Follow on rate

nick12

We have finance in place to buy and are looking for a property at the moment. We intend to get a fixed rate mortgage, probably for 5 years (maybe 3).

I don’t fully understand how the “follow on rate” works. After the fixed period we would (if we don’t make other arrangements) go on to the follow on rate but how long would that rate apply? If during the fixed period the base rate goes up (as is expected) could the follow on rate be higher once we get to the end of the fixed period?

And another related question (and probably one that’s difficult to answer); if we fixed for 5 years roughly how much capital would we have paid off over that 5 year period based on the following info:

Fixed rate 4.6%
Property value £230K
Deposit £23K
Period of mortgage- 25years

Ultimately I’d like to know how likely it is that we could re-mortgage after 5 years with an improved LTV.

Many thanks

TrickyDicky101

The follow on rate could be either a tracker or the lender's SVR both of which are likely to move in response to the Bank Of England's Base rate.

On the figures provided, after 5 years you would have repaid £24,830 capital from the £207,000 original mortgage (assuming you are borrowing from a bank and not a building society or ex-BS where the figures are very slightly different due to the repayments being made on an advanced basis).

amnblog

All this detail will be in your mortgage illustration.

Sections 4 & 6 and the summary of payments at the end.

Thrugelmir

nick12 wrote: »

Ultimately I’d like to know how likely it is that we could re-mortgage after 5 years with an improved LTV.

So many variables. Higher interest rates could depress values. Your personal circumstances may have changed.

Don't bank on obtaining lower interest rates. When in general interest rates are going to rise.

nick12

We are in Bath so small (for a city) and desirable. Not quite London crazy but pretty crazy all the same. As such our assumption is that prices are unlikely to grind to a halt (let alone fall). Of course we know better than to stake our future stability on such an assumption! So yes, probably sensible to err on the side of caution.

Thanks to you all for your comments.

dimbo61

So are you buying a flat ? With a management/service contract and monthly costs on top of the mortgage ?
Does the building need repairs or maintenance doing ( new roof or lifts etc)
Check out SINK fund if a flat

nick12

No, we're looking at houses (£230-£240k will get you a small 2 bed terrace in Bath).