Narrowed down Mortgages for selection - Advice required

fdama

I’ve had an offer accepted on a house on Monday this week and I am in the process of selecting a Mortgage which is where I need some advice. I am a first time buyer and the house I am purchasing had an offer accepted of £115,000. I have a deposit of £22,000.

I asked to two mortgage brokers and both recommended different products. One was a local broker and the other broker was London & Country.

Here are the recommendations:

Local Broker
Lender: Natwest
Rate: 2.14% Fixed for 5 years then 4.24%
APRC: 3.60% (Not really important as I will be switching after 5 years)
Cashback: £350 when mortgage completes
Fees: £995 for arrangement (this is added to the loan), £248 for valuation, £299 for Mortgage broker
I bank with Natwest so this can be considered a small advantage.
Overpayment: Restricted to 10% of the balance per year.

London & Country:
Lender: HSBC
Rate: 2.35% Fixed for 5 years then 4.19%
APRC: 3.5% (Not really important as I will be switching after 5 years)
Fees: None shown on illustration
Overpayment: The illustration states “You can make overpayments either by paying us more than the amount of your monthly payments on a
monthly basis or you can make one-off payments from time to time”

My intention is to switch product or remortgage after the initial 5 year term. I think the better deal would be with HSBC. Could anyone give me advice as to what else I should look for or which one they recommend, even if it is a different lender? It’s a big decision so any good advice helps.

kingstreet

If you can get to £23k deposit, you'll be at 80% and could trigger better rates as you are currently in the 85% band.

Watch out for free valuation, no product fee and cashback offers on that size of mortgage as these often outweigh the savings from the lowest rates where you are taking a small mortgage.

fdama

Thanks for that kingstreet. I now have better rates with the extra £1000 added to the deposit. I would have thought the brokers would have spotted that.

I’m at the point that I have to select between two mortgage products, one recommended by my broker at L&C and the other I found on a comparison website . I’m just not sure which one I should select as he seems to be pushing his recommendation over the one I found. I don’t know how these brokers at L&C work, but does the commission they receive have any influence over their recommendation? Will they recommend a product slightly worse than another because they will receive more commission and/or benefits from the lender? I would assume that this would be against conduct.

The house I am purchasing costs £115,000 and I have a £23,000 deposit. 80% LTV

My choice was Metro bank:
Rate: 2.04% Five year fixed, 4.25% thereafter
Monthly payments: £392
Fees: £500 arrangement (added to loan), £200 valuation (payable upfront),

The broker at L&C recommended Sainsburys bank:
Rate: 2.24% Five Year fixed, 4.49% thereafter
Monthly Payments: £400.78
Fees: £100 redemption admin fee (paid at the end of mortgage)

Metro Bank seems to be the better deal here even with the fees but I could lose the valuation if I have to pull out or if they don’t offer anything. His only reason to push for Sainsbury’s was because of speed, which is also important to me. He says that Metro bank can be a bit with the whole process.
I’m really scratching my head at the moment as I don’t know which one to select. Would any of you experienced people help me with this big decision?

Lotak

Metro is £600 more expensive, in terms of fees, but is £8.78 / month cheaper for 60 months, saving £526.80.
Excluding the time value of money, that's a difference of £73.20

At the end of the 5 years, you're capital balance will be around £200 higher with Metro than with Sainsburys.

It looks like Sainsburys is actually the better deal.

Of course, this assumes you will remortgage after the 5 years.

fdama

Lotak wrote: »

At the end of the 5 years, you're capital balance will be around £200 higher with Metro than with Sainsburys.

Thanks for the reply. How did you work this out?

cherryblossomzel

There's a calculator on here that helps you compare mortgages

https://www.moneysavingexpert.com/mortgages/compare-mortgage-rates

Lotak

fdama wrote: »

Thanks for the reply. How did you work this out?

Plugging in the numbers into Excel.
I don't know how to embed on this so the figures would look ridiculous.

I realise that adding £500 to the metro mortgage means your monthly payment should be £393.87, saving £6.92 / month.

Basically, in terms of cash flow, you'll be £315 better off going through Metro over the 5 years.
In terms of capital balance, you're £95 better off going through Sainsbury's.

Looking at these figures, you may take the view that it would be better off going with Metro.

By going with Metro, you're saving £457 of interest over the 5 years (calculated with Excel), and you're paying an additional £405 of capital (hence why I said you'd be £95 better off with Sainsburys as £500-405 = £95. Also calculated with Excel).

However, you'll be saving £6.92*60 = £414.94 over the 5 years in reduced payments. You could use £95 of that to get you to the position you'd be if you went with Sainsbury's and still have £220 (after deducting the £100 difference in fees) left over by going with Metro.
Of course this all ignores the time value of money.

Ok I've changed my mind - if you can afford the £200 up front fee, I'd recommend Metro, all things being equal.