Mortgage advice does this sound sensible?

howzat92

Hi all,

I spoke to a fee free whole of market broker recommended by a friend of mine. He recommended that I go for a 5 year fixed deal @ 3.44% with Halifax (35 year term). 35 year term initially to ensure payments are manageable and he said I can always overpay if it turns out I have some extra funds. I am told the 5 year fix would make it less likely that I would become a 'mortgage prisoner' than if I had a 2 year fix (pretty much same interest rate with Halifax) as I may find it hard to be accepted for any mortgage if the house had gone down in value after 2 years as I was so close to the max I could borrow anyway.

I am just a little apprehensive about being on the 3.44% rate for 5 years as I could potentially change to a lower rate after 2 years if I had some equity built up? Would doing a 2 year fix be a big risk? 
I appreciate he is the expert and I will ask him all of this in our next meeting, but I just wanted to get a 2nd opinion on if others on this forum think his advice sounds sensible/is it sensible for me. 

Further info: 
221k mortgage (this is the max I could borrow) 
245k purchase price 
24,500 deposit

K_S

@howzat92 As always, the "right answer" for you depends on hard aspects like the numbers and soft aspects like your attitude.

As a broker, I would be hesitant to recommend 90% LTV 5 year fixes without good reason simply because the rates right now are relatively high (compared to the same time last year), the ERCs involved can be typically steep through the 5 year period and the client potentially loses out on an opportunity to move to a cheaper LTV band if they are able to overpay during that period.

I avoid trying to predict interest rates but of course if the client feels strongly one way or other, that's how it goes. Some people prefer to fix and forget, and like the certainity of how much they will pay over a long period.
There's no right or wrong answer, a few pros and cons for both.

MWT

How likely is it that you will be able to overpay during the first two years?

ACG

I agree with KS - a 5 year fixed rate at 90% seems a bit unusual. 
You are not really going to be a mortgage prisoner with Halifax, I am fairly sure providing you keep up with repayment they will always offer you some sort of retention deal. 

There is the other argument that KS also raises, a 5 year fix is done and dusted - you do not have to deal with it again but with a rate of 3.4% I feel that is an expensive way to go. 

There are pros and cons for pretty much any route you go down. I just think if you were to do a 2 year fix, you could overpay to the tune of what your repayments would be on the 5 year fix and your balance would ultimately come down quicker... The route the broker has taken is to pay it down over a longer period (takes longer to come down) and at a higher rate - it feels like the worst of both worlds personally. 

But I am literally going off the information in this post so I could be very wrong (thats my get out of jail free card).

howzat92

If I was going to overpay I would only be able to afford around £50pm extra so not sure this would be enough to make a difference? The 2 year fix deal was also around about 3.44%. Is it realistic I could do the 2 year fix and then find a cheaper deal to move onto after those two years? 

K_S

howzat92 said:

If I was going to overpay I would only be able to afford around £50pm extra so not sure this would be enough to make a difference? The 2 year fix deal was also around about 3.44%. Is it realistic I could do the 2 year fix and then find a cheaper deal to move onto after those two years? 

@howzat Roughly speaking, given the numbers you've shared, and assuming no growth in the house value, you would still be on the wrong side of the next LTV band (85%) in 2 years, even with the £50/month overpayment.

Are you sure you're comparing like for like? At 90% LTV, the 3.44% 2 year fix I can see comes with no fee while the 3.50% 5 year fix comes with a £999 fee. I don't see a 5 year 3.44% fix, the product might have been updated.

getmore4less

Looking at the rates table(.4 Feb 2021)
3.44% isthe 2year rate
3.66% is the 5y rate

amount	rate	payment	owing
£221,000.00	3.44%	£905.71	£214,247.91

 2 years would  still 87.5% LTV would need some HPI or overpayment to get to 85%(£208,250)

amount	rate	payment	owing
£221,000.00	3.44%	£1,145.00	£208,311.49

Do you think you could sustain an overpayment of £240pm?

with a 5 year plan at that rate.

amount	rate	payment	owing
£221,000.00	3.44%	£905.71	£203,208.85

You are getting into 83% territory

with the 2 year rate you  have  3 bites at the reduced rate cherry.
90% rates drop
you can overpay to get to 85%
HPI get you to 85%

One for the brokers is what retention rates are Halifax doing for 90%+
worst case is the SVR currently 3.59% not much difference to the 90% rates anyway.

With no change in value and paying £1kpm you hit 85% around 2y10m-3y with a 3.4%-3.6% interest range
sooner if you can overpay a bit more.

getmore4less

Looks like Halifax have hidden their retention deals I suspect they still tier those rate(0-£100k-£250k-£250k+)  so as your mortgage goes down they become less competitive.

Something to look out for.

howzat92

K_S said:

howzat92 said:

If I was going to overpay I would only be able to afford around £50pm extra so not sure this would be enough to make a difference? The 2 year fix deal was also around about 3.44%. Is it realistic I could do the 2 year fix and then find a cheaper deal to move onto after those two years? 

@howzat Roughly speaking, given the numbers you've shared, and assuming no growth in the house value, you would still be on the wrong side of the next LTV band (85%) in 2 years, even with the £50/month overpayment.

Are you sure you're comparing like for like? At 90% LTV, the 3.44% 2 year fix I can see comes with no fee while the 3.50% 5 year fix comes with a £999 fee. I don't see a 5 year 3.44% fix, the product might have been updated.

Yes sorry my mistake you are correct. The figures you have above are what the advisor told me.  

howzat92

getmore4less said:

Looking at the rates table(.4 Feb 2021)
3.44% isthe 2year rate
3.66% is the 5y rate

amount	rate	payment	owing
£221,000.00	3.44%	£905.71	£214,247.91

 2 years would  still 87.5% LTV would need some HPI or overpayment to get to 85%(£208,250)

amount	rate	payment	owing
£221,000.00	3.44%	£1,145.00	£208,311.49

Do you think you could sustain an overpayment of £240pm?

with a 5 year plan at that rate.

amount	rate	payment	owing
£221,000.00	3.44%	£905.71	£203,208.85

You are getting into 83% territory

with the 2 year rate you  have  3 bites at the reduced rate cherry.
90% rates drop
you can overpay to get to 85%
HPI get you to 85%

One for the brokers is what retention rates are Halifax doing for 90%+
worst case is the SVR currently 3.59% not much difference to the 90% rates anyway.

With no change in value and paying £1kpm you hit 85% around 2y10m-3y with a 3.4%-3.6% interest range
sooner if you can overpay a bit more.

This is useful thankyou. No way I would be able to make a £240 overpayment I'm afraid. 

How risky do you think it is going with the 2 year 3.44% deal? It sounds like you think that would be the better one? 

Thrugelmir

Insurance is never free. The higher initial cost provides peace of mind in that there's no downside risk.  Particularly if money is tight and knowing what your monthly outgoing is fixed for a reasonable length of time.