Is this a terrible idea? Regarding high rate mortgages

petermolly

Hi,

We've found a house that we really like, but it has some restrictions on the land under option contracts that basically mean standard mortgages won't touch it. The only route is via specialist brokers and even then it's very limited. I am happy the risks of the option itself are entirely manageable. The good thing is because of all this the house is much cheaper (by 60k), the other good news is the contract expires in 8 years time which will mean once it's gone the price should increase to normal levels. So the theory is, if this is a "forever house" and you can hold out for 8 years, you should be in a good position. However you're screwed if you need to try and sell during those first 8 years (very few people would take this on it seems).

So all that aside, with a luckily 50% deposit we can get a specialist 25-year mortgage, either at 3.8% 2 years fixed or 7.8% 5-years fixed. I only need to be concerned for the first 8 years and after that can go to any lender at market rates.

Realistically 7.8% is crazy for the time being with a 50% deposit - however I think if you cost it out it basically accounts for the 60k saving on the asking price over 8 years of high interest payments.

I'm tempted to take on the 3.8% for 2 years - but my major concern is that after that fixed period I would be stuck with one lender, can I trust I won't get screwed by them naming their price after the 2 years? i.e. giving me an SVR of 10% or something silly under the knowledge I can't go to anyone else? Affordability wise, I would be just about ok with rates up to 8% but obviously that's massively above market average and the savings I could make on another property - but 60k off the asking does kind of account for some/all of that...

Or maybe this is a totally crazy idea? It's just the house is really really nice and if I can make it work with some level of financial sense i'd like to. Appreciate any advice/thoughts!

Thanks!

ACG

The SVR will be in your initial mortgage offer.

The SVR would usually be linked to something such as Libor or BoEBR - neither of which any lender has any real control over.

I would be very surprised if your only 2 options are a 2 year fix at 3.8% or a 5 year fix at 7.8% those sound like 2 very different lenders and I can only assume they have more than 1 deal each.

petermolly

Thanks - so is the initial SVR quoted with the mortgage guaranteed to be there for some amount of time after your fixed rate ends? I thought that's just the current rate and it could change by the time your fixed rate ends.

Those two rates do come from the same lender as far as I know, although it's abstracted somewhat via the broker.

ACG

The SVR can change, but in the illustration/offer it will tell you what it is linked to.

It will be linked to something, assuming that is not Daves base rate but something normal then the lender can not just hike up your rate at the end of the deal. Obviously if whatever their SVR is linked to jumps up over the next however many years then the SVR will go up. But residential mortgages are regulated so your concerns whilst they can happen, it cant happen because someone decides you are stuck with them so they can do what they like. Also, it would mean that all of their customers on the same deal would have their rates hiked.