FTB Mortgage advice

msandford

Hi all.

I'm a FTB and I'm looking to borrow £150,000 over 35 years on a 2 year fixed mortgage. I'm currently looking at the following products:

Chelsea - 3.74% - £490 fees - £647 per month (borrowing £151,500 including £1500 arrangement fee)
First Direct - 4.39% - £0 fees - £700 per month (borrowing £150,000 - no arrangement fee!)

I can't work out which one is best! My thinking is Chelsea will cost me £16,018 over the initial period, and First Direct £16,800. So for the first 2 years Chelsea is cheaper. BUT...over the full term, because I'm borrowing more, that £800 I saved going with Chelsea will be lost as I have more captial to repay, plus the extra interest.

Would it be a valid conclusion to say: Chelsea is only cheaper if over the initial fixed term I save at least the £1500 in monthly payments. But since I only save £800, First Direct is in fact the better option.

Any help would be greatly appreciated.

Thanks,
Martin

jamesd

With a term deal a key question is the rate that the mortgage reverts to after the term ends. Often that is high enough that you'll need another mortgage deal at that point, with additional expense.

What are you trying to gain with a two year fix? Why pay the extra for a two year fix when it's likely that in that timeframe interest rates will still be low?

Would a lifetime tracker deal with no remortgage costs and no worry about ending up on an SVR revert to rate end up cheaper for you?

HSBC, First Direct's parent, funds its mortgage lending from deposits and has more money available to lend than it has lent. This implies that there is a lower chance of an unpleasant surprise than with many lenders. I don't know the position of Chelsea.

msandford

I haven't really considered a tracker as I wanted a fixed repayment. I haven't considered the SVR since I would move to a new fixed term or tracker at the end of the term. Many remortgage products seem to be fee free.

jamesd

Well, you'd want to move to another deal at the end of the term. Some people in recent years have found that they are unable to because underwriting criteria or property values have changed. That's one of the risks of a term deal instead of a lifetime tracker.

Since you want a fixed repayment, have you considered what the initial rate or a tracker would be and how long you could both pay that and put money into a savings account to pay the same fixed amount for a while before running out of the saved excess money?

The First Direct deal looks to be clearly the better of those two.