Any advice please?

saverstacey

I would really appreciate any advice here- I have posted before about our situation, but am starting a new thread rather than carry on the old one as the dilemma is a different one.

We are selling our home to pay off large debts. We are buying a much smaller and more affordable home and will be able to clear all debts with the proceeds of the sale and have 10% deposit towards new place. We are now ready to proceed :j

However, because our credit history is poor (2 defaults in last year and other late payments) we are being offered a higher interest rate on our new mortgage (6.99% on 2 year fixed rate with about £3000 HLV through L&C brokers). They have explained that the poor credit history combined with high loan to value lending is the reason for the higher rate and a high lend fee and we accept that we have to 'pay' for our past mistakes.

BUT, they are recommending this deal 6.99% fixed for 2 years. We had asked for deals of 3 or 5 years but they are saying in 2 years our credit history will be much better and so then we will get a much better rate PLUS our home will have risen sufficiently in value that we will no longer need to pay a high lending charge fee as we will be borrowing 80% or less (and that will also give us a better rate).

I am concerned that 2 years may not be long enough to repair our rating enough to make much of a difference to the IR offered when we come to remortgage? And what if our house has not risen sufficiently in value to only need to borrow 80%- would we be looking at paying another higher lending fee (about £3000) again in 2 years time and maybe not making the IR any better?

What do you think?

JoeK_3

Ask them to quote you for three and five year fixed.

JoeK

saverstacey

Thanks JoeK,

They quoted same rate for 3 years and they really wouldn't recommend 5 years for reasons above.

homer_j_3

I think that you have picked up some very good points here and are really thinking about what you are doing. The L&C broker seems to have assumed:

1- Interest Rates will be similar or lower in 2 years time
2- House prices will have risen sufficiently to give you a 20% equity stake in your property.
3 -Your credit will be acceptable to more high street lenders at that time.

The reality of the situation could quite easily be

Interest Rates have increased and you have to buy back into the mortgage at a higher rate

House prices may have cooled and not risen very much or at all. They could drop a little.

You dont say how bad your defaults were but these will drop off in 6 years so providing you do not get into trouble again for the next 6 years you will be OK.

The high fees are something to be considered and you are quite correct that the fees will be a big burden and if they are being added, your house price will have to have even stronger growth as you will be adding 3k to the debt before you start.

If I was you, I would be doing some math. You havent said what purchase price and mortgage amount is for me to do it for you but I would be trying to work out how a deal without the HLC compares to the one you are being given.

You need to do what you are comfortable with. If you would feel most comfortable with a 3 or 5 year deal, then ask them to provide you with some deals that match your requirements.

saverstacey

Just to add, purchase price is £177,000 with mortgage of 90% plus £3,819 fees added to loan so total £163,119 mortgage.

homer_j_3

so your house would need to be worth 204k in 2 years time to get your 80% ltv.

I have just done a quick calculation and if you could find a 90% deal with no fees then you would be paying less at a .25% higher interest rate so it could be worth looking at higher rates with less fees.

I think that as long as you understand that having a 3 or 5 year deals mean that you are tied in for a longer period of time then there is no reason why you shouldnt consider longer terms - if you are there for 5 then your defaults will be closer to coming off your credit history.

You need to prioritise your needs to what is most important and what is least important. Your adviser should have helped you do this.

JoeK_3

saverstacey wrote: »

Thanks JoeK,

They quoted same rate for 3 years and they really wouldn't recommend 5 years for reasons above.

I would go for the three year one for that extra protection, just in case.

JoeK