Preparing for mortgage lockout
Discussion
Last December I've purchased my first home. Deposit was 6.5% and I took a 2 year fixed deal with a view that after 2 years even without overpayments provided the house price wouldn't drop, LTV would reduce to 88% and open up better rates to fix for a longer period. The property is in Yorkshire so until the events of the last few weeks the market looked in good health with prices growing at a couple percent a year.
Now with all that's going on I was wondering if I should start preparing for when the current deal runs out. Am I correct in understanding that if the prices went down and the wider financial crisis was affecting the economy, any new mortgage deal will require a new valuation and for a double whammy a higher than 5% LTV as banks tighten the criteria in uncertain times? Then I presume unless I were to fund the difference I'd become locked on the lender's variable rate. Which brings another question, is it more likely or not to see the variable rate increasing? I understand the base rate is unlikely to grow significantly, but could it be expected for lenders to raise their rates due to market uncertainty or whatever? Are there any other potential issues to be anticipated if in less than minimum or even negative LTV, I presume repossession wouldn't come into it unless payments stop?
At which point do banks start requiring a new valuation?
Seems like the idea of spending anything out of savings is out the window and that Elise I'd long hankered for will have to wait again.
Now with all that's going on I was wondering if I should start preparing for when the current deal runs out. Am I correct in understanding that if the prices went down and the wider financial crisis was affecting the economy, any new mortgage deal will require a new valuation and for a double whammy a higher than 5% LTV as banks tighten the criteria in uncertain times? Then I presume unless I were to fund the difference I'd become locked on the lender's variable rate. Which brings another question, is it more likely or not to see the variable rate increasing? I understand the base rate is unlikely to grow significantly, but could it be expected for lenders to raise their rates due to market uncertainty or whatever? Are there any other potential issues to be anticipated if in less than minimum or even negative LTV, I presume repossession wouldn't come into it unless payments stop?
At which point do banks start requiring a new valuation?
Seems like the idea of spending anything out of savings is out the window and that Elise I'd long hankered for will have to wait again.
Who don’t you overpay to ensure you’ll get into the next ltv bracket rather than hope? I don’t know how much your house is worth but you might only have to put a few grand in which spread out might not be too hard.
The other thing you could do is simply call the bank and ask them how they’ve valued your house.
The other thing you could do is simply call the bank and ask them how they’ve valued your house.
Douglas Quaid said:
Who don’t you overpay to ensure you’ll get into the next ltv bracket rather than hope? I don’t know how much your house is worth but you might only have to put a few grand in which spread out might not be too hard.
The other thing you could do is simply call the bank and ask them how they’ve valued your house.
I won't hurry overpaying right now as it's exactly the time when sleep is better with a good chunk of cash under the bed but that's exactly what I was thinking, grow the savings as much as possible to be able to cover 10-20% shortfall when the current deal ends if the market indeed dived. I'm more worried if LTV requirements were to tighten as well. E.g. if value dropped by 10% and minimum LTV to 80% it would reduce the available credit to 72% of purchase value. With only 12% paid at the time of deal end it would be a shortfall of 16% that I'd need to cover, not an insignificant sum by any measure. Hence the questions what might happen with minimum LTVs (what did happen the last time around in 2008?) and at which point a lender might require revaluation.The other thing you could do is simply call the bank and ask them how they’ve valued your house.
Overall D said:
Last December I've purchased my first home. Deposit was 6.5% and I took a 2 year fixed deal with a view that after 2 years even without overpayments provided the house price wouldn't drop, LTV would reduce to 88% and open up better rates to fix for a longer period. The property is in Yorkshire so until the events of the last few weeks the market looked in good health with prices growing at a couple percent a year.
Now with all that's going on I was wondering if I should start preparing for when the current deal runs out. Am I correct in understanding that if the prices went down and the wider financial crisis was affecting the economy, any new mortgage deal will require a new valuation and for a double whammy a higher than 5% LTV as banks tighten the criteria in uncertain times? Then I presume unless I were to fund the difference I'd become locked on the lender's variable rate. Which brings another question, is it more likely or not to see the variable rate increasing? I understand the base rate is unlikely to grow significantly, but could it be expected for lenders to raise their rates due to market uncertainty or whatever? Are there any other potential issues to be anticipated if in less than minimum or even negative LTV, I presume repossession wouldn't come into it unless payments stop?
At which point do banks start requiring a new valuation?
Seems like the idea of spending anything out of savings is out the window and that Elise I'd long hankered for will have to wait again.
You seem to be worrying well in advance! Now with all that's going on I was wondering if I should start preparing for when the current deal runs out. Am I correct in understanding that if the prices went down and the wider financial crisis was affecting the economy, any new mortgage deal will require a new valuation and for a double whammy a higher than 5% LTV as banks tighten the criteria in uncertain times? Then I presume unless I were to fund the difference I'd become locked on the lender's variable rate. Which brings another question, is it more likely or not to see the variable rate increasing? I understand the base rate is unlikely to grow significantly, but could it be expected for lenders to raise their rates due to market uncertainty or whatever? Are there any other potential issues to be anticipated if in less than minimum or even negative LTV, I presume repossession wouldn't come into it unless payments stop?
At which point do banks start requiring a new valuation?
Seems like the idea of spending anything out of savings is out the window and that Elise I'd long hankered for will have to wait again.
No matter what happens to your LTV, negative or otherwise, there is no risk of repossession unless you stop paying.......if you think about it, if the property is in negative equity, they'd rather keep you in the property and you paying for it, for as long as possible before being saddled with it themselves.
If you want to move to a new lender then yes, you would need a new valuation.
You should be able to transfer to a new rate with the new lender rather than reverting to the SVR but the rate may not be attractive if they still have your LTV at 90%+ and also product transfer rates with the same lender are often poor.....especially if they know/think you can't go anywhere!
If I were you, I would just overpay as much as you can comfortably afford and then see where the market is circa 3 months out from your renewal date
Sarnie said:
You seem to be worrying well in advance!
No matter what happens to your LTV, negative or otherwise, there is no risk of repossession unless you stop paying.......if you think about it, if the property is in negative equity, they'd rather keep you in the property and you paying for it, for as long as possible before being saddled with it themselves.
If you want to move to a new lender then yes, you would need a new valuation.
You should be able to transfer to a new rate with the new lender rather than reverting to the SVR but the rate may not be attractive if they still have your LTV at 90%+ and also product transfer rates with the same lender are often poor.....especially if they know/think you can't go anywhere!
If I were you, I would just overpay as much as you can comfortably afford and then see where the market is circa 3 months out from your renewal date
Well, better that than leaving it until it's too late to worry No matter what happens to your LTV, negative or otherwise, there is no risk of repossession unless you stop paying.......if you think about it, if the property is in negative equity, they'd rather keep you in the property and you paying for it, for as long as possible before being saddled with it themselves.
If you want to move to a new lender then yes, you would need a new valuation.
You should be able to transfer to a new rate with the new lender rather than reverting to the SVR but the rate may not be attractive if they still have your LTV at 90%+ and also product transfer rates with the same lender are often poor.....especially if they know/think you can't go anywhere!
If I were you, I would just overpay as much as you can comfortably afford and then see where the market is circa 3 months out from your renewal date
. To be clear I'm not worrying, just thinking of a reasonably likely worst case scenario to make sure it doesn't catch me out.By the way, thank you Sarnie for arranging that mortgage in the first place, you've made what was expected to be a headache into a very pleasant experience!
Overall D said:
Well, better that than leaving it until it's too late to worry . To be clear I'm not worrying, just thinking of a reasonably likely worst case scenario to make sure it doesn't catch me out.
By the way, thank you Sarnie for arranging that mortgage in the first place, you've made what was expected to be a headache into a very pleasant experience!
I'm not sure who you are but it was no problem at all, I'm sure! . To be clear I'm not worrying, just thinking of a reasonably likely worst case scenario to make sure it doesn't catch me out.By the way, thank you Sarnie for arranging that mortgage in the first place, you've made what was expected to be a headache into a very pleasant experience!
Unless I misunderstood your post, you have a 2-year fixed deal but maturity is likely 20/30 years. What happens after year 2 is that you go floating, which with the current events mean you’ll pay less interest (margin is fixed for the duration and only the interest rate fluctuates post fixed period and currently, it’s at near 0%). Unless you want to refinance to re-fix it, you don’t need to care about it at all and just leave it as is
Aluxo said:
Unless I misunderstood your post, you have a 2-year fixed deal but maturity is likely 20/30 years. What happens after year 2 is that you go floating, which with the current events mean you’ll pay less interest (margin is fixed for the duration and only the interest rate fluctuates post fixed period and currently, it’s at near 0%). Unless you want to refinance to re-fix it, you don’t need to care about it at all and just leave it as is
Please enlighten us as to which bank has its mortgage rate at near 0% currently? Aluxo said:
Unless I misunderstood your post, you have a 2-year fixed deal but maturity is likely 20/30 years. What happens after year 2 is that you go floating, which with the current events mean you’ll pay less interest (margin is fixed for the duration and only the interest rate fluctuates post fixed period and currently, it’s at near 0%). Unless you want to refinance to re-fix it, you don’t need to care about it at all and just leave it as is
The scenario I'm cautious of is being offered a ridiculous interest rate and not being able to change the lender due to LTV. At the moment even the variable rate looks okay, but will it not be exploited when the lender knows I can't go anywhere due to LTV?The whole train of thought started as I was going to get an Elise this spring/summer and when s
t hit the fan realising I might have to postpone not just until the quarantine ends but until the mortgage extension.I think Aluxo may think that your mortgage rate drops directly inline with the base rate (currently 0.1%) at the end of your fixed and therefore why would you be concerned...............but as you know, it doesn't, it reverts to the lenders standard variable rate....which is circa mid 3%'s.......and will be over 4% again if/when the BoE add back in the 0.65% they took off recently.........
Give it 12 months and see where things are then
Give it 12 months and see where things are then
Overall D said:
.....( what did happen the last time around in 2008?) ......
The 2008 recession was different from the norm, in relation to declining property values.
Interest rates were reduced drastically, so that as many people and businesses as possible, could continue servicing their debts. It did seem to be successful, because commercial property companies faced problems, but we did not hear about widespread home repossessions.
The 1990 property market crash was probably more typical. The majority of fairly recent first time purchasers experienced negative equity. Not an immediate problem of course, if mortgage payments can be maintained, but it was a disaster for too many.
Overall D said:
The scenario I'm cautious of is being offered a ridiculous interest rate and not being able to change the lender due to LTV. At the moment even the variable rate looks okay, but will it not be exploited when the lender knows I can't go anywhere due to LTV?
Despite what people think of banks, yours is not going to look at you, twirl its moustache with an evil laugh and think "gotcha' before holding you upside down and shaking the money out of your pockets due to your specific LTV situation.It will say in your mortgage documentation what happens at the end of the fixed period, which will most likely be that you go onto the bank's standard variable rate - which will be published and is where the "trapped" customers remain. These are typically the worst rates to be on - but given interest rates at the moment most of these are still pretty low so it is not the end of the world.
As others have said you can either pay off extra each month if you can afford to (and if your mortgage deal allows it) or put it in the bank ready to use to improve your LTV when you remortgage.
Putting the money i1n the bank obviously offers more flexibility, paying extra off the mortgage is a better return because the mortgage interest saved will be more than the savings interest in the bank.
Worth also checking what your deal says about redeeming the mortgage after the fixed rate period ends - there should not be a penalty - but check! There will also usually be an admin fee of something like £99
Also worth remembering that any new mortgage deal you take out will have fees associated with setting up. It may be worth seeing if your bank will just move you onto a new fixed deal when the time comes.
Have a word with a broker. If there are no mortgage exit fees etc. and the numbers stack up you can potentially take advantage of lower rates in the market and jump. Although likelihood is that borrowing is limited according to my broker due to lack of surveys being able to take place, and staffing levels in the bank is limited.
We are shifting onto a tracker @ .9400% with no exit fees, no perceived limit on overpaying, portable, and can be flipped to fixed at any time. But, saying that, we had the deal in place before the lockdown and BOE base rate change, and our current offer is ending at the end of the month - so the bank should (hopefully) honor it.
We are also selling and are 90% through the process prior to the entire process, so as long as we have not lost out buyer, or they wish to renegotiate the offer, we will be overpaying quickly and handsomely.
I've taken a view that the base rate will not change for six months to a year, and if it does it will be gradual - if not we are screwed. Roll of the dice time.
We are shifting onto a tracker @ .9400% with no exit fees, no perceived limit on overpaying, portable, and can be flipped to fixed at any time. But, saying that, we had the deal in place before the lockdown and BOE base rate change, and our current offer is ending at the end of the month - so the bank should (hopefully) honor it.
We are also selling and are 90% through the process prior to the entire process, so as long as we have not lost out buyer, or they wish to renegotiate the offer, we will be overpaying quickly and handsomely.
I've taken a view that the base rate will not change for six months to a year, and if it does it will be gradual - if not we are screwed. Roll of the dice time.
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