Five Year Fix, Five Year Plan

Merlin's_Beard

I've not even got a mortgage yet, but here I go.

I'm finally getting on the housing ladder and settling, after living around the country for the last decade. I've been in a position where "I'm just about to buy" for about 8 years for various reasons, so while I've not spent well, I could have saved better instead of leaving it all in cash "because I'm about to use it". Ah well, hindsight is 50:50

I'm 35, single, and it's just me and a cat (The Reluctant Roommate, who tolerates my presence because I'm useful at opening sachets). Maybe I'll look into the single bit once the housebuying is done.

I'm due to exchange on a newbuild in the next week or so: cost is £320,000, which is excessively stretching myself in terms of what is lendable. Hopefully hindsight won't be 20:20 there. Mortgage will be £240,999 (product fee rolled in), fixed for 5 years. I still don't know if a 5 year fix will be the right thing financially, but emotionally/mentally having that security is the right thing, especially with the stretching myself part. Luckily I've been renting for so long I've got most of the basics sorted, so will be able to add furniture as and when.

Until now, I've been doing that mad balance where I knew I needed to save like crazy for a house deposit, but also knew I needed to save longterm because I don't want to work forever, and I also want to experience life now! This diary is going to keep me accountable after one of those objectives disappears (she says, hopefully).

Merlin's_Beard

So with a five year fix comes a five year plan:

1. Rebuild emergency fund after buying

I pay for income protection that kicks in after 6 months. Emergency fund needs to cover that first six month period. Previously this would have been £10k - I need to recalculate this and then repair the damage from the extras a newbuild generates - floors, garden/lawn etc!

2. Furnish a house and garden

I can't describe how excited I am to be able to have a) a small garden and b) a dining room table. And to be able to hang pictures on walls!

3. Overpay mortgage

In my head, I want my balance to be under £200,000 at the end of my fix. Hopefully that should give me two things - a much wider choice at remortgage time, because I was limited by the amount I wanted to borrow. Hopefully it will help with the LTV side of things as well but I can't control the house price side of things.

4. Increase pension payments

I don't want to work forever! My job has an aspect of physicality as well, so I'm self-insuring a bit against a point where maybe I physically can't do as much as well. Definitely aiming for FI, possibly RE if I can swing it. Currently 17% being paid into workplace pension and SIPP, would like to increase this.

5. Start an S&S ISA

Even just £50/£100 a month to start with.

And on top of that pay for the rest of life...

HotDog2020

Hi Merlins Beard,

Good luck with your quest, and that is an impressive sized mortgage, I would be a little scared in this climate. If I was you and (I have with mine) I would have done a ten year fix and do the maximum op to bring down the mortgage if we see the bank raise rates ongoing - what I am trying to say who knows how long the rates will rise for. The cost of covid was great, will this impact future interest rates, who knows, but the climate is not good at present, so you were very brave to take on such a huge mortgage you have the right attitude and op are sensible. I would use the OP calculator and mess around with the figures on the MSE site also to consider is how much you can OP by on your mortgage I can OP by 10% per annum of mortgage figure. 

Also having an emergency fund is wise, it is the first thing that should be saved up if you can do that and OPs you'll be doing well. So good luck and I look forward to reading your achievements.

Merlin's_Beard

Thanks HotDog. It is large, but I was trying to balance that against the risk of house prices going up and being priced out of what I wanted, so I just decided to go for it. Saving a deposit has been a game of keeping up with house prices over the last 5 years and it's disheartening watching your options disappear out of price range, or just no houses being for sale. Right place, right time.

Thankfully I've got a fairly stable and recession-proof job that's currently experiencing a recruitment crisis, especially for experienced staff willing to work FT, so it gives me a solid base to make risks from, and if I end up going without to make ends meet, it is just me tightening the belt.

As far as OPing goes, I'm trying to get the right balance with that and pension and long term savings as well instead of putting all my "long term saving" eggs in one basket. Diversifying is just another way to spread the risk!

killerpeaty

Hi Merlin. I went with a five year fix when I bought as well and honestly it has worked really well for me. If I had gone for 2 years then I would have to have dealt with a new fix already and it's barely any time at all. But things have changed in my life so ten years would have been a pain for me. You just don't know what is the absolute perfect plan so you just have to do your best.

My friend goes for two year fixes because she aggressively overpays so wants to be able to lower her interest rate. I don't know how efficient it is given the fees involved. It might be very efficient?!

May I ask which sector your job is in?

kiwi77

Good for you Merlin - its always a bit daunting at the start but a five year fix is a reasonable period of time to have certainty and you are wise to overpay as much as you can. We have just sold our first house to upsize and we managed to pay it off in 12 years - this has opened up properties for us that we never thought would be in our reach because the property value has gone up also so now have a big chunk of equity to put down. It was really hard to do that but short term pain equals long term gain. I am all for stretching for the right property if it means you can be in it for a reasonable period of time - hopefully your new home will give that to you and you'll be very happy in it. 
Our strategy was to overpay the 10% as early in the year as possible ... then save every month to build a new pot ready for the early payment allowance starting the following year. It was so satisfying seeing how quickly the capital we owed dropped after about year 6 or 7. You'll soon figure out the best way to do it whilst meeting your other sensible targets like your pension etc
All the best for your move ... we found the build up to getting the mortgage more daunting than once you actually have it. You'll soon get into the pattern of paying it and its so satisfying to know that if circumstances changed you can apply (if your mortgage allowed it) for a break in payments whereas if you were renting a landlord wouldn't be so helpful. 
Good luck!

kiwi77

PS - don't feel too bothered if people say 'thats a huge mortgage' ... it depends what part of the country you are in - we are in Oxfordshire ... as a first time buyer ... or climbing further up to the ladder ... you can't avoid a big mortgage unless you have a humungous inheritance ... property prices in some parts of the country are so high a huge mortgage is unavoidable.

Merlin's_Beard

killerpeaty said:

Hi Merlin. I went with a five year fix when I bought as well and honestly it has worked really well for me. If I had gone for 2 years then I would have to have dealt with a new fix already and it's barely any time at all. But things have changed in my life so ten years would have been a pain for me. You just don't know what is the absolute perfect plan so you just have to do your best.

My friend goes for two year fixes because she aggressively overpays so wants to be able to lower her interest rate. I don't know how efficient it is given the fees involved. It might be very efficient?!

May I ask which sector your job is in?

That was my thoughts exactly. 10 years is a long time to think my needs/wants are going to stay the same. 

And of course - I'm a vet. A lot of our EU colleagues have gone home, registering new EU vets is now substantially harder, the  workload has increased (Brexit paperwork, lockdown pet boom), and more and more colleagues are leaving the clinical side of the job entirely because they're burnt out - they go to industry, or academia, or just do something entirely different (every time they survey us, about 10% are looking to leave the profession entirely and over 50% of practices are short staffed). Add to that a predominantly female workforce that has to work PT around kids (nurseries/after school care finishes well before we do!)

On the flip side, it's meant that I could change jobs a few years ago fairly easily and get a pay rise (I was on £35k two years ago with 10 years of experience, I would not have got this mortgage on that!)

Of course, things will quiet down in a recession, but with most places working at about 120% of what they should be at the minute, jobs should be safe.

killerpeaty

Honestly did not know about what Brexit did to your sector, but it's interesting. I have questions but feel free to ignore. Is there no bridging qualification so that an unrecognised qualification can be converted? Why are more women vets? How many smuggles with the animals are too many?

I'm glad you got a raise, as £35k seems low for a decade of experience to me! I dunno, that amount of studying and experience, it just seems barmy.

Merlin's_Beard

killerpeaty said:

Honestly did not know about what Brexit did to your sector, but it's interesting. I have questions but feel free to ignore. Is there no bridging qualification so that an unrecognised qualification can be converted? Why are more women vets? How many smuggles with the animals are too many?

I'm glad you got a raise, as £35k seems low for a decade of experience to me! I dunno, that amount of studying and experience, it just seems barmy.

1. Most EU qualifications are recognised - there's a Europe wide vet school association that regulates standards so if you pass via one of them, then you're eligible to register as long as your English is certified. But the visa process to get the right to live and work here takes a long time now, despite us now being a shortage occupation.
 
2.Why so many women is the million pound question.  Same as medicine - used to be 90% male, flipped in the 90s, now a 90% female occupation. Lots of theories - lower pay than it used to have, move from patriarchal "do as I say" mentality to a shared decision making model, move to a more service industry mentality, influx of "vet school" tv programmes that gave women role models beyond James Herriot? Who knows. Admittance numbers are relative to application numbers, so there doesn't seem to be bias either way by universities.

3. Never too many snuggles with animals, got to have some perks!

MoneySavingMiss95

Welcome I luckily got my 5 year fix end of last year and completed early Jan before things started to really tank, you can’t dwell too much on the what ifs, you have a plan and that’s the important thing.