Which Mortgage To Get?

da_genious

Hi,

We're first time buyers and have found the property we want. The house is priced at £240,000. We have been given a number of options for mortgages. We're confused as to which one should we be going for, seeing the current situation of the interest rate rise (or potential fall).
Should we go for fixed rate/tracker?
If fixed how long for? 2 years ? 3 years?

Any help from anyone would be highly appreciated....

KiKi

Hi.

As with any mortgage decision, it has to be based upon your circumstances...which is probably a very unhelpful answer!

If you need the security of knowing what you're going to pay each month for a set period of time, go for a fixed mortgage rate, and be aware that when that period comes to an end, your mortgage rate could suddenly go up. If you want a steady movement of interest rates with no sudden surprises, go for a tracker.

I personally have an Abbey Flexi-Plus mortgage, which allows me to offset, overpay, underpay, take payment holidays (when you've accrued enough surplus to do that), pay off capital, and effectively acts as a high interest savings account. It suits me because I want to be able to pay off my mortgage as soon as possible (currently 6 years) - but have access to my savings (the 'offset' pot of money) should I need them for an emergency.

I know that's really unhelpful; once you've decided what type of mortgage you want, then advising on which specific product is a lot easier, as some are better than others! But the type of mortgage really is a lifestyle choice question...



KiKi

da_genious

Hi Kiki,

Thanx for your reply........I think we'll have to go for the discounted 2 year base tracker, as it's turning out to be the cheapest. I'm pretty optimistic about my circumstances changing for the better in the next two years so I can hopefully change mortgages, and the house would have appreciated slightly. I could probably manage with a slight interest rise (hopefully it won't) however I'm pretty confident it'll fall soon enough........
I think I just need some reassurance as at the moment I'm quite stressed and lost as it's my first experience of a mortgage and it's a very big financial commitment.............

I appreciate your help greatly.

krishna

I'd be very careful about being "optimistic" about rates falling. For your own security you really need to ALLOW for rate rises. When we first took out a mortgage (1991) interest rates were between 11% and 13% as I recall. They were certainly in double figures. Even then, we based affordability on what we could manage if one of us lost our job. Agreed, house prices were lower then, but I think it is worth being cautious when you take on a big debt like a mortgage.

We are fortunately mortgage free at present, but looking to take out a mortgage soon. We are still basing affordability on what would happen if interest rates returned to 11%. At least that way we can be fairly sure we won't end up in trouble.

da_genious

hi Krishna,

By being optimistic I meant personal circumstances e.g. Payrise, savings business taking off etc etc (winning the lottery).....!!
I have catered for at least 3 interest rate rises in the next 2 years, after 3 rises I'll be worried, but hopefully I'll be in a somewhat better position.
I've just put in the final offer for the property we like and I hope it'll be accepted........thankfully we've got a very kind family to fall back on should things decide to go against us......
I appreciate your help........
Just quickly, how much do you think we should set aside for costs other than stamp duty i.e. legal fees, land reg checks etc etc???

KiKi

Re ensuring you can afford interest rate rises, bear in mind that 3 interest rate rises is likely to only be a 0.75% increase, as increases tend to go in increments of 0.25%. Personally, I'd account for interest rates of up to 10%, just because I'm someone who likes to play safe! But interest rates don't show many signs of coming down right now, so you might just want to think of the impact of them rising to 10% - could you cut down on other things to still be able to afford your mortgage?

Re other costs, when I've asked for mortgages (4 times now), I set aside APPROX:
Solicitor's fees - 750
Survey - 500 (I always go for a full structural survey, because of where I live)
Local Search - 155
Contaminated Land Search - 35 (again, because of where I live)
Land Registry Search - 6
Landlord's Registration - 50 (depends on the property)
Stamp Duty - as per the property
Deposit - as per your agreement
Bank Transfer to seller - 30
'Just In Case' - 500

So £1526 + Stamp Duty + Deposit + £500 in case of emergencies!

Obviously, this is something that worked for me, and doesn't mean your costs will be the same - make sure you get a full breakdown from your solicitor first. Don't forget, that there's usually two weeks between exchanging contracts, and completing the sale. ALL the money has to be paid prior to completion, and if you're paying by cheque, that means making sure that you pay the cheque in advance so that it clears in time. If the money hasn't gone through by the day of completion, you can get into a lot of difficulties.

Hope that helps you. Having a mortgage can feel stressful and like a huge commitment, but like opening your first bank account, once you've got it, it's very simple!

JoeK_3

da_genious wrote: »

Hi,

We're first time buyers and have found the property we want. The house is priced at £240,000. We have been given a number of options for mortgages. We're confused as to which one should we be going for, seeing the current situation of the interest rate rise (or potential fall).
Should we go for fixed rate/tracker?
If fixed how long for? 2 years ? 3 years?

Any help from anyone would be highly appreciated....

I would go for a good 5-year capped to fix the upside and take advantage of any future downside.

JoeK