Is now a good or bad time to buy a first home?

freelancesam

My wife and I are ready to buy our first home and hopefully start a family.. we have:

• Near perfect credit scores
• £20000+ in help to buy ISA's + £10,000+ extra
• A mortgage in principle and a provisionally accepted offer on a perfect home for £250,000 as long as we can borrow that much.

The best mortgage I've found so far is with HSBC (My Bank), which is:
1.79% fixed until 30 Sep 2022, then 3.54% variable
Monthly payment of £705.29 for 27 months then £901.71 a month for 33 years
My questions are:

1. Will we really have to pay £900/mo until we retire or can you renegotiate this? How does remortgaging work?
2. Is it normal to pay £94,082 in interest on a £225,000 loan?
3. What are our options before repossession if the rates go up a lot or if anything happens to our income in the future and we can't make payments?
4. Is now a good time to buy a first home and should we be looking at a fixed or variable rate?

Sorry if I sound a little paranoid, it feels like this is the biggest decision we've ever had to make, we've been saving for over 5 years and we don't want to get it wrong.
Thanks in advance!

bell

You will just remortgage to a better deal when your introductory rate runs out (or you should be).

Yes it's normal although if you remortgage to better deals along the way your total interest will be way lower in reality. 

To guard against high rate increase you can consider longer fixes, extend the term to lower payments, go interest only (not reccomended) or sell. 

Interest rates have been low for over a decade now and given the potentially poor ecomonic outlook ahead with high unemployment and low growth I can't see 12% rates any time soon (though I don't have a crystal ball)

It's not the best time to buy, but if you intend to stay put for some time and have a secure job then it's not much worse than any other point since 2008. Interest rates are at record lows and so are morrgage rates. The big worries are negative equity (only a problem if you sell, although it can affect getting get deals too later on) and loss of income. The choice is yours really. 

freelancesam

bell said:

You will just remortgage to a better deal when your introductory rate runs out (or you should be).

Yes it's normal although if you remortgage to better deals along the way your total interest will be way lower in reality. 

To guard against high rate increase you can consider longer fixes, extend the term to lower payments, go interest only (not reccomended) or sell. 

Interest rates have been low for over a decade now and given the potentially poor ecomonic outlook ahead with high unemployment and low growth I can't see 12% rates any time soon (though I don't have a crystal ball)

It's not the best time to buy, but if you intend to stay put for some time and have a secure job then it's not much worse than any other point since 2008. Interest rates are at record lows and so are morrgage rates. The big worries are negative equity (only a problem if you sell, although it can affect getting get deals too later on) and loss of income. The choice is yours really. 

Thank you so much for clearing those things up. If we get this house, I can't see us selling anytime in the next 20 years (if at all).

D.L

freelancesam said:
Is now a good time to buy a first home?

Noone can guarantee that the value of your property will go up. Anyway, you say you won't be selling anytime in the next 20 years, if at all. If that is really the case, you probably shouldn't worry too much about how property prices will change. Whilst there is a lot of uncertainty and uncertainty can be scary, this will certainly create good opportunities to get a good deal if you are willing to be flexible.

FrugalCat

freelancesam said:

Monthly payment of £705.29 for 27 months then £901.71 a month for 33 years
My questions are:

1. Will we really have to pay £900/mo until we retire or can you renegotiate this? How does remortgaging work?
2. Is it normal to pay £94,082 in interest on a £225,000 loan?
3. What are our options before repossession if the rates go up a lot or if anything happens to our income in the future and we can't make payments?
4. Is now a good time to buy a first home and should we be looking at a fixed or variable rate?

1. Not necessarily, but the mortgage product you're looking at would work that way if you kept it until the end of the mortgage. Bear in mind the £901.71 a month for 33 years is the lenders Standard Variable Rate (SVR) based on the current BoE interest rate + a few percent. So if the interest rates rise, you're paying more than that. They're unlikely to go much lower (ev\en if the the BoE goes negative, as the lender needs to make money).
You can re-mortgage at the end of your fixed deal (after 27 months), with whatever products you are available to you at that time.

2. Historically yes. Nowadays no, but you wouldn't stay on the lenders SVR if you have a choice.

3. If you can't make repayments, repo is usually the outcome. Sometime people are able to sell by themselves, but that requires a level of awareness that should be able to protect you from missing repayments in the first place. *

4. Probably not the best time to buy, you have nothing to lose by waiting 6-18 months. Fixed rates are preferable, and usually the better products.

* It reads like around £700 is affordable to you but higher payments would put you in a pickle. In that case, I would recommend looking into a longer term fixed rate, ideally 10 years, and that you purchase a property at a price where your mortgage payments leave you with the ability to save up while you're repaying the 10 year term. 
That way, you give yourself options when the fixed rate ends, and your fixed rate gives you a decade of security.

freelancesam

FrugalCat said:

freelancesam said:

Monthly payment of £705.29 for 27 months then £901.71 a month for 33 years
My questions are:

1. Will we really have to pay £900/mo until we retire or can you renegotiate this? How does remortgaging work?
2. Is it normal to pay £94,082 in interest on a £225,000 loan?
3. What are our options before repossession if the rates go up a lot or if anything happens to our income in the future and we can't make payments?
4. Is now a good time to buy a first home and should we be looking at a fixed or variable rate?

1. Not necessarily, but the mortgage product you're looking at would work that way if you kept it until the end of the mortgage. Bear in mind the £901.71 a month for 33 years is the lenders Standard Variable Rate (SVR) based on the current BoE interest rate + a few percent. So if the interest rates rise, you're paying more than that. They're unlikely to go much lower (ev\en if the the BoE goes negative, as the lender needs to make money).
You can re-mortgage at the end of your fixed deal (after 27 months), with whatever products you are available to you at that time.

2. Historically yes. Nowadays no, but you wouldn't stay on the lenders SVR if you have a choice.

3. If you can't make repayments, repo is usually the outcome. Sometime people are able to sell by themselves, but that requires a level of awareness that should be able to protect you from missing repayments in the first place. *

4. Probably not the best time to buy, you have nothing to lose by waiting 6-18 months. Fixed rates are preferable, and usually the better products.

* It reads like around £700 is affordable to you but higher payments would put you in a pickle. In that case, I would recommend looking into a longer term fixed rate, ideally 10 years, and that you purchase a property at a price where your mortgage payments leave you with the ability to save up while you're repaying the 10 year term. 
That way, you give yourself options when the fixed rate ends, and your fixed rate gives you a decade of security.

Thanks for the insight! We have a meeting in a few days with our mortgage advisor to discuss whether it would be best to go on a 2 year or 5 year fixed deal. The good news is that we can borrow the money for the house if we can just find a bit extra (shouldn't be a problem) which bumps it up to a 85% LTV and lowers the fixed monthly payments to £650 ish.
This would mean more equity which will put us in a better position to remortgage when the fixed term is up.

gab3x

freelancesam said:

 I can't see us selling anytime in the next 20 years (if at all).

That's what we all think and say but then life is never that simple

getmore4less

Trying to time the market is hard, and often goes wrong anyway.
better to ask
Is changing to ownership currently cheaper than renting.
Do we see the need to move anytime soon(its very expensive when you own).
Do we have relative income security. 
Moving into ownership tends to be a one way and nearly always cheaper long term timing to get in at a low point just means it gets even cheaper.
At the moment I think the income stream is the key one because with that often comes a move.
as for 2. that's cheap it was fairly normal for the interest to be the same as the loan not that long ago
5% over 30 years interest was 93% of the capital borrowed.
if rates stay under 2%  you are looking at 33% around £75k for your debt.

When it comes to term of the first fixed rate term you need to look at where you debt will be and if that will give a new LTV that gives better rates  for high LTV 2 years can make a big difference at lower LTV the steps get smaller making the 5y more attractive.
then you have the 2y rates are lower so if rates don't move up you are better on the lower rate.
It's a number crunch to work out what the differences are 

getmore4less

My wife and I are ready to buy our first home and hopefully start a family.
 I can't see us selling anytime in the next 20 years (if at all).
How many bedrooms does this place have?
Think 1 for each kid 1 for you and a spare(for guests).

Durban

getmore4less said:

My wife and I are ready to buy our first home and hopefully start a family.
 I can't see us selling anytime in the next 20 years (if at all).
How many bedrooms does this place have?
Think 1 for each kid 1 for you and a spare(for guests).

That's in an ideal world. If you have 2 children , you're looking at a 4 bedroom house.

To be honest , that is not feasible for most young , first time buyers.

A bedroom each for the kids and a bedroom for yourselves.  No need for a spare bedroom for guests.

When guests come , the kids can bunk up for a few nights or sleep in the lounge

freelancesam

getmore4less said:

My wife and I are ready to buy our first home and hopefully start a family.
 I can't see us selling anytime in the next 20 years (if at all).
How many bedrooms does this place have?
Think 1 for each kid 1 for you and a spare(for guests).

It's 3 bed (hoping for 2 children) with a separate downstairs office as I work from home. The house and location couldn't be any more perfect. I also think moving from renting to buying is the right move so we're not throwing away money every month. My worries are just about getting the right deal for the long term.