Mortgage Advice - Deposit and Length of Term Decision

siross

Hi all,

I wonder if I could seek the collective genius and advice of the MSE community? My wife and I are currently buying a property. The property price has been agreed at £318,000.

Taking away Stamp Duty, legal fees, search fees etc , we are left with around £105,000. This is cash as we've sold our property and are currently living with parents.

We currently earn ~£87,750 gross combined wages which leaves us with £4914 nett per month after all deductions. We’ve ran a number of affordability scenarios and we are comfortable with our figures which leave us with ~£1200 disposable income per month whilst still saving £750 a month. This is based on a £1200 a month mortgage.

Whist we’ve run the figures, everything is “on paper” the mortgage we are going for is a big jump for us. Our previous mortgage was just shy of £500 a month. Therefore we don’t want to stretch our monthly budget too much, particularly in the early years of the mortgage.

FWIW, I’m 33 and my wife is nearly 30.

We would like to do some improvements on the house, however improvements are not necessary. We could spend £0 and we could spend £50k+, we are trying to find a balance between doing everything we can to make the house perfect and not overspending.

I would like to retain at least £10k in the bank for eventualities outside of our control, I don’t want to be in a situation where we are forced into further debt for emergency spending.

Having said that we have a huge number of options

Deposit – 10/15/20%
Mortgage Length – 25/27/30 years
Fixed Rate – 2/3/4/5/10 years

There seem to be infinite permutations and it’s absolutely mind boggling. In an ideal world we’d put a 10% deposit down with a fixed rate for 10 years and a 25 year mortgage length. However this would give us a huge monthly payment if it’s even available on a 90% LTV mortgage.

I’ve been playing around with the HSBC calculator and have come up with the following:


I’m really stuck as to what the best way forward is, does anyone have any help/advice that could release me from this confusion? I'm potentially thinking middle of the ground, 27 year 3 year fixed with a 15% deposit. Leaves us with more than enough capital to complete the work, nice monthly figure and certainty for 3 years.

Harvic

Probably of equal relevance is what your payment could look like given a 3% base rate increase at the end of a fixed term. Also if you have kids what household income will be with mat leave etc.

Have you considered taking a longer term and overpaying- this you can stop at any point but effectively gives you a shorter term. Completely agree with emergency fund (over 3 months combined income at least).

siross

Harvic wrote: »

Probably of equal relevance is what your payment could look like given a 3% base rate increase at the end of a fixed term. Also if you have kids what household income will be with mat leave etc.

Have you considered taking a longer term and overpaying- this you can stop at any point but effectively gives you a shorter term. Completely agree with emergency fund (over 3 months combined income at least).

Thanks for the reply

A base rate increase of 3% does make me slightly nervous, is there a calculator available for us to test? Having said that, my wife and I are at the start of our careers, I currently earn the higher wage but my wife has greater opportunity to surpass me as a Clinical Psychologist. Higher interest rates should coincide with higher wages.

But that does link in with your second point. We've done some detailed calculations on maternity pay. We don't have kids yet but want to as soon as possible. Mat leave of 12 months is easily doable for us, it effectively means we either don't save any more money during that period and have similar disposable income or cut our disposable income and still save.

Having children could potentially put my wife back in terms of career upgrades. Therefore a longer fix looks more attractive...

Harvic

We are in similar positions I think with career wage growth and possible family growth! There are several calculators on the main site- if you just plug in numbers on the basic calculator you can get rough ideas: £290k debt over 25years: Monthly payment £1160 (@1.5%) vs £1611 (@4.5%). You can refine a bit more using a future figure using the overpayment calculator, which would tell you remaining balance in 2/3/5 years time.
We remortgaged about 18months ago and went for a 5yr fix but our LTV had gone below 70% so it became much cheaper than our prior 2yr fix at 80% LTV. You guarantee certainty with a longer fix but you also guarantee to pay more!

poppy10_2

siross wrote: »

A base rate increase of 3% does make me slightly nervous, is there a calculator available for us to test?

Yes, have a look here:

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

siross

Thanks all, I'll have a play about with some figures.

I'm tempted to up it to a 5 year fix for more certainty. 5 years down the line we'll both be in a better position financially.

In terms of the length of the agreement. Is 27 years an acceptable term for a 33/30 year old? With over payments, this would be reduced to be paid off before we're both 60.

siross

I've just had a play with the calculators and a rate of 5% puts payments up to £1450ish and whilst a pain this is still affordable now. Given a higher wage this should be easily manageable.

Would it be a good strategy to go for a 27 year term, 5 year fix (80% LTV) to keep monthly costs down. This would give us a surplus of around £2200 with other bills.

The £2200 would include disposable income and savings.

I planned on saving £500-750 a month as I live to save for holidays, bigger purchases if needed whilst not affecting the £10k emergency pot. If I save £500 that leaves £1700 disposable income around £400 a week. This is a lot of money and we would no way spend that on a regular basis!

So at the end of the month, if we spent half of that, that would leave around £850, I could use some of this to overpay the mortgage on a regular basis and therefore reduce the term?

That seems to give us flexibility?

poppy10_2

Yes, better to get the longer term if it allows overpayments for the flexibility - as long as you can afford (and think you will stick to the overpayments rather than seeing it as 'extra money' you will end up spending)

siross

poppy10 wrote: »

Yes, better to get the longer term if it allows overpayments for the flexibility - as long as you can afford (and think you will stick to the overpayments rather than seeing it as 'extra money' you will end up spending)

Thanks, this is what we've ended up going with.

I'm very careful with money so saving it or overspending won't be an issue.