Am I storing up trouble for the future?

Doctorbee

Well, I know that none has a fool-proof crystal ball but I worried that I might be overstretching myself.

I am a single girl with an exemplary credit history who has saved very hard for a long time for a deposit and has 50% to put down on a little place that I have found. My mortgage broker has found me a 5 year fixed rate mortgage at 3% interest that would allow me to pay about 30% of my take home salary which is all good.

However, I've heard so much in the press about the imminent housing boom predicted for 2014 when Help to Buy kicks in properly and that (despite what BoE says) interest rates will have to shoot up after 2016 - endless warnings for FTBs (like me) taking on too much and overstretching themselves. I am worried that if interest rates do go up to say 10% or above after 5 year fix ends that I would really struggle/wouldn't be able to manage repayments (over 60% of take home pay). What would be my options if this happens? How easy would it be to extend my mortgage term or switch to interest only? Should I opt for a ten year fixed to stop myself having 5 years of sleepless nights worrying about this?

Everyone says that I am worrying about this all way too much and I am getting FTB cold feet at thought of responsibility. I am wise to jump in before a boom starts?

Thanks v much for any thoughts or advice.

m0t

Interest rates won't rise to 10%, they will be kept low because it would bankrupt too many people if they went up significantly - any political party that allowed this to happen would be committing suicide.

Plus if it did look like rates were going up during your 5 year fix you could sell the property at profit because of the boom.

bouicca21

Won't be allowed to go up to 10%? Some of us are old enough to remember 15% under Thatcher ...

OP under such circumstances you simply manage. It gets tough but somehow it is always doable, especially for someone like you who is obviously really good at managing money. And the housing boom has already set in in several areas, so getting on the ladder while you can is a good bet.

fart

Save up the other 50% and buy outright?

IronWolf

Could you not try and get a 10 year fix if it is worrying you?

What are your promotion prospects? 30% of salary today will hopefully not be 30% of your salary in 5 years, it could be more like 10-20%.

egoode

As a FTB myself hoping to complete on my property soon I understand how you are feeling. However you are in a great position as you will have a lot of equity in the property with your 50% deposit so if you are forced to sell later you are extremely unlikely to end up with negative equity.

Also while you are on the fixed rate try and overpay as much as you can/are allowed to on your mortgage as that will put you in a better position when you come to remortgage and if interest rates have risen you could maybe look at a longer term to reduce the monthly payment. Check out the Mortgage Free Wannabe board for ideas on what people do to overpay their mortgages.

Also don't forget in that time period you could get a job promotion or pay rise.

phill99

All of us can be certain of one thing: death. Beyond that, nothing is predictable. How many times have experts been caught out regarding the economy, employment, house prices etc.

Stop reading into things and stop panicking. Just do what is right for you. Procrastinating will get you no where Andover analysing will make you ill.

I exchanged contracts in 1990 on the day interests rates went to 15.2 %. 70% of my salary was going in mortgage payments. But I still have the house and a new kitchen, bathroom etc. you just deal with things.

The bigger risk you can take is by NOT taking the plunge.

beecher2

You sound cautious and there's nothing wrong with that. You could save or overpay your mortgage depending on available savings interest rates. This should give you some security and also give you a cushion. You're in a great position and with an LTV of 50% you should always have access to the best deals.

Lizling

Ok, worst case scenario: there's a huge boom and interest rates rocket to above 10%.

In that case, you could a) get by, which might well be entirely possible even with 60% of your salary going on a mortgage, especially if you could get a lodger in, or b) sell up and go back into renting. It won't be the end of the world.

Does the mortgage you're going with allow for overpayments? Most allow you to pay off an extra 10% a year, so you could make a serious dent in it over 5 years.

WellKnownSid

An alternative for you is to take the lowest rate five year fix you can, one which allows big and flexible overpayments, then overpay like mad.

In five years, you would have reduced your mortgage balance - so any rise in interest rates will have less of an effect.

Moonraker71

I'm in exactly the same position as you OP. I currently have a mortgage of £80k with 13 years left to run; when I eventually exchange and complete in a couple of weeks it will be £160k with 25 years to run. No doubt many people will think I'm absolutely nuts. Single person, sole income and I'm also self-employed –!even more reason to freak out.

I'm a fairly cautious person but in the end it came down to this: I'm in my forties, I've lived in a one bedroom flat for 11 years, have had no outside space for 24 years. I don't want to live like this any more. Quality of life and feeling like I have a peaceful home with a bit more room to swing a cat is more important to me at this stage of my life. And the only way I can move to a slightly bigger property (tiny house) with a garden is to borrow more. I live in the most expensive city in the UK outside London. It's hard enough for couples and families here, let alone for a single person.

As I have 40% equity and I'm extending the term of the mortgage, my repayments will be only marginally higher than they are now (less than 25% of my income) which gives me leeway to overpay when freelance work is good and the comfort of a low monthly payment when times are tight. But I'm hoping to massively overpay and get the mortgage down as much as I can.

Am I worried? Yes and no. No because – I've made this decision so I have to take responsibility for it. So I refuse to get stressed about something I've done of my own free will. I didn't have to do it. But yes, doubts do creep in about future repayments. But the future is the future. I'll deal with it then.