fast forward 9 years down the line and we now have 3 kids and things are proving to be a bit tight on space. So we started looking around at bigger properties, preferably with a minimum of 4 bedrooms and closer to work to save on fuel costs.

There's plenty of properties available and we calculated we can comfortably afford to move up to a property of around £170-180k which at most current rates would put us back onto payments which are roughly what we're currently overpaying anyway.

The snag is getting the mortgage. And boy is it a snag.

We went to see our current lenders who offered two options. Either pay a 20% deposit and move from the mortgage deal you're on now to a different deal with a higher interest rate or stay on the deal you're currently on and pay a 40% deposit. It's fair to say that a £68k (40%) deposit on a 170k property is a long way out of reach and we've not got enough combined savings and equity in our current property to afford a 20% deposit to go on the other deal either.

I had a look around and it seems to me that the only mortgages at the moment seem to be:

10% deposit but you get lumped with a very high rate of interest.
20% deposit but you get lumped with a fairly high rate of interest.
40% deposit to stay on a reasonable interest rate.

My wife came up with a plan yesterday and having sat down and thought about things it may be a viable way out.

We may have to consider moving back in with one of our parents in order to save the money for a 40% deposit. Neither of us really want to do it but if it means we can save the money for the higher deposit it might be worth the personal sacrifice.

My wife did a few rough calculations yesterday and thinks we can save £90k+ in just under 3 years (our combined salaries total around £60k), but should we be looking at only this option or have I just not looked hard enough for a good deal on a mortgage?

It's looking pretty rough in the mortgage world at the moment, seems to me that either you have a 40% deposit to get a decent rate or you get stuck on a rough deal.

The mortgage market has obviously changed substantially since our first 100% interest only mortgage and subsequent mortgages but is it really that bad at the moment?

ViolaLass

Is moving in with your parents for three years really preferable to being slightly overcrowded?

Gra76

This is something we've thought about, both of our dads passed away in the last 5 years and both of our mums live on their own, my mum inparticular lives in a large Victorian 6 bedroom property and refuses to move out. She has 2 lounges and still works part-time (3-4 days a week).

We could almost split the house between us and still have plenty of room.

Moving in with my wifes mum isn't really an option as she lives in a 3 bedroom property as it is so we'd be shooting ourselves in the foot doing it that way, and she's talking about building an extension for us which kind of defeats the whole idea of saving money in the first place.

I'm trying to look further than just the next 3 years and get us to a place where we can afford a larger family home that we can stay in.

If things stay the way they are now we'll still be overcrowded in 3 years time and we'll be no further towards getting the larger house.

kingstreet

On £170k, you'll really need a 15% deposit to get a decent rate. With fees, that means you'll need to get to about £29k from a combination of equity and savings. Whether that is best achieved in your current home, or with your parents, only you can answer.

At that level, there are a number of sub-4% deals, with fixed rates available at around 4.5%. These may not look great now, but they do offer decent value in the historic context of the market as a whole.

A 25 year mortgage around £145k is going to cost in the region of £800 a month. You need to ask yourselves if the deposit target and the monthly costs will be affordable in both the short and long term. Don't forget interest rates will rise and even a fix with short-term affordability might mean higher payments later.

Thrugelmir

Gra76 wrote: »

The mortgage market has obviously changed substantially since our first 100% interest only mortgage and subsequent mortgages but is it really that bad at the moment?

Do you regard current interest rate levels as bad?

There's no guarantees that in 3 years time mortgage interest rates will be reasonable. Can you afford to up your mortgage overpayments now? If a bigger house is a priority make some sacrifices to achieve your goal.

kingstreet

I forgot to add, keep overpaying. Every month you are increasing that deposit by reducing what you owe.

anh1904

Couldn't agree more about the overpayments.

Every penny overpaid results in a snowball effect overpayment the following month, and no tax to pay on savings.

If you hit the current mortgage hard, that will surely be the best way to save, add in that property prices are hardly thought by the majority to have "bottomed" and a few extra months of overcrowding might not seem so bad,

Gra76

kingstreet wrote: »

On £170k, you'll really need a 15% deposit to get a decent rate. With fees, that means you'll need to get to about £29k from a combination of equity and savings. Whether that is best achieved in your current home, or with your parents, only you can answer.

At that level, there are a number of sub-4% deals, with fixed rates available at around 4.5%. These may not look great now, but they do offer decent value in the historic context of the market as a whole.

A 25 year mortgage around £145k is going to cost in the region of £800 a month. You need to ask yourselves if the deposit target and the monthly costs will be affordable in both the short and long term. Don't forget interest rates will rise and even a fix with short-term affordability might mean higher payments later.

A 29k deposit isn't a million miles out of reach, we have around £4-5k sitting in the current account (it's our 'rainy day' fund and my wife unfortunately insists we have it, although I planned to invest it elsewhere as the current account pays sod all interest).

Would I be better putting say £3k of our 'rainy day' fund towards an early repayment (there are no fees for overpaying) or would it be worth putting into a higher interest account and linking it to the mortgage? This was something I wanted to do but my wife, being who she is, thinks there's a catch somewhere and wants to keep it all together in the current account. Bad idea I know but that's my wife for you!

I certainly don't consider the current interest rates as bad, they're without doubt the best we've had for as long as I can think of, what I consider hard to swallow is the high deposits that are being asked for.

hcb42

yours is a salutary tale of the danger of keeping remortgaging as house prices go up. My niece has done the same and is in the same boat, although worse as only two beds (and four kids..).

Personally, I wouldn't move back in with parents, although at least there is plenty of room there, but if you dont like it six months in, you are back to the position you are in now. At least the space you are in at the moment is your own, and many families share bedrooms.

I dont think it is "rough" in the mortgage world at the moment, but then I can remember paying the other side of 10% and even 14% for many years.

If you stayed put, then in three years, you will have saved say £9K from the overpayments, plus a little interest plus reduced your mortgage by 3 yrs repayments , so you should be comfortably over that 20% mark - and that's before you look at the budget to see what else you could do without for a time- to see if you can get it towards 25%.

I would be giving it a lot of more thought before I jumped in with this plan..how does Mum really feel about it too?

hcb42

I would put the rainy day fund in an Cash Isa, you can get around 3% which is £150 a year in interest, but gives you easy access. I have mine with Halifax.

you could repay it into the mortgage, would be slightly better off as your interest rate is higher for borrowing than you will likely get - BUT - I would agree with your wife in a way, you want a few £££ in the bank for emergencies, but definitely not in the current account!

Gra76

hcb42 wrote: »

yours is a salutary tale of the danger of keeping remortgaging as house prices go up. My niece has done the same and is in the same boat, although worse as only two beds (and four kids..).

Personally, I wouldn't move back in with parents, although at least there is plenty of room there, but if you dont like it six months in, you are back to the position you are in now. At least the space you are in at the moment is your own, and many families share bedrooms.

I dont think it is "rough" in the mortgage world at the moment, but then I can remember paying the other side of 10% and even 14% for many years.

If you stayed put, then in three years, you will have saved say £9K from the overpayments, plus a little interest plus reduced your mortgage by 3 yrs repayments , so you should be comfortably over that 20% mark - and that's before you look at the budget to see what else you could do without for a time- to see if you can get it towards 25%.

I would be giving it a lot of more thought before I jumped in with this plan..how does Mum really feel about it too?

We've not spoken to my mum about it yet and on further thinking things through and reading the advice above I think I'll not be mentioning anything at all, at the moment it's my wifes plan and we've yet to do anything about it. I can see the benefits from doing it but I appreciate that comes at a huge trade-off to personal space etc.

Her mum is keen for us to move in with her, although it's totally impractical. I've already told my wife we can't do this.

My thinking following the advice above is to overpay as much onto the mortgage as we can for as long as we can afford to do it. We're already hitting it for an extra £250 a month and I have a payrise coming in June so hopefully we can hit it for more.

The cost of having 3 kids doesn't help of course, but that's our problem!

The account balance is slowly increasing still so that's always good. I think we're at a good balance at the moment but if I can save money elsewhere I can always put it towards overpayments.

I'm pretty sure we can decrease our outgoings, maybe doing this for a few years and hammering our mortgage as hard as we can until interest rates rise and catch up with our overpayments is the way to go.