Thoughts on this scenario

Berger_3

I will try and keep this brief but any input will be appreciated..


Me and my wife both have flats that we are selling, mine is going through really quickly (touch wood) but hers, for various reasons isn't. We planned to buy a house (which we have found) once both sold, but are fortunate that we can actually do it with just mine selling, either completing before 1st April or moving into hers temporarily (but we may lose the house if it drags on)


The problem is if we do it with just mine we will be 80% LTV but will be in a position to then reduce it down to below 75% once hers sells. The obvious problem here is ERC's - we have been accepted with Nationwide but can only pay 10% off so it will take us to the 2nd year to reduce it down accordingly, this isn't the end of the world, we will just stick the money in a bond for one year.


The quandary is the rate though, I was keen on a 5 year fixed but that means being on 2.84% vs 2.54% if we were on 75% ltv, this would cost about £3k over the 5 years - not the end of the world but it still annoys me a bit as we will only be 80% LTV for a few months.


I could however go onto a 2 year fixed at 1.94% and save over £4k in the first two years compared to being on the 5 year fixed at 2.84%.


I expect rates to rise within two years, but by how much I'm not sure. What I don't really want is a nasty jump in the payment, which is a potential risk, I guess anything above a 0.3% rise would mean I would be paying more like for like on a 5 year fixed for <75% ltv based on it being 2.54% now.


Sorry for the long post but any opinions on what you would do?

Debtslayer

Secure the 5yr fix and make overpayments in the first couple of years to reduce the interest paid?
Check on overpayment calculator how much you'd need to pay to make up the 3K interest

Berger_3

Thank you for the suggestion, We will immediately pay off 10% as soon as the other property sells, and will then have to wait a year to pay another 10% off. I guess the problem is we will be paying this off regardless of which deal we are on so the relative differences in cost will be there either way.

Debtslayer

Check that you can pay off 10% a year, most do allow this but not all
You said in your post anything above a 0.3% interest rise will mean there's very little difference. Personally I would say an increase of above 0.3% in the next years is highly likely (IMO). I would rather be settled on a 5yr fix and not have to think about it again for the next 5yrs and make overpayments to decrease LTV

Berger_3

Debtslayer wrote: »

Check that you can pay off 10% a year, most do allow this but not all
You said in your post anything above a 0.3% interest rise will mean there's very little difference. Personally I would say an increase of above 0.3% in the next years is highly likely (IMO). I would rather be settled on a 5yr fix and not have to think about it again for the next 5yrs and make overpayments to decrease LTV

0.3% should mean relatively speaking I would probably get a similar 5 year fixed to what I can get now at 80% LTV, the break even point will be a higher rise because of the near 1% difference for two years but what I wouldn't want is something like a 1%+ rise and then going on to a 5 year fixed at something like 3.5%+ so the payment jumps up - although I guess if I've paid off large chunk that wouldn't be the case relatively speaking.

kingstreet

Nationwide has a two year ERP-free tracker.

Use that at the outset. Make your capital reduction, then switch to a fixed rate.

Berger_3

kingstreet wrote: »

Nationwide has a two year ERP-free tracker.

Use that at the outset. Make your capital reduction, then switch to a fixed rate.

I didn't realise this? I thought they only had products with ERC's, was hoping to go onto the equivalent of their SVR but its no longer an option, if this is the case then that is the ideal scenario, can pay off the lump sum and then switch on a lower LTV.


Its funny because I explained my situation and they didn't mention this, I guess I told them I wanted a fixed rate though which is possibly why.


Thank you!