(Yet another) FTB mortgage thread

DoubleOhScrimp

Hi all

Cash in hand now: £43k
Salary: £46k
Debt: None
Credit score: (Literally) perfect

I would like to buy a 250k house within 5 miles of Cambridge with a 40k deposit. I had planned to save up for a 50k (20%) deposit but this will only be completed at the end of this year ...*dramatic drumroll* ... right when the HTB scheme is going to kick in (and probably bump prices).

My current thoughts are to bite the bullet and buy with a 15% deposit now. Annoyingly by the very end of this year or very early next year I will easily have enough to bump the deposit up to 20%.

The other option is to simply wait until I hit exactly 20$ and assume HTB wont have much of an effect.

The other other option is to deliberately use HTB to buy a >250k place.

Going in with a 15% deposit (instead of 20%) means another £200 per month which I really hate to pay.

The other other other option is to buy for £200k now using the £40k as a 20% deposit. Whats on the market at £200k isnt very attractive though...

Any thoughts?

hamster2013

you have many good options, but do keep the following in mind:

if you buy a property for £250k or above, the stamp duty goes from 1% to 3%
so a property you buy for £249,999.99 is going to cost you £2499.99 in stamp duty
whereas, a property you buy for £250,000.00 is going to cost you £7500 in stamp duty - so that 1p is going to make a dent of £5k in your budget.

so lets assume you keep your budget at the max of 249,999.99 and therefore you will not go above.
with cash at hand of £43k, you are going to be able to put down a max of £39k, leaving the remainder £4k for stamp duty, and legal + bank + valuation and various other fee's
which means you would want to borrow, at the max, £211k
for banks that would give a favorable rate - they would stretch at max 4x the annual pay for someone like you, i.e without any other debts - they would lend that amount to one earning around £52-£53k


personally, i would not fear the HTB scheme - rather look for a nice property that is at the £220-£225k mark
take a tracker loan where you can make unlimited early repayments - and reduce your mortgage using that strategy.

DoubleOhScrimp

hamster2013 wrote: »

personally, i would not fear the HTB scheme - rather look for a nice property that is at the £220-£225k mark
take a tracker loan where you can make unlimited early repayments - and reduce your mortgage using that strategy.

Yes upon scouring the mortgage finder sites it seems imperative to not go less than 20% on the deposit. If I can time things to buy in the 4th quarter of this year I can have a 45k deposit and extra £ for the costs, making a 225k place a done deal.

I would really like to have an early repayment / offset option as I can save faster than the annual ISA allowances.

Any reason why you wouldnt go fixed over tracker? I get the feeling that interest rates are only headed in one direction?

hamster2013

I'll illustrate with an example:
you borrow 200k over a span of 25years - with a fixed rate of 3% for 2 years - then tracker (which will be something ridiculous like 3.5% above the banks base - which is not BOE base) - at the end of 2 years, you would still owe the bank £188,923.00
lets say you saved £500 separately - that would have accumulated to £12k - even with a great interest, lets say you managed to get £300 over that 2 years - you would therefore do a lump sum payment of £12.3k - that means you will be left with a £176,623.00k loan.

now lets keep the same interest rate of 3% (eventhough, tracker rates tend to be better) - the only risk you are taking is the rate going up in the next 2 years - I personally (non expert view) do not see that happening.
if you repay £500 every month - you will, at the end of 2 years have reduced your loan amount to £176,540.00

so there is a gain of £83 if they both had same conditions -

now, why I would go for tracker personally over a fixed rate:
1. the fixed rate would have a different fee structure - take that into account.
2. the fixed rate means that you are more likely to spend from your savings on unnecessary goods - so its a state of mind thing - I would always keep enough savings on the side though for security - but when you repay early, you see the benefit immediately, and that is a motivational factor to continue.
3. The fixed rate means that when the fixed period finishes, and the rate is ready to shoot at rates as high as 5%, you will have to ensure that you get a new deal - which means more fee's - factor that in.
4. fixed rate means that if you do not renegotiate immediately or anticipate - you will end up paying a few months at the premium new rate - factor that in.
5. fixed rate means that you will have to spend more time managing your savings which can be a good and/or a bad thing - depending on the individual = for me, its a bad thing as time is one asset I have in very limited quantity

this would be my point of view - obviously for others it would be totally the opposite.