I have had many pearls of wisdom on many topics on here over the years, so hoping the hive mind can help out again.
We are looking to buy our house (my parents bought it for us to rent from them a few years ago, and now we are looking to buy it). We have done very well out of family members deaths (which is never a nice way to look at it, but we have), and now have a hefty deposit. This puts us in a good position, and we should be able to pay off the mortgage in 10-12 years.
So, now starting to explore the wonderful world of fees, trackers, fixed rates etc etc. Up until this point in my life, I used to get my Dad to talk me through financial pitfalls and decisions, but his death is one of the ones that has put us in a position to buy!
I have run it through a few price comparison sites, which I realise may not be the best way of getting good deals, but thought it might be a good starting point to see what sorts of things are being offered. I found TSB offering 10 year fixed then 2 years SRV either with or without set up fees. Obviously, interest rates were higher without set up fees, but the analysis of the whole mortgage costs done by Comparethemarket.com was still coming out cheaper for the one with no fees. What advantage would there be to paying a set up fee in this instance? As I say, I won't necessarily buy through a comparison site, just trying to see things against each other just now to get a feel for it.
The APRC rate is the key one, isn't it? As far as I can tell from reading, it seems to be the one that really allows you to compare how much you are paying for one product over another.
What traps or pitfalls should we be looking for? I realise that in normal times, you might not want to be on a fixed rate for so long incase rates improve, however I can't see them dropping any further than they are now so I am presuming I would want to choose a fixed rate for as long as possible just now?
I am reluctant to go down the line of a mortgage broker if we can find a good deal ourselves, I don't want to pay any more fees than I need to. Are they likely to save us any significant amounts of money?
I'm sure there are plenty of things we haven't even thought of regarding all of this, so generally keen to hear pearls of wisdom.
Thanks in advance for your help.
Are you planning to take out a 10-12 year mortgage, or a more conventional 25 year one and overpay to shift it early?
My highly unqualified experience of these from getting our first mortgage 3 years ago then renewing last year -
1st mortgage we went directly with Nationwide because they were cheapest on the comparison websites and I went down the route of sorting it all over the phone with them with 'no advice', which they constantly reiterated to me and made me sign up to;
2nd one - renewal, I went on the comparison websites and checked through a couple of brokers, it ended up that London and Country brokers could get us a better deal than the comparison websites, with no fee or charge (to me) in fact we got something like £1000 cashback from them - the thing that amazed me was that our new mortgage was with Natwest and the rate the broker gave us, which included cashback, was better than the rate we could get with Natwest directly - which included no cashback bonus - so I think it's definitely worth while checking out brokers. They often get their fee from the bank not the customer I think. I understand the banks are basically paying the brokers to do all the admin work for them.
In terms of fixed vs Variable rate I think you need to understand the upside and downside risks of each option, what the implications of those are for you, and how much risk you can afford in a scenario of having a shorter fixed term (or having a variable rate). Basically the longer your fixed term the more you pay but you are paying for certainty. If I could afford a 10 year fixed and knew I could pay it off in 10 years AND afford those payments I would personally just do that because then I would know exactly what I'd be paying for the next 10 years and could plan my finances accordingly. Alternatively you could get a 5 year fixed and perhaps save £50 to £100 a month on a few hundred £k mortgage but then run the risk of in 5 years interest rates being through roof and your payments go up a few hundred quid (which you may or may not be able to afford). Of course interest rates could be really low and you might get an even better deal for the last 5 years of your mortgage. That's the risk / gamble that you have to trade off when picking the length of your fixed deal.
I was thinking a 10 - 12 year (probably 12) would make more sense than a conventional 25 year. Would a 25 year make more sense? What would be the advantage?
That is interesting to hear about the brokers. Do you pay the broker up front before they tell you the deals they can get, or do they propose their deals to you and then you pay them at that point?
Personally I've never seen the point in a broker. I briefly investigated for our last house move but it seemed there was no benefit if you were able to do some intelligent research yourself.
I have never taken out a particularly short mortgage but all the ones I have taken out have only been available in periods of from 15-40 years. It's possible you are limiting yourself to a smaller range of available deals by limiting yourself to 10 year mortgages. It would be worth checking this. If you can get a better rate with a 15 year mortgage, it might be better to do that then overpay it to close it out at some point. This would depend on the overpayment charges that came with it. On my own most recent remortgage I realised that tracker deals were more flexible than fixed rate deals and in my case the tracker had no attached over payment charges at all. So these may be well worth looking at for you, as long as you are leaving yourselves enough reserves in case rates suddenly went up.
In my own experience of looking at mortgages, the upfront fees are fixed for a given type and rate of mortgage for a given LTV, and do not vary with actual mortgage size or house value. So for a house of lower value range (say you are getting a mortgage of under £100k) then the fees will probably not be worth it. If you are buying a more expensive house with a bigger mortgage the fee will probably save you some money. If you do pay a fee, you'll probably have the choice whether to pay it up front or just add it to the mortgage. If you do then latter then it will cost more in the long run.
Usually you can see an accurate comparison of the different costs of these options for a given mortgage product on the lenders website, if not on a price comparison website (Nationwide was certainly always very useful.)
If you have a decision over how much of the house cost to pay off up front and how much to put on a mortgage, it is also worth considering whether rather than paying off everything you are comfortable with, you may be better paying off as little as you need to get the best possible mortgage rate (eg, getting just below 50%ltv or whatever it is) and having ata bigger mortgage, then investing the rest of your savings. However I appreciate that then becomes a much more complex prospect.
Edit: ignore what I say about brokers as the guy above seems to have good first hand experience
Edited to remove various typos
The capital repayments would be smaller each month over 25 years, but you pay more interest. However some mortgages allow you to overpay without penalty, therefore you get to pay off the mortgage early, but if the poo hits the fan and you get made redundant, your normal payment is lower. Some however will not allow overpayment or have maximum amounts or other Ts & C's.
Hope that makes sense.
A handful of things to bear in mind:
- Risk costs money. So fixed rates, on average and in the long term, are more expensive than variable. If you are fortunate enough not to need the security of fixing, then variable is a good bet.
- Offsets suck. Yes, you get a decenty (in current context) rate on your savings...but you get a bad rate on your borrowing - and the borrowing tends to be bigger. Do the mathematics.
- Ability to overpay is one benefit that I would say is almost always worth paying the extra for (and it's usually a very small extra)
- Mortgage companies work out the value to them over the loan lifetime. So a 25 year loan paid early is likely to be cheaper than a 10 year one. It also gives you wiggle room.
- Just have a little care with deals that have introductory terms and then revert to SVR. Sure, your plan will be to remortgage when the offensive SVR comes in... but you need to be confident that you will be able to. People sometimes get cornered and stuck in SVR because their circumstances, or the economic context, have changed.
- Some brokers can beat the easily-identifiable deals. However, many don't. Work out the exact specification of the offer you want and find the best one online. Then ask a broker - but run away as soon as they bend the specification.
Fortunately I'm not in the market for a mortgage, but if I was I'd look for a BOE base rate tracker for 25 year term and unlimited overpayments. That thinking would rest on ability to weather a few years of higher interest rates if needed, but with an expectation that rates will be low to support stimulus. I'd overpay agressively at first, which would avoid any negative equity trap and put me in a good position to remortgage if I wanted to later.
Not advice; just what I'd do.
Assuming you have more than 25 years before you reach retirement age I would go for a 25 year term to keep the monthly payments lower. Providing you ensure your chosen mortgage allows overpayment each month, and no penalties for early repayment this gives you more flexibility should your circumstances change or interest rates increase. Bear in mind a mortgage which allows early repayment will come with a slightly higher interest rate though, or it did last time I looked.
We, have always used an independent mortgague advisor. Takes all the stress out of seeing multiple banks and going through all the same questions, especially if you are self employed so not their idea of a perfect customer. We don't pay him anything, I presume he goes commission from the bank but we are repeat customers and he has got us deals we would never have found through the banks .
I am a fixed rate kind of girl, as (like with rent) you know exactly where you are. My understanding is that for larger mortgagues a setup fee may be worthwhile, but with smaller ones the saving on interest rate probably won't cover it and you'll actually be out of pocket.
Many fixed rate deals won't allow you to overpay, or do allow you to but penalise you for doing so. So, if you think your income will go up beyond that which you can borrow on (e.g. you do lots of overtime but the bank will only lend on your basic salary) and you'd like to bung the spare cash into the mortgage (because the mortgage rate is higher than a savings account rate and thus you save more by paying off the mortgage instead of saving), then bear that in mind.
Mortgage rate depends on loan to value, higher ltv (and thus greater risk for the lender) means higher interest rate you have to pay. Let's say you'll be borrowing 73%ltv now and the rate is 3.5% for a 10 year 75% ltv deal, but a 2 year one is 3% and a 5 yr 60%ltv is 1%. If you're going to drop into that 60% ltv band after a couple of years it might be better to do a short fixed or variable deal, then change to a lower interest / lower ltv deal after 2 years. Obviously you have to do the sums on this and consider the risks. By fixing for 10 years you cannot take advantage of lower rates as you enter lower ltv bands, but you have security of knowing a sudden rise in rates isn't going to cause you trouble. Maybe look at historical interest rates to see how fast they can rise.
Setup fees - just do the maths. We've just renewed our main mortgage onto a 5 year fixed deal with £1k setup fee. With the large capital amount outstanding, the lower interest rates of the setup fee deal mean we save more in interest payments than the £1k fee over the course of the 5 years. Our little mortgage taken out to build an extension was the opposite - the setup fee is more than the interest saved, so we went with the fee-less deal for that one.
I hadn't thought about the rates changing as the LTV changes. Thanks for that thought. We are in a great position with it anyway with an LTV of just over 45%. I am finding 10 year fixed rates which allow 10% free overpayment, which we are unlikely to manage anyway if we go on the shorter term mortgage. If we went with a 25 year mortgage then we could easily do the extra 10%.
Thanks for the explanation of the fees, that helps. We are just about low enough that fees are not likely to help us.
For comparison forget APRC, instead ask for the true cost (total of all repayments + fees - any cashback) of the mortgage for the fixed period.
Also, use a broker, you’ll get a better rate than by going direct.
However don’t let the broker trick you into getting a 2yr fixed if you want instead 5 or 10.m (it’s always their interest to push you for two years as they get the repeat business...)
> Also, use a broker, you’ll get a better rate than by going direct.
Interesting, people seem to have mixed experiences with brokers. Our friends (both very savvy mathematical types, so know what they are up to with these things) said the broker couldn't get anything significantly better than they had managed to find themselves and they then had to pay fees on top for the broker. Maybe it depends on the specific circumstances or maybe brokers in our area aren't so good?!
> However don’t let the broker trick you into getting a 2yr fixed if you want instead 5 or 10.
Yeah, I am pretty sure I want 10 years fixed, I can't see rates getting any lower than they currently are. I'm finding some pretty good 10 year rates which also allow fee free overpayment of 10%. Looking at other terms too, keeping an open mind, but I can't see things being any cheaper in years to come or they will be paying me to live in the house!!
> Interesting, people seem to have mixed experiences with brokers. Our friends (both very savvy mathematical types, so know what they are up to with these things) said the broker couldn't get anything significantly better than they had managed to find themselves and they then had to pay fees on top for the broker. Maybe it depends on the specific circumstances or maybe brokers in our area aren't so good?!
It is quite possible that some people won’t get any better than going direct, but it will almost never be worse.
And because you have a large deposit, you are a very good customer.
Banks won’t tell you this, but they are fighting for customers like you and are constantly trying to undercut each other through unpublished exclusive deals that are available only through brokers, with rates that are very much more attractive than what they offer if you just walked into a branch.
Brokers will normally always give you the lowest true cost available for you (except a few bad ones who will give you the one with the fastest form to fill for them, so pick a reputable broker).
Basically the only reason I would go to a branch is if I wanted that face two face personal customer service with an advisor.
Wise choice at this point.
As well as monthly overpayment, you should look at any penalties for fully paying the mortgage off. Hopefully it will not be used but death/divorce etc does happen - penalties differ so just make sure you compare them between mortgages.
> And because you have a large deposit, you are a very good customer.
> Banks won’t tell you this, but they are fighting for customers like you and are constantly trying to undercut each other through unpublished exclusive deals that are available only through brokers, with rates that are very much more attractive than what they offer if you just walked into a branch.
That's good to know!
> Brokers will normally always give you the lowest true cost available for you (except a few bad ones who will give you the one with the fastest form to fill for them, so pick a reputable broker).
Would you go for one you can go and see in person (although at the moment I guess it's a phone call or video call anyway), or are online ones worth considering?
I'm going on a different tack here and going to basically ask the question "do you need a mortgage?" - just in case you haven't considered another scenario.
Presumably buying the house means paying your mum for it. If ALL of the following are true:
Then why not effectively just "borrow" the money from your mum and pay it back over the next few (agreed) years. Without any other parties, you can agree on an interest rate that's between mortgage and savings rates making it a win-win situation.
You may need to formalize any agreement to some extent (might be necessary to avoid it being seen as a gift for future inheritance tax). This might also be more necessary if you're not an only child.
Your situation may not fit this scenario, it was just a thought. If it does fit, then you can always revert to a normal mortgage situation in future if circumstances change.
It had crossed my mind but we had already put a load of money into a lifetime ISA to get the government bonus so I believe that has to go to a mortgage rather than straight to my mum. I haven't looked into it to see if there are loopholes that would allow me to pay it directly to her, but I assume it has to go to a mortgage?
> And because you have a large deposit, you are a very good customer.
Small nitpick but I think this is true only to a point. Banks also want to make money off the mortgage, so their ideal is to sign you up to a long, expensive mortgage where they'll make more in interest payments. Having a really big deposit means they're lending you less and won't make as much.
On the other hand having a big deposit means the risk the bank takes on when lending is greatly reduced as they can get their money from you more easily by reclaiming the property and selling it.
Agree with everything you're saying with regards to a broker though, invaluable in my experience and if you get a good one they're a gold mine of advice.
> That's good to know!
> Would you go for one you can go and see in person (although at the moment I guess it's a phone call or video call anyway), or are online ones worth considering?
Brick and mortar definitely. Online ones often aren’t really brokers but just comparison website, they don’t have always access to all the deals.
Appreciate it may be more difficult these days.
> Would you go for one you can go and see in person (although at the moment I guess it's a phone call or video call anyway), or are online ones worth considering?
Ours comes to the house so you can take your time to go through all the details. The first time we had several visits going though the different types of mortgague and getting a feel for our attitude to risk. Now when we remortgage it's usually a single visit as he already had a good idea of what we want, then paperwork is done by post.
> Small nitpick but I think this is true only to a point. Banks also want to make money off the mortgage, so their ideal is to sign you up to a long, expensive mortgage where they'll make more in interest payments. Having a really big deposit means they're lending you less and won't make as much.
You are right they prefer to lock you in as long as possible. Also happens that this isn’t a stupid thing to do at the moment anyway !
Every bank will have their own strategy and target but most will prefer the lower LTV customer. Especially these days. The better quality customer they have the lower they can price overall, and pricing low is important as basically, with most deals happening through brokers, if they’re not well priced they get no volume.
1) We, recently, used a broker. Yes they take a small cut but we found her worth it- ease of application and all of market comparison, single point of contact. She did have access to deals that weren't on the web. She was employed by the building society (a genuine bricks and mortar, local mutual society) that we had our previous mortgage with but didn't push their products- we ended up going with someone else.
2) We went 10 year fixed rate. Interest rates are so low at present that it made sense. It's unlikely that rates will climb in the medium term but 10 years is a long time. We can overpay by 10% a year if we want.
I'm another one on a 10 year fix. Only a few years ago this was pretty much unheard of, but with rates so low it now looks like a good shout. I don't know what rates will do over the next few years, but over the next decade they've just got to increase (haven't they..?)
If you're at 45% LTV you will be seeing the best rates available. Generally 60% is the last big step.
Ignore APRC. It's a ridiculous measure that assumes you'll stay with the (rubbish) standard variable rate once the fix ends... and no-one is going to do that if they have more than a year to run. You just want to know the product rate; what you're trying to do is see how much you'll still owe on the day your product expires and you get a remortgage.
Usually it's worth paying fees to get a slightly lower % rate only on larger mortgages; on small sums the fee is greater than the savings. Easy to work out with an online calculator. Don't put much thought into paying fees upfront or not. Over the whole term of the mortgage they pretty much cancel themselves out - it'll be within a few quid either way.
I'm unconvinced that brokers help all that much. Even when they whole-of-market (and don't consider using ones who isn't!) they are always going to be aware of which product pays them the best commission, which throws some doubt on their impartiality. If you need something quite specialised, or you really want someone else to do the thinking for you, then they have a purpose. I've heard it said there are 'special' deals only brokers can get at but I've never been convinced that this is true (edited to say that some people on this thread are sure it is the case, which is fair enough).
Would you be prepared to say what the purchase price is? That would let us play with calculators and see what we can find for you!
Yeah, we are paying £146000 and have £80000 deposit. Happy for someone else to give suggestions! I always like tapping into the hive mind! Lol
Ususally Martyn Lewis's website gives some reasonable pointers.
In your position I would make sure that there are no penalties for any early repayments but that is my only a thought.
Early repayment would mean finishing paying completely before the fixed term is up as opposed to overpayment? It seems many are offering 5 or 10 percent fee free overpayment.
I'd second the recommendation for London and County as a broker, they are free and can usually get you a pretty good deal, particularly useful if you're looking for something non standard or don't meet ordinary mortgage eligiblity.
Still always worth a look around other deals too for something to compare with but really as things stand with a large deposit and record low mortgage rates if you get a 5 year or more fixed you can't go far wrong really.
The way I see it, looking ahead, rates can't go much further down but they have plenty of room to go up so getting a long term fixed now, even though you'll be paying slightly higher rates that extra is like an insurance policy against rates going up down the road. If they don't go up, you loose out a little, if they do go up you save a lot by being fixed in for longer.
Term wise, it's all about cash flow really. If you can easily afford a short mortgage then that's fine, you'll pay less interest overall but it's often better to have a longer term that you can overpay on. That way you have flexibility, you can overpay say £200 a month which will put you on course for an early finish but if 5 years down the road things get sticky you can just stop paying the extra for a while until you're back on your feet without any issues from the lender or effect on your credit score.
If you can pay it off in 10 years, get a 10 year fixed. That way no matter what you know exactly what you’re paying for the life of the mortgage.
The rates aren’t going to get any lower. So take advantage while you can.
If I recall correctly (I may not..) aren't you self employed? You may find that going through a broker is either a major benefit or borderline essential, as the high street retailers are very bad at dealing with people who don't fit the normal employee mould.
For comparison, when I needed my first mortgage a couple of years in to being a contractor Halifax would not even take my income in to consideration at all, but the same Halifax when accessed via a broker were prepared to offer me £500,000 (which would have been an insane amount for me to borrow, but that's a separate rant).
Another thing to bear in mind, which I can tell you first hand as we've literally just applied for a mortgage as of last week, is that all the lenders are currently very twitchy about the potential for a recession and are tightening up their affordability criteria/responsible lending checks which may exacerbate the above.
So basically I am wildly in favour of a broker. A good one will find you a good deal and they also do a good job of pre-qualifying you for the mortgage so that once you actually apply you're pretty confident it's all going to go through. Don't underestimate the amount of faff involved in the process, you don't want to do it more often than you need to.
Regarding fixes - I always fix. Generally costs more than variable; our last mortgage ended up costing more since rates continued to fall over the 5 years we had it, but I like the confidence of knowing what our payment has to be and the insurance against rates spiking.
And I'm going to take exception to one point a poster above raised:
>- Offsets suck. Yes, you get a decenty (in current context) rate on your savings...but you get a bad rate on your borrowing - and the borrowing tends to be bigger. Do the mathematics.
Offsets are fantastic if you are self employed, and therefore have to keep a fair amount of savings on hand. The mortgage we're applying for right now is 1.86% (5 yr fix, offset, 30%LTV). In contrast, our savings accounts have just gone down to 0.01% interest, so the offset is by far the most efficient place to put your savings - and also, because an offset is not earning you interest, just preventing you from owing additional interest, there are no tax implications. With some offset mortgages you can choose to have the offset savings reduce the term (ie, you pay it off quicker because you're not adding as much interest to the debt) or you can have it reduce the monthly payment (so it still takes just as long to pay it off but it costs less each month). Depending on your situation the ability to reduce the hit on your cash flow can be very useful.
We used an independent mortgage advisor recommended by several friends. He was very helpful and did find us a deal that we did not find on a comparison site. We didn't pay him - I assume he got commission from the lender.
We went for a 25 year mortgage (for the lower monthly payments) with a 2 year fixed term initially and no overpayment charges up to a certain limit (can't remember what that was, but it was beyond what we would realistically be able to overpay). We re-mortgaged after the 2 year fixed term period ended to a 25 year/5 year fixed term which we are now 2 years into. Fixed term vs tracker is a personal choice, but I feel more comfortable with fixed term. We overpay by around £180 each month, and when we re-mortgaged I paid an additional lump sum to bring the ltv below the next rate threshold. We are currently on track to repay within 15 years, but this arrangement gives us some no-penalty flexibility should our circumstances change.
As I see it you may want a product that is really flexible with regards to (1) early complete repayment (2) no limits of overpayment.
There becomes a point in life when a mortage on this basis is a very practical option.You may or may not in the next few years have cash to be able to pay off chunks from the mortage and then pay if off compoletely.. What you do not want is a mortgage that stops you doing that. In which case go for as much flexibility with no fees etc as you can get.Might cost you a little extra, but in the long run far cheaper.
You are not really a first time buyer or mortage client ( even though you think you are). Really you are somebody who is about 15 years into a mortgage and now wants real flexibility.
That is the way I see it.
OK, here are my first ideas. I Am Not A Mortgage Advisor - I'm just a bored physicist - and you should accordingly take all my suggestions with an enormous pinch of salt!
If you went for a ten year fix, with a 12 year term overall, then the best that MSE comes up with right now is a deal from Barclays at 1.99% and a fee of £1034. The monthly repayment is £523 (assuming that you add the fee to the borrowing). In ten years you will emerge having repaid £62700, owing £12300. To completely finish the mortgage in the ten years you'd need to overpay by just under £100/month.
If you simply look for a ten year repayment period then exactly the same mortgage comes up as the best buy; you're simply committing to the overpayment and don't have the option of not making it in a bad month. For that reason I would go with the 12 year term and make overpayments - or maybe even a 15 year term. As you head into longer terms, you'll need to check how much overpayment they will allow (there are ways around this, like just saving it somewhere with the best rates you can get so you have a lump sum to hand when the fix ends).
If you wanted to avoid banks and use a traditional Building Society, then the Leeds has a deal at 2.08% -that's about £2 a month more.
To compare to five year fixes: HSBC offer 1.39% for five years, with a £1016 fee, giving monthly repayments of £505. You would emerge in five years time having paid £30300, owing £40400. To put it another way, you will have saved £18 a month (ie £1080 over those first five years) but you will now be looking for a new deal. Your remortgage will probably come with a fee of about £1000 - so you'll be spending the equivalent of what you saved over the first five years, just to buy the next product! And who knows what rates will be in the middle of 2025? So I would absolutely go for the ten year fix.
Now I do not know if these deals will be available to you if you're self-employed; depending on whether your partner is or not you might be fine, especially with such a low LTV. I'm SE and had no problems getting mortgages from the Nationwide and Coventry in recent years, but my wife is employed and I suspect that helped.
> What traps or pitfalls should we be looking for? I realise that in normal times, you might not want to be on a fixed rate for so long incase rates improve, however I can't see them dropping any further than they are now so I am presuming I would want to choose a fixed rate for as long as possible just now?
Bear in mind any exit fees, these may be higher with a long term fix. That and the rate for 10 year fixes was a good percentage point higher than for short fixes when we last looked, that adds up to a lot over time! Then again, the day to day difference in cost is small and security right now looks pretty valuable.
> I am reluctant to go down the line of a mortgage broker if we can find a good deal ourselves, I don't want to pay any more fees than I need to. Are they likely to save us any significant amounts of money?
I think if you're motivated and organised you'll probably find a very good deal yourself. We did use a broker, my partner is reassured by taking advice on big decisions. Getting it all set up, he was helpful, chased us for what was needed when it was needed, basically smoothed over a paperwork process I wouldn't have enjoyed managing. Not in itself worth the fee but with the extra peace of mind for my partner I don't consider it a complete waste of money. I forget how exactly the fees were paid.
A few years later when we remortgaged we went back to the same broker for our 'free' ongoing advice, this time around the paperwork was pretty tedious nailing down every detail of what we wanted where mostly we were actually pretty flexible, the result was a mortgage more expensive than we had found for ourselves that was a perfect fit in several trivial ways with a specification we'd had to give but didn't care either way about plus legal fees. In the end we sorted it ourselves, renegotiating a better deal than we were on with our existing provider.
If you have lots of constraints a broker will find a product but if you're flexible you can probably beat them on price by browsing the online bank and building society shopfronts.
If you're doing it yourself build a spreadsheet so you can compare the prices you'll pay for your house using various different products and repayment periods, check the monthly payments and note any constraints you'll accept. That's basically what the broker does for you anyway.
Most products allow you to quite significantly overpay monthly without penalty while also building up a buffer you can use for a payment holiday if it's ever wanted or needed. Shorter duration dramatically cuts the overall cost but a product with a shorter repayment schedule and higher minimum monthly payments is more restrictive, if you need a holiday or to reduce payments you'll need to renegotiate and probably incur fees if it's possible. Within reason there doesn't seem to be any real penalty in taking a longer period deal than needed and overpaying to clear it as fast as you'd actually like to have it paid off but the reverse isn't true, you don't need to tie yourself to only just affordable payments for an overall saving.
Also speak to your favoured provider quite early on to check you're not falling foul of any affordability/employment check restrictions, you may be able to work round it but you'll need time so sooner rather than later is when to find out. We sorted ours while my partner was in full time work knowing it would have been much harder to get a good deal once she was back in education (which was the plan but they only really care about current circumstances). Without starting the process and asking we wouldn't have known and might have shot ourselves in the foot. I guess there's less time pressure when buying your own home from family.
> Early repayment would mean finishing paying completely before the fixed term is up as opposed to overpayment? It seems many are offering 5 or 10 percent fee free overpayment.
Could you leave a nominal balance on the mortgage to avoid fees? Pay off everything bar £1 early.
> It had crossed my mind but we had already put a load of money into a lifetime ISA to get the government bonus so I believe that has to go to a mortgage rather than straight to my mum. I haven't looked into it to see if there are loopholes that would allow me to pay it directly to her, but I assume it has to go to a mortgage?
You'd obviously have to check all this out, but as far as I can see (my son has a lifetime ISA and he's an actuary so he's had a good look into it), to get all the bonus etc, the bit from the lifetime ISA has to be used on the purchase of the house, so as long as the house is properly bought from your mum (exchange of contracts, completion, etc) and at least the ISA amount is paid to her for the house, then I can't see why there should be any problems with the ISA (unless you're exceeding some of the other limits/conditions on it).
There is no requirement from the lifetime ISA for you to get a mortgage (I'm happy to be corrected on this if someone can show me this), it's none of their business how you finance the rest of the purchase. Your mum could sell you the house for it's fair value (and you come to whatever arrangement with your mum to pay her the rest), or just for the amount of the lifetime ISA - although there would be potential complications with the difference being seen as a gift which might have tax implications especially with inheritance tax (if your mum unfortunately was to pass away in the next 7 years) or care cost implications (if your mum needed care in the future, an assessment could judge that her gifting the "difference" was effectively a purposeful diminution of her assets).
> If I recall correctly (I may not..) aren't you self employed? You may find that going through a broker is either a major benefit or borderline essential, as the high street retailers are very bad at dealing with people who don't fit the normal employee mould.
Yes...normally!! I am currently doing care work due to my self employed stuff coming to an end so on zero hours contracts but with quite a lot of hours. Still more complicated than normal contracts though! However, my husband works a "normal" job with a steady income, so that should make things a bit simpler and my mum is willing to be guarantor for me if needs be. Overall though, this might still be complicated enough for it to be worth using a broker.
> So basically I am wildly in favour of a broker. A good one will find you a good deal and they also do a good job of pre-qualifying you for the mortgage so that once you actually apply you're pretty confident it's all going to go through. Don't underestimate the amount of faff involved in the process, you don't want to do it more often than you need to.
Certainly sounds like it's worth asking brokers and comparing what I can find myself too.
> There becomes a point in life when a mortage on this basis is a very practical option.You may or may not in the next few years have cash to be able to pay off chunks from the mortage and then pay if off compoletely.. What you do not want is a mortgage that stops you doing that. In which case go for as much flexibility with no fees etc as you can get.Might cost you a little extra, but in the long run far cheaper.
I can't currently forsee us being able to pay it off completely much before the 10 years is up, but worth considering the possibility. I think we would have to have a massive change in job situation to be in the position to pay it off much sooner. It is another factor to keep in mind though!
> OK, here are my first ideas. I Am Not A Mortgage Advisor - I'm just a bored physicist - and you should accordingly take all my suggestions with an enormous pinch of salt!
I am planning to take all advice with a pinch of salt, but all is worth considering!
> If you went for a ten year fix, with a 12 year term overall, then the best that MSE comes up with right now is a deal from Barclays at 1.99% and a fee of £1034. The monthly repayment is £523 (assuming that you add the fee to the borrowing). In ten years you will emerge having repaid £62700, owing £12300. To completely finish the mortgage in the ten years you'd need to overpay by just under £100/month.
Thanks, I have also found a TSB one which has slightly higher interest but no fees and 10% overpayment allowed. Sounds like both would give me a similar deal, probably need to look into nitty gritty of each.
> And who knows what rates will be in the middle of 2025? So I would absolutely go for the ten year fix.
Yes, very much my thoughts
> Now I do not know if these deals will be available to you if you're self-employed; depending on whether your partner is or not you might be fine, especially with such a low LTV. I'm SE and had no problems getting mortgages from the Nationwide and Coventry in recent years, but my wife is employed and I suspect that helped.
Yep, husband employed so that should help. Mum also willing to be guarantor if that will help.
Interesting, thanks. Worth considering also then.
We had some good success with Metrobank. They offered competitive rates, 20% over payments without penalty, modest fees and considerable flexibility for self employed people.
That was some years ago so may have changed. Perhaps they were looking to expand their customer base. They even offered a historical rate to us that had been withdrawn.
We had the advantage that there was a local branch though to talk it over with them and I know that is not the case throughout the country.
I think the first thing you need to do is find a way to compare mortgages on equal basis. By definition, they are not easily comparable. Example: 2 year fixed mortgage you might assume is 24 months .. but you are almost certainly wrong. Some providers will be 24 months, some 25, some 26, some even 27 (and still call it a 2 yr fixed). Then they'll sell you a 2 yr fixed rate with "no fees", £500 or £1000 of fees (or more) and each with slightly different rates accordingly. It makes it very difficult to, for example, compare 2x 2yr fixed rates mortgages (even from the same provider) and understand which will actually cost you more money.
MSE tries to solve this problem with their "MSE Total Cost Assessment" which I've copied an extract of below to show their formula.
Once you can compare mortgages on a equal/true cost basis ... deciding what you want to go for becomes easier from the financial side of things.
Re: Offset. The rule is fairly simple for the financial side of an Offset. Do not take an offset mortgage if you can get a better rate investing your lump sum else where. ANS = right now you probably can get a better rate else where easily (Stick the lump sum in P2P/Funding Circle etc and you'll get a better return). An offset mortgage would only make sense, financially, if mortgage rates rise in the future. As it stands .. you'll be worse off ... but you will have easy access to your funds if you need them.
For reference, mortgage rates have been at historically low levels for a while now. I've been rolling over 2yr fixed rate mortgages at lowest rate I can get .. and paying in a lump sum (depending of what I have) at each 2 yr interval (point taken in advance that over paying would pay things down faster and save on interest). 10 yr fixed scares me. There is almost always a % exit fee if you need out before the fixed rate is up. Certainly on the 2yr fixed it's typically something like 3% on year 1 and 2% on year 2 ... those can be big numbers if you want out early because your situation changes.
Come back at the end and tell us what you went for!
MSE Total Cost Assessment
Comparing mortgages is tricky. You should never assume the deal with the lowest rate or monthly payments is the cheapest. Many lenders make their expensive deals look cheap by offering temptingly low rates but add on massive fees. The trick is getting the right combination of interest rate and fees for your loan size to get the cheapest deal.
That's why we've calculated the Total Cost for you. It shows you which deal is really the cheapest overall, taking interest and fees into account.
How is it calculated?
Add up all the fees and deduct any cashback = TOTAL FEES
Divide your total fees by the length of the initial deal = TOTAL FEES PER MONTH
Add the total fees per month and your monthly payments and multiply by 12 months = TOTAL COST FOR 1 YEAR
NB: All amounts are rounded. If you selected a lifetime product, with no initial deal, we divide the fees over the term you entered.
It's only based on the introductory deal as most people switch mortgages when this ends. It works best when comparing deals of the same length as you are comparing apples with apples. If you use it to compare different length deals, just remember that a £1,000 fee spread over a two-year deal increases the Total Cost more than a £1,000 fee spread over a five-year deal.
Similarly, if your results show a ‘lifetime’ deal with no initial deal, we divide the fees over the mortgage term you entered for the search. If you only plan to keep the lifetime deal a few years, then you’ll need to manually divide the fees over a shorter time period.
> I have also found a TSB one which has slightly higher interest but no fees and 10% overpayment allowed. Sounds like both would give me a similar deal, probably need to look into nitty gritty of each.
That one's almost exactly the same monthly cost (within a pound per month). I guess that just shows that, at the cutting edge of the best deals, there's very little in it!
With interest rates this low, you can just divide the product fee by the number of months and add it on to make a pretty fair comparison. If you want to be more precise, add about 10% to the fee - over the course of ten years, at around 2% interest, the cost of adding the fee to your borrowing is about 10% of the fee itself.
P2P lending or funding circle is high risk. Unless you have money to throw around.
What you are saying is put your money into lending to businesses at the moment in the height of a economic downturn. It is about the daftest thing to do unless you really know what you are doing.Everyone is bailing out of P2P with any business sense.
I would treat this advice with a huge question mark and a radioactive health warning .
Maybe missing the point neilh. Funding circle is closed to retail investors ... you couldn't put your money into Funding Circle if you tried right now. https://www.thisismoney.co.uk/money/investing/article-8240125/Funding-Circle-temporarily-shuts-doors-casual-investors.html Pick any other investment you're comfortable with.
The point is that you shouldn't use an offset mortgage, if you can get a better return on your money than your mortgage rate elsewhere ... which you can achieve at present.
For most people, an offset won't make sense financially. It might make sense if A) mortgage rates rise to ~>3.5/4%(?), B) need access to the money or C) you are small business owner and want offset a sizable annual tax set aside. Certainly case C) you'd need to do your sums carefully ... you'd need to be setting aside a lot to make it worth while given offsets have higher rates than the fixed rates you'd otherwise get.
You were the one who highlighted P2P and funding circle as a way of earning more money, i highlighted the risks. You then confirmed theobvious.
There have over the years been all sorts of ideas put forward like this, they are nothing new. This includes currency mortages, paying them in Euros etc etc.
People get burnt by these type of these ideas.
Only use them if you tunderstand them and the big financial risks associated with them.
You were the one who highlighted P2P and funding circle as a way of earning more money, I highlighted the risks.
There have over the years been all sorts of ideas put forward like this, they are nothing new. This includes currency mortages, paying them in Euros etc etc.
People get burnt by these type of these ideas.
Only use them if you understand them and the big financial risks associated with them.
I highlighted that an investment that has a return greater than your mortgage rate is advisable over an offset on a purely financial basis. As I said ... pick an investment that you are comfortable with ... and you'll be better off than offsetting if the return is greater than your mortgage rate.
Perhaps you're unaware of this - but it's likely your pension, if you are lucky enough to have one, is likely invested in stocks and shares. If you are anxious about "these types of ideas" you might be well placed to keep savings in cash although that will massively impact what you have to live off in retirement.
If however you are comfortable investing, over any 15 year time frame from 1973->2009 the S&P 500 has at worst returned 3.7% pa and at best 20% pa. Over any 20 yr period, in the same 1973-2009, the S&P 500 has returned at worst 6.4% pa and at best 18% pa.
You will note that in both cases I reference above, the worst case scenario return from the S&P 500 is significantly greater than the current average mortgage costs (~2.25%?) and therefore the correct decision is to invest your cash rather than using an offset.
> That one's almost exactly the same monthly cost (within a pound per month). I guess that just shows that, at the cutting edge of the best deals, there's very little in it!
That's what I found when I was looking for a mortgage. It makes sense that for the multiple different packages are the same because they are lending the same amount to the same person (same risk) and they all give the same return for the lender. Same return to lender = same cost to borrower.
I think it is a fair bet to say that I am well aware of this having pointed out to you that your idea of putting money into P2P and Funding Circle was questionable to say the least.
I hope that you are not involved in providing financial advice as an occuptation.
The feeling is mutual.
An absolute novice when it came to buying but just to a comment on overpaying - I did that with our mortgage...went for a longer term mortgage that gave the opportunity to overpay without incurring any sort of penalty. I was pretty 'sure' I could afford to pay more but didn't want to absolutely commit to it in regular monthly payments...wanted to leave the door open for the occasional / regular overpays
I've done a couple of spreadsheet models for the next ten years showing how much quicker the mortgage would be paid off and how much less interest I would pay in total if I overpaid by £50, £100, £150 or £200 a month. It's quite an eye opener. Welcome to have a look at it if you want.
Compound interest is a *&&*^* when it's you who owes the money
> I highlighted that an investment that has a return greater than your mortgage rate is advisable over an offset on a purely financial basis. As I said ... pick an investment that you are comfortable with ... and you'll be better off than offsetting if the return is greater than your mortgage rate.
> If however you are comfortable investing, over any 15 year time frame from 1973->2009 the S&P 500 has at worst returned 3.7% pa and at best 20% pa. Over any 20 yr period, in the same 1973-2009, the S&P 500 has returned at worst 6.4% pa and at best 18% pa.
There is no reason to think the next 20 years will be the same as any other 20. Moreover this implies you would lock your money away for at least 15 years. Also index returns are a purely notional figure.
The whole point of having savings for most people is to have a cushion to fall back on when things don't go well.
Unfortunately, you cannot predict when you will need it, meaning your investment horizon is actually unknown.
And guess what people tend to need to access their wealth when they lose their jobs, which also tend to happen a lot in recessions, during which stock markets are usually down...
That makes the stock market a terrible option, apart from maybe, retirement (or unless you are sophisticated, already financially secure investor willing to take risks)
I am not, but unfortunatey I come across friends and colleagues who have been hoodwinked and really should know better.
The prediction of glamorous returns elsewhere to offset the interest cost of the mortgage is well recognised. Often sold by people who make a nice fat commission on selling those schemes to innocent and not financially astute people.
The fact that you mentioned funding circle and P2P as a means to do this raised my eyebrows. Without that I would never have commented.
> Yep, husband employed so that should help. Mum also willing to be guarantor if that will help.
Hopefully not a problem, particularly as you are looking for a small mortgage with a hefty deposit. However, you may struggle to get a bank to take your Mum on as a guarantor. They will have a maximum age that they will lend to and will include the guarantor and will be for the lifetime of the mortgage.
From personal experience, almost a decade ago, I was looking to remortgage due to divorce and buy out my ex-wife's share in the house and take on the mortgage solely in my name. 2010/2011 wasn't a great time to be trying to do this and the banks were pretty unhelpful. My Dad was prepared to be a guarantor, but because the end date of the mortgage would have been about 2030, by which time he would hopefully be 80, they said he could not be guarantor. I managed to find a lender that would lend me the money I needed without a guarantor in the end.
P2P as an example was a poor choice on my part. I do apologize.
I agree that basic financial concepts should be taught as part of the high school curriculum. Without the understanding of how a loan amortizes and how compound interests works (for or against you) ... many struggle in a area that is ultimately basic math but is strewn with terminology, shiny websites, apparently incomparable products and financial advisors that skim vast sums from the masses to do very little, where their pay is not linked to their performance and against whom you have limited recourse when they fail to deliver.
The issue I take with so many conversations around investing in UKC/Online is the failure of so many people to ask themselves "can I afford not to invest". For most the correct answer is no, but, I assume for behavior reasons, so many choose not to participate. In year where we have already experienced a hefty buying opportunity (30% sell off) the S&P 500 has already recovered all that ground once and is down now only 7% YTD (point taken in advance that it is abnormally fast rebound, but it was also an abnormally fast sell off. Time will tell whether we get another buying opportunity in the near future or not). Most people we do handsomely to dollar-cost-averaged into an ultra low cost ETF, like VUSA, via a low cost platform like Cavendish or AJ Bell over the long term.
Haven't read the whole thread but my tips would be.
1). Fixed rate for budgetary certainty
2) longest term possible so that it is still affordable should something bad happen and then overpay each month.
3) in a market with rising house prices do not fix for too long. After two years the property will have gone up in value increasing your Loan to Value ratio which means you get even better deals when you remortgage.
4) learn how ammortisation works and the key variables - loan, interest rate, term and how each of these affects monthly repayments and how quick you pay the mortgage off.
5) Find and use a decent broker!
> 3) in a market with rising house prices do not fix for too long. After two years the property will have gone up in value increasing your Loan to Value ratio which means you get even better deals when you remortgage.
She's at 45% LTV. Rates aren't going to get any better than this!
There are no guarantees around rising values, I haven't got a crystal ball, but the economic impacts of Covid and Brexit are likely to subdue the housing market a little. The OP has a great LTV already and is looking to minimise risk it seems. These factors probably swing in favour of a longer fixed rate period.
This is likely to be the biggest issue I suspect if you’re going to have your name on the mortgage.
> Yes...normally!! I am currently doing care work due to my self employed stuff coming to an end so on zero hours contracts but with quite a lot of hours. Still more complicated than normal contracts though! However, my husband works a "normal" job with a steady income, so that should make things a bit simpler and my mum is willing to be guarantor for me if needs be. Overall though, this might still be complicated enough for it to be worth using a broker.
> Certainly sounds like it's worth asking brokers and comparing what I can find myself too.
On the subject of comparison sites - when we took out our last mortgage (admittedly years ago) we found a government website which listed ALL of the available rates. At that time the comparison sites only listed those which paid a commission to the site. The deal we found wasn't listed on the comparison sites but was really good and served us really well. Unfortunately can't remember how we found the website.
I assume you have come across with profits endowments which were ultimately linked to stock market returns and failed to deliver for mortgaes on a vast scale..What you are also suggesting is the same thing dressed up and packaged differently. It also does not acknowledge that a house purchase is also an investment.
We can be friends but disagree.
I think you and I have a very different world outlook neilh.
A house is not an investment. An investment is defined as "an asset or item acquired with the goal of generating income or appreciation." - put simply an investment puts money in your pocket. A house costs to purchase, it costs to insure, it costs to heat, it costs to maintain etc etc. A house never puts money in your pocket (unless you let it out). At best it may appreciate, but (see below) the average annual house price appreciation, since Jan 2006, is 2.97% (UK index). While the UK inflation target has been 2%, since 2006 (see below) its actually annually averaged out at 2.49%. 2.97% - 2.49% leaves only 0.48% pa "true" house price growth (UK wide). 0.48% is easily overcome, for most house holds, by the cost of running and maintaining the property. In the current climate, a house meets the definition of a liability - it takes money out of your pocket.
For me, a house is a home for my family - it is not an investment.
Definition of an investment: https://www.investopedia.com/terms/i/investment.asp
What I have said above has nothing to do with Endowment mortgages and is a simple mathematical fact. If you can earn a greater return on your investment than the rate of your offset mortgage, then you are financially better off to invest your cash than use an offset. The very reason why the government has rolled out, on mass, the Workplace Pensions, is because it is in so many people financial best interests to invest in stocks and shares in the long term. Per my note above, the question people should be asking themselves is not "does an investment have risk associated to it" but "can I afford not to invest?".
Were you burned by the Endowment mortgage miss-selling scandal in the 80s/90s that is driving your current position on the matter?
Can't agree more. with your list.
As the single income provider after we had our first child and my wife not planning on returning to work we went with a 10yr fixed rate to protect against what I saw was an inevitable interest rate hike. 5yrs in and it hurts a bit to be overpaying since we could get a much better interest rate now as she's back at work.
We deliberately set monthly payments low enough that we could comfortably over pay and the mortgage lets us make additional payments. its nice to see the end date creeping forward little by little.
I think you're being pedantic about what constitutes an 'investment'.
You're right that a house isn't, and shouldn't be viewed as, a vehicle for making money, however investing your income in a tangible asset that, once paid off, means you won't end up on the streets or some hellish B&B hostel if you can't pay the rent or mortgage.
Using any disposable income to pay off your mortgage might not make you fabulously rich, but neither will investing in ISAs returning 0.1%.
Yes, you can invest in more risky options, but given the number of dodgy advisors (and a sneaking suspicion that the whole 'market' is plate-spinning bullshit that is going to crash down at some point), I wouldn't put all that much faith in it* I take your point that if you can get a better rate than offsetting your mortgage it's may be financially better, but getting an offset mortgage allowed me to pay of my mortgage years earlier than I would have been able to and still have the capital available in the offset accounts if required.
*Yes I know my pension relies on it, but I'll still have 4 walls and a roof over my head if it does all go to ratshit.
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