Potential Pit Falls for a 90% 5 year fix?

MeggieJane

Hi all,

I'm a first time buyer and me and my partner have decided to go for a 5 year fix for our mortgage, as we think that it may be the best option for us.

We've spotted a deal for a 90% LTV 5 year fix for 4.2% with no booking fee. The svr afterwards is currently 5.19% although we would prob plan to remortgage by that stage. After a v brief conversation with the lender I've been told that there's a fair chance we could be accepted for this, so there doesn't seem to be really high criteria to get accepted.

This deal seems q a bit better than others I've seen for the same length and LTV, so am concerned that there's going to be a catch somewhere - but I can't find it!

Just wondering if anyone had any advice as to any potential pitfalls with mortgage deals?
I've made an appointment with them next week, so it will help me ask all the right questions!

Thanks you in advance for any help...

Senior_Paper_Monitor

The 'standard answer' for FTBers is a 5 year fix (and the one you have identified sounds v competitive).

Against that is what is the likelihood of a change in circumstance in 5 years, for example:
* Change of job / career development
* Breeding
* Splitting up (for god's sake get an appropriate trust deed in place)
* Extended family issues
* Not liking the neighbours/location
- and what are the resulting Early Redemption Penalty implications ?

Thrugelmir

MeggieJane wrote: »

although we would prob plan to remortgage by that stage.

Don't base your decision today on the unknowns of 5 years ahead.
The follow on rate is a factor that you build in when choosing the product now.

[Deleted User]

I'm not an expert on mortgages by any stretch of the imagination but I'm in a very similar position to you and have done some also shopping around (FTB, borrowing at 90% LTV) so here's my thoughts:

That does sound like a very competitive rate for a 5 year fixed term and it surprises me a bit to hear it. I've spoken to a couple of independent financial advisers and brokers, and the cheapest deals they found were roughly 4.24% for a 2 year fixed rate and more like 4.6% for a 5 year fixed. Which lender is this you're talking about?

I initially thought to fix for 5 years (given how good interest rates are the moment) but eventually decided that the extra 3 years wasn't worth the extra interest. If I remortgage in 2 years, base rate is less likely to have increased as much as it will have in 5 years, and I will have built up some equity (not a huge amount, but I am planning to overpay each month) and be better placed to get a good deal. I'd rather that extra cash went into repayments rather than interest.

That said, it's a gamble either way and you never know what the economy will do.

Have you spoken to a mortgage broker at all? If you're worried that there's a catch with your mortgage then it might be worth doing - I'm using London and Country, who don't charge a fee.

Smoggie69

This sounds like Hanley Economic, which I've seen on various comparison sites.

I too need to give L&C a call to discuss my options for getting an 85% mortgage. The best 5 year fix I've found for this is 4.09% with no fee. There are some lower rates, but you have to live in the local area or have current account there. For the small saving I don't know if it's worth changing banks, as I have no complaints (and an overdraft) with mine!

MeggieJane

Hi, - well spotted Smoggie - it is! :T

Yes, seems quite a good deal, I've spoken to London and Country, but not about particular mortgage deals yet, I think they wanted us to wait until we'd had an offer accepted.

But I think I will quiz them about any exit penalties in case our circumstances change and any overhang after the 5 years are up, as we might want to avoid staying on their SVR for too long after.

In the unlikely event that we do want to move before the 5 years, if we got a mortgage that was portable, would that be ok as long as they accepted our new property (and any potential different jobs we might have then) ?

Will find out more from an expert, but just reassured to know that there's probably no glaringly obvious pitfalls with that deal that I've missed...

Wh05apk

Smoggie69 wrote: »

This sounds like Hanley Economic, which I've seen on various comparison sites.

I too need to give L&C a call to discuss my options for getting an 85% mortgage. The best 5 year fix I've found for this is 4.09% with no fee. There are some lower rates, but you have to live in the local area or have current account there. For the small saving I don't know if it's worth changing banks, as I have no complaints (and an overdraft) with mine!

Why no fee? how big is the mortgage, normally a fee is worth paying to get a better rate, especially on a 5 year deal.

dimbo61

I would only take a 5 year fix if you plan on staying at least 5 years !
If you can overpay as well and you may well have an LTV of 75% in 5 years

Thrugelmir

[Deleted User] wrote:

If I remortgage in 2 years, base rate is less likely to have increased as much as it will have in 5 years, and I will have built up some equity (not a huge amount, but I am planning to overpay each month) and be better placed to get a good deal.

In 2 years you would have repaid relatively little equity.

Unless the new product comes with free legals, valuation etc. Remortgaging can easily cost a 4 figure sum to undertake.

Do not forget either that house prices fall as well as rise. So on a local level the valuation may not come in at what you hope.

So your options may be restricted to those on offer from your initial lender.