Mortgage help needed!

Celtikah

Me and my fiance are currently saving for our first home. We are signed up with the best ISA and saving accounts, but would really like some help on what our 'mortgage payments' will actually be. And whether we should go for a 5% or 10% deposit.

The homes we are looking at will be around 220k-250k, so for the sake of calculations, we are assuming it will cost 250K - and we are estimating the monthly payments based on some of the leading mortgage offers.
We are also assuming we will be paying off the mortgage over 40 years.

We currently pay £850 a month in rent, so would like our mortgage payments to be similar!

90% LTV of 250,000 = 225,000 = 740 per month = £380,200 over 40 years
95% LTV of 250,000 = 237,500 = 947 per month = £467,060 over 40 years

My question is - are we miscalculating something? a 5% deposit mortgage seems like an absolute rip-off over the whole term of the mortgage, why on earth would anybody go for it?

My next question is - in our situation, is there any logical justification for taking a 5% deposit?

My final question is this. Assuming we start paying 947 a month on a 5% - will we be forever paying such a huge amount over the 40 years? (allowing for inflation changes of course) or do mortgage payments lower as you pay them off (i.e in 20 years, the £900 a month becomes £450 a month)

Any help or advice is appreciated - £947 a month seems like a daunting bill to pay!

ACG

Your monthly repayments will reflect the size of the mortgage and the rate you are on.

In theory if nothing changed, you would take out a 90/95% Mortgage and pay the rate applicable, in say 5 years time, your mortgage would be lower and so you could remortgage on to a lower rate - maybe an 85% product and then 5 years later maybe a 75% product and so on. Each time you move to a lower banding you open yourself up to lower rates.

However, rates at the minute are at an all time low. So between now and in say 5 years, rates may have increased.

Comparing 90 and 95% products is difficult as you are not only comparing differing mortgage amounts but also different rates, so the repayments will be significantly different. But you will open yourself up to lower rates if you put down a 10% deposit over 5%.

Celtikah

ACG wrote: »

Your monthly repayments will reflect the size of the mortgage and the rate you are on.

In theory if nothing changed, you would take out a 90/95% Mortgage and pay the rate applicable, in say 5 years time, your mortgage would be lower and so you could remortgage on to a lower rate - maybe an 85% product and then 5 years later maybe a 75% product and so on. Each time you move to a lower banding you open yourself up to lower rates.

However, rates at the minute are at an all time low. So between now and in say 5 years, rates may have increased.

Comparing 90 and 95% products is difficult as you are not only comparing differing mortgage amounts but also different rates, so the repayments will be significantly different. But you will open yourself up to lower rates if you put down a 10% deposit over 5%.

Thanks a lot, that makes a lot of sense! So 'essentially' every 5 years or so, we will be able to return to the bank, and possibly move to a lower band.

If we were to approach a mortgage advisor at a bank, nationwide for example, would they be looking to advise us on the best deal for US, or the best deal for THEM?

And as difficult as it is to compare 90/95%, what would be your personal opinion based on our situation?

We really appreciate the advice so far!

betmunch

Definitely ignore the total amount payable, unless:
You are not planning on moving house, and
You are not planning on changing lender, and
You are not planning on changing product, and
You do not think the lender will change their standard variable rate in the next 40 years.

If you go into Nationwide they will advise you on the best deal they have for you, which is understandable. If there is a better lender for you than Nationwide they will not tell you this.

Also, expect a long wait for both your appointments

ACG

Nobody (whether the bank or a whole of market broker) should be advising you of what is best for them. However, if you go to a bank directly, they can only advise you on the deals they have. If you use a broker (ideally not an estate agent based broker) they can recommend many different lenders.

I can not really say what I would go for as it could be seen as leading but obviously if you are in a position to put down 10% deposit it is going to save you money each month.

I did a Mortgage for someone in December. They had 7% deposit, the credit check failed but passed with a 10% deposit. The clients were able to bridge the gap, the rate dropped from 4.29% to 2.99% which in turn reduced the repayments from £925 to £757. Obviously the Mortgage was smaller but even on a like for like basis they would still have been saving well over £100 a month. Some people may prefer to keep the money back for home impreovements, a rainy day etc.

ViolaLass

Don't expect the interest rate to fall every five years forever. Once you get past 60%-ish, they stay the same - sometime they stop changing after 70%.

Strummer22

Celtikah wrote: »

a 5% deposit mortgage seems like an absolute rip-off over the whole term of the mortgage, why on earth would anybody go for it?

The only reasons anyone would is because they haven't got a big enough deposit, the home of their dreams is about to slip away, and they can't wait and save more. Either that, or they have a smallish lump sum to make up the 5% deposit, but are unable to save month to month due to prohibitively high rent. For many people even taking on a 95% LTV mortgage will result in lower monthly repayments than were going on rent!

Anyway, as others have explained, it wouldn't be for the full term of the mortgage anyway, just until you can remortgage in a more favourable LTV band.

Celtikah

Fantastic help!

We are considering going for a 5% based on our finances, which would mean getting £12,500 saved up.

From experience, how much would you estimate we should have to cover the other incidentals involved in buying our home? I.E surveyor, Conveyor, arrangement fees, stamp duty etc

I know it's very hard to place an exact figure on it, but a ballpark figure would be extremely helpful!

(We will be looking at property around Basingstoke)

ACG

Surveyor will depend on whether you want a basic valuation or something more in depth. A basic one will be around £400.

Solicitor would be around £800-1000.

Arrangement fees £0-999 but sometimes can be added.

Stamp duty would be 2% of the purchase price of £250k, 5% if you go above on the next banding.

Celtikah

Thanks again I believe nationwide simply add the fee to the mortgage,

Therefore that means around £4000-4500 extra to comfortably cover extra costs - £17,000 overall!

Should be a fun year of saving!