Potential mortgage doom - What to do?

EnterUserName

We took out a 5 year fix which is due to expire Sept 23. We owe £205k @ 2.79%, repayment, 28 years left.

In the interim period since we bought the house, we've started a family and Mrs isn't working (and honestly child care cost exceeds earning potential). So it's on me.

We're in that funny point where at renewal we get 3 "internal" options - normally SVR, 2yr fix, 5 year fix. Open market is not possible as we'd not pass the income ratio. Nobody has the crystal ball of where interest rates are going to be, but it seems highly probable they will be higher than the current.

Whilst we still have time to plan, I am welcoming any pearls of wisdom from others who may be in the same boat (or been through it before)? The current thought is maybe try and sell up whilst valuations are high and sort something else out later. But it still feels a bit "OTT".

I don't want to leave it too late and then find out we have the option of SVR at 8% or a 2 year fix at 6% - both would be.... "problematic". I don't think there's enough fat to cut to plug that kind of increase.

(Helpful) comments please!

K_S

@EnterUserName Could you pay the ERC and do a PT (product transfer with current lender) and perhaps get a long fix at a rate that you know you can handle. Assuming that you're with a mainstream lender, currently PT rates are likely to be around 3.6-4.5% or in that range.

How far off are you on affordability? There are mainstream lenders that will consider 6.5x loan to income caps for like for like remortgages.

EnterUserName said:

We took out a 5 year fix which is due to expire Sept 23. We owe £205k @ 2.79%, repayment, 28 years left.

In the interim period since we bought the house, we've started a family and Mrs isn't working (and honestly child care cost exceeds earning potential). So it's on me.

We're in that funny point where at renewal we get 3 "internal" options - normally SVR, 2yr fix, 5 year fix. Open market is not possible as we'd not pass the income ratio. Nobody has the crystal ball of where interest rates are going to be, but it seems highly probable they will be higher than the current.

Whilst we still have time to plan, I am welcoming any pearls of wisdom from others who may be in the same boat (or been through it before)? The current thought is maybe try and sell up whilst valuations are high and sort something else out later. But it still feels a bit "OTT".

I don't want to leave it too late and then find out we have the option of SVR at 8% or a 2 year fix at 6% - both would be.... "problematic". I don't think there's enough fat to cut to plug that kind of increase.

(Helpful) comments please!

billy2shots

Selling sounds very drastic and I would leave that as a final resort rather than an option. 

As children get older your partner will have more time to work, maybe part time at first but that should help. The free nursery hours the government gives out will start in the coming year(s)

Alternatively your wife could work when you are not. My wife worked weekends and a couple of evenings when my kids were young. 

Both of these options would minimise paying for child care and cover increases for next year's mortgage renewal. 


If you don't want to go that route then look at your current providers t&C's and do the math on the early repayment so you can start a new product now (if that option is available to you). 

EnterUserName

Thanks for both replies.

K_S, that is very interesting, I didn't know that. Thank you

ERC is circa £10k, LTV circa 52%. Multiple is probably about 5x but I need to double check all the figs to be more precise.

I need to go away and do some maths, but still, that sounds much less doomy so thank you for the information... The sell up option, whilst drastic, would be to move 200+ miles north and have a much smaller mortgage!

EnterUserName

Update on this following some number crunching. ERC is 5% and payable in full up to the final day (it doesn't taper).

ERC, along with the increased repayments over the first 12 months if we switched now (i.e. giving up the remaining 12 months on the fix) came in at an estimated £13,500.

We have therefore gone for the gamble - see what happens next year. We may end up selling and moving north, we had been talking about it before all this anyway...

dimbo61

By September 2023 we all hope the market will have settled down and you can get a new deal with your existing lender on a reasonable rate !
However you will also have perhaps £200,000 equity should you decide to sell and move up north.
Decisions decisions ?