Discussion
Hi guys,
Looking to get onto the property ladder and going to be buying my first home very soon and would like some advise on a few things. I am currently in a stable job and looking to stay within it for the next few years of my career and then hopefully progress within it so shouldn't be too bad getting a mortgage out, I haven't been to the bank or met a mortgage adviser hence this post. I currently work 7 days a week and have two jobs which is why I find it easier to just write a topic on here.
Anyways lets get to the point, I have saved up a decent £70k and looking to deposit all of that down for a house and mortgage the rest, I have used moneysupermarket to compare mortgages and they seem reasonably priced, the question I have is that most of them come with 2 years interest free, is a mortgage like an insurance policy? So after two years I could decide to go for a different mortgage rather than paying the higher interest after 2 years? Or does this only apply for the first time you take out a mortgage?
Thanks
Looking to get onto the property ladder and going to be buying my first home very soon and would like some advise on a few things. I am currently in a stable job and looking to stay within it for the next few years of my career and then hopefully progress within it so shouldn't be too bad getting a mortgage out, I haven't been to the bank or met a mortgage adviser hence this post. I currently work 7 days a week and have two jobs which is why I find it easier to just write a topic on here.
Anyways lets get to the point, I have saved up a decent £70k and looking to deposit all of that down for a house and mortgage the rest, I have used moneysupermarket to compare mortgages and they seem reasonably priced, the question I have is that most of them come with 2 years interest free, is a mortgage like an insurance policy? So after two years I could decide to go for a different mortgage rather than paying the higher interest after 2 years? Or does this only apply for the first time you take out a mortgage?
Thanks
This post should be moved elsewhere but,
1. Go and see a mortgage advisor who is independent of an estate agent.
2. With a 70k deposit, I would be looking to put a large deposit down (A better LTV means a lower interest rate) Then lock this rate in for a few years to ride out any post Brexit interest rate funny business.
The initial interest rate is not 0%.
1. Go and see a mortgage advisor who is independent of an estate agent.
2. With a 70k deposit, I would be looking to put a large deposit down (A better LTV means a lower interest rate) Then lock this rate in for a few years to ride out any post Brexit interest rate funny business.
The initial interest rate is not 0%.
I doubt they are interest free just a lower rate. at the end of your 2 or so years they revert back to the lenders standard rate (around 4%). They will have a time period where to get out of the mortgage you have to pay a premium (something like 3% of the remaining loan). Once that time period has passed you can change to a different mortgage product and have another 2+ years at a fixed lower rate.
Well worth going to see a decent mortgage adviser though, has saved us a lot of money over the last 8 years since we bought our house.
Well worth going to see a decent mortgage adviser though, has saved us a lot of money over the last 8 years since we bought our house.
Before this gets moved to Finance...
You have used the incorrect terminology but you are thinking along the right lines. You don’t have a 2 year “interest free” deal (unless you are very lucky
) but rather a 2 year fixed/tracker. This will then be followed - in theory - by a standard variable rate which as you are finding looks a lot higher. So you might do a 25 year mortgage that on paper has a 2yr initial deal then 23 years on the variable.
As you quite rightly suppose you would review your deal at the end of (well, a bit before) your deal ends and then go onto another deal for x years. This can be with the existing lender or a new one (remortgage). It is nothing to do with being a FTB or it being your first mortgage.
You have used the incorrect terminology but you are thinking along the right lines. You don’t have a 2 year “interest free” deal (unless you are very lucky
) but rather a 2 year fixed/tracker. This will then be followed - in theory - by a standard variable rate which as you are finding looks a lot higher. So you might do a 25 year mortgage that on paper has a 2yr initial deal then 23 years on the variable. As you quite rightly suppose you would review your deal at the end of (well, a bit before) your deal ends and then go onto another deal for x years. This can be with the existing lender or a new one (remortgage). It is nothing to do with being a FTB or it being your first mortgage.
WhisperingWasp said:
As you quite rightly suppose you would review your deal at the end of (well, a bit before) your deal ends and then go onto another deal for x years. This can be with the existing lender or a new one (remortgage). It is nothing to do with being a FTB or it being your first mortgage.
Bear in mind that if property values or your income go down, you may find it hard to get another lender to lend to you on attractive terms when the deal ends. In that case you will be stuck on the SVR / reversionary rate from your original lender.I've not seen an 'interest free' mortgage but it is very common to have a mortgage 'deal' for two years which then returns to some default pre-specified rate. At the end of that initial deal you can shop around again and either:
a) do nothing (and pay the higher rate with existing provider)
b) find a new deal with the same lender and swap it over to that
c) find a new lender and change provider (though this may incur legal and arrangement fees)
This is a straightforward process and quite normal, if you're not changing the value of the mortgage it is usually quite simple.
I personally think taking out a longer term (eg 5 years) is a good idea in the current economic climate as it fixes your monthly payments at a certain level. Also a good idea to put as much of a deposit down as possible. Be mindful of putting money aside for legal expenses, surveys, moving costs and perhaps even new furniture etc for the new property.
Find yourself a good mortgage broker, a good broker will often be able to find you a better deal than if you were to go directly to that lender. I personally know of an instance where a mortgage broker was able to get a better rate with HSBC than an actual HSBC employee was able to get using their staff discount rate.
a) do nothing (and pay the higher rate with existing provider)
b) find a new deal with the same lender and swap it over to that
c) find a new lender and change provider (though this may incur legal and arrangement fees)
This is a straightforward process and quite normal, if you're not changing the value of the mortgage it is usually quite simple.
I personally think taking out a longer term (eg 5 years) is a good idea in the current economic climate as it fixes your monthly payments at a certain level. Also a good idea to put as much of a deposit down as possible. Be mindful of putting money aside for legal expenses, surveys, moving costs and perhaps even new furniture etc for the new property.
Find yourself a good mortgage broker, a good broker will often be able to find you a better deal than if you were to go directly to that lender. I personally know of an instance where a mortgage broker was able to get a better rate with HSBC than an actual HSBC employee was able to get using their staff discount rate.
Being in the property world myself we recently purchased our first property, it takes a lot longer than you think!
As said though get an independent to help you find good deals, but it is worth looking at the wider market yourself as well. In the end we found our own deal.
Really focus on the fixed term initially, majority of these will be 2, 5 or 10 these days.
Usually the longer the fixed term the higher the interest rate will be. But, in many cases it is worth carefully considering the fixed term so you have a set period for a longer time. For example our deal is fixed 10 years at just over 2%. Like others in the current climate fixing for longer makes much better sense.
LTV is important as well as the more deposit you have the better deal you will get as usually the best LTV's are at maximum 60% (or some are even lower), your deposit being basically a minimum 40% then (ours was approx 23% LTV).
You may want to carefully consider the affordability criteria and what you are currently spending on which is not gaining you anything, additionally consider how much maximum you could borrow, and what you would feel comfortable AFTER the fixed rate has finished and unless you get another fixed rate what the standard rate would be and whether that level would still be affordable.
Again I balanced ours against some of the highest rates on records, well beyond our lenders criteria just to make sure.
On the final point you MAY want to consider the length of term carefully whether it be to make the initial fixed term payments more comfortable or whether like I did stress test it beyond the banking criteria to play very safe. Common term is no longer 20 or 25 years in actual reality the market is now looking on average of people with 35, or even 40 year mortgages. 2017 was still around 30, based on the above I set ours to 30.
Consider something that is not usually advertised of whether there are (usually there is) for additional repayments during the term. Furthermore, some lenders allow you to use these additional payments should harder times come instead of paying it, or even payment holidays for a set period (but obviously the interest will still occur during this period).
Most people are on fixed these days (and many that are still on interest only are starring down the barrel of a gun), most people do not have the required assets for interest only these days.
Finally, I may be pointing the obvious out but make sure you know the other costs of solicitors (find a bloody decent one before the offer stages, not online only and ignore the costs they need to work for you and get things moving!), surveys (again find a good one who is a member of RICS for example), searches, removals and SDLT. Being a first time buyer (provided you have no interest in property in the UK or abroad) then you will get the SDLT free or at reduced rates if above £300k to a max £500k.
This last bit reduced our SDLT from £13k to a little above £8k.
As said though get an independent to help you find good deals, but it is worth looking at the wider market yourself as well. In the end we found our own deal.
Really focus on the fixed term initially, majority of these will be 2, 5 or 10 these days.
Usually the longer the fixed term the higher the interest rate will be. But, in many cases it is worth carefully considering the fixed term so you have a set period for a longer time. For example our deal is fixed 10 years at just over 2%. Like others in the current climate fixing for longer makes much better sense.
LTV is important as well as the more deposit you have the better deal you will get as usually the best LTV's are at maximum 60% (or some are even lower), your deposit being basically a minimum 40% then (ours was approx 23% LTV).
You may want to carefully consider the affordability criteria and what you are currently spending on which is not gaining you anything, additionally consider how much maximum you could borrow, and what you would feel comfortable AFTER the fixed rate has finished and unless you get another fixed rate what the standard rate would be and whether that level would still be affordable.
Again I balanced ours against some of the highest rates on records, well beyond our lenders criteria just to make sure.
On the final point you MAY want to consider the length of term carefully whether it be to make the initial fixed term payments more comfortable or whether like I did stress test it beyond the banking criteria to play very safe. Common term is no longer 20 or 25 years in actual reality the market is now looking on average of people with 35, or even 40 year mortgages. 2017 was still around 30, based on the above I set ours to 30.
Consider something that is not usually advertised of whether there are (usually there is) for additional repayments during the term. Furthermore, some lenders allow you to use these additional payments should harder times come instead of paying it, or even payment holidays for a set period (but obviously the interest will still occur during this period).
Most people are on fixed these days (and many that are still on interest only are starring down the barrel of a gun), most people do not have the required assets for interest only these days.
Finally, I may be pointing the obvious out but make sure you know the other costs of solicitors (find a bloody decent one before the offer stages, not online only and ignore the costs they need to work for you and get things moving!), surveys (again find a good one who is a member of RICS for example), searches, removals and SDLT. Being a first time buyer (provided you have no interest in property in the UK or abroad) then you will get the SDLT free or at reduced rates if above £300k to a max £500k.
This last bit reduced our SDLT from £13k to a little above £8k.
Edited by Ninja59 on Tuesday 10th April 12:38
Edited by Ninja59 on Tuesday 10th April 12:39
I was looking at buying my 1st home just before christmas. On my own, I have saved a healthy deposit so my LTV is good & was getting a 5 year fixed 1.99% with Nationwide. Pulled out of the house buy in the end but I found going to a broker helpful as he had access to so much more than I get by just going into the bank.
Thanks lot guys all information is very much appreciated!
Having read all of your comments it makes great sense of putting as much deposit down as possible to reduce monthly payments, and yes apologies made a mistake first two years were showing as 0.99% rather than interest free!
So the house I am thinking of purchasing is 200k so with a deposit of £70k it would leave me borrowing 130k from a bank, I am considering going for the 30 or 35 years mortgage, I have found great deals on moneysupermarket.com and will try and find some local broker as you guys have advised also.
Another question is after the fixed term mortgage does it not look bad to move out to a different lender? Are you loosing out here by moving? You are still paying the mortgage off under the fixed term? Why would someone continue to pay at a higher interest rate jumping from 1% to 4% after two years I could not understand? its hard for them to find another lender or find it too time consuming?
Thanks again!
Having read all of your comments it makes great sense of putting as much deposit down as possible to reduce monthly payments, and yes apologies made a mistake first two years were showing as 0.99% rather than interest free!
So the house I am thinking of purchasing is 200k so with a deposit of £70k it would leave me borrowing 130k from a bank, I am considering going for the 30 or 35 years mortgage, I have found great deals on moneysupermarket.com and will try and find some local broker as you guys have advised also.
Another question is after the fixed term mortgage does it not look bad to move out to a different lender? Are you loosing out here by moving? You are still paying the mortgage off under the fixed term? Why would someone continue to pay at a higher interest rate jumping from 1% to 4% after two years I could not understand? its hard for them to find another lender or find it too time consuming?
Thanks again!
Maybe there are pros to staying with the same lender but I've moved a couple of times and we have taken 10 years off the length of the mortgage and the repayments have gone down about £50/month as the LTV ratio has improved (although we were lucky in the we bought the house 8 years ago just before the properly market started to recover). So I'm not sure what the downsides are of chopping and changing.
IME changing lenders isn't much hassle, 2x hour long meetings with the mortgage guy and 45 mins or so filling in some stuff for the solicitors and it's all sorted.
IME changing lenders isn't much hassle, 2x hour long meetings with the mortgage guy and 45 mins or so filling in some stuff for the solicitors and it's all sorted.
Iddz said:
I am considering going for the 30 or 35 years mortgage
Another question is after the fixed term mortgage does it not look bad to move out to a different lender? Are you loosing out here by moving? You are still paying the mortgage off under the fixed term? Why would someone continue to pay at a higher interest rate jumping from 1% to 4% after two years I could not understand? its hard for them to find another lender or find it too time consuming?
Thanks again!
Why such a long mortgage term? You be paying much more in interest going for 35 years as opposed to 25. Unless affordability is a problem, in which case do what you need to in order to make the payments affordable. Another question is after the fixed term mortgage does it not look bad to move out to a different lender? Are you loosing out here by moving? You are still paying the mortgage off under the fixed term? Why would someone continue to pay at a higher interest rate jumping from 1% to 4% after two years I could not understand? its hard for them to find another lender or find it too time consuming?
Thanks again!
There are no problems moving to another lender after the initial period/deal expires. It's common practice. However, the lender you are with will be offering you a new 2 year deal at that point so you might not want to change.
mcbook said:
There are no problems moving to another lender after the initial period/deal expires.
I said this upthread but do bear in mind that your circumstances can change and the property market can change in a 2-5 year horizon. With a £70k deposit hopefully you are going to be a long way away from negative equity, but if you are in a cyclical industry and your earnings are likely to fall during a recession, you might have problems convincing a new lender that the level of borrowing was affordable.All I would say is run the numbers to make sure that if you did get stuck on the SVR (plus 2-3% higher interest rate in a downside case) it wouldn't cause you stress.
Iddz said:
Having read all of your comments it makes great sense of putting as much deposit down as possible to reduce monthly payments
It does yes. You get a better interest rate. Mine was over 27 years but he said I could probably afford it over 20 years. I was planning on over paying within the limits of the mortgage and reducing the years that way once I know what my monthly outgoings are. Doesnt help being on my own but the potential of being mid-50s and mortgage free is good.Have a play with a repayment calculator, e.g. https://www.moneysavingexpert.com/mortgages/mortga...
You may be surprised just how much you can save over the term by repaying sooner. Of course this means a higher monthly payment but you could save tens of thousands by reducing the term to say 20 or 25 years. This is particularly important when interest rates are high, and whilst they are historically low (circa 1-2%) today they will eventually rise and over the duration of your mortgage could be much higher than today's level.
You may be surprised just how much you can save over the term by repaying sooner. Of course this means a higher monthly payment but you could save tens of thousands by reducing the term to say 20 or 25 years. This is particularly important when interest rates are high, and whilst they are historically low (circa 1-2%) today they will eventually rise and over the duration of your mortgage could be much higher than today's level.
mike9009 said:
I have not checked recently but at 0.99% I would be carefully checking what the fees are on this 'deal' and whether it makes financial sense going after the headline APR figure.
Mike
That's a very good point. On a loan of £130k I'd doubt very much that the fees would be any less than the saving from the lower interest rate, over the term. Mike
From a quick look at the comparison sites, an initial rate of 0.99% would come with a BIG fee.
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