Mortgage help -new deal for existing mortgages(5 Posts)
Hope this is the right place to put this:
I'm about to buy a house and am torn between two options - buying a starter home or something slightly larger.
We were recently approved for a mortgage at the top end of our budget but the sale fell through due to the sellers pulling out. The mortgage had a fixed rate for two years and then after that a variable rate which was quoted as being significantly larger than the fixed rate. We can afford the variable rate and it definitely wouldn't put us in financial difficulties but we wanted to keep our mortgage payments to less than what we pay in rent. Both our mortgage adviser and a different bank told us we would never pay the variable rate and renegotiate a new rate with the bank or another bank just before the two years fixed term is up. Obviously, I know this won't be as little as the first time buyer initial rate but I wanted to know what Mumsnet's experiences are of negotiating a new rate? Is this advice true? I'm wary to take this as gospel considering that the advice comes from people who are trying to sell us a mortgage.
We are also hoping to start a family and although I'm planning to continue working, I know having dependents can have an effect on the mortgage rate offered.
Can anybody share their experiences of negotiating a new rate once their fixed rate finished?
We didn't negotiate a new rate, but in our last house we were offered new deals every two years by the mortgage lender which we just moved to - they were at good interest rates and with no fees so it wasn't remortgaging requiring a new valuation. That was with the Halifax. We moved nearly two years and went for a 5 year fix 'just in case' because of the Brexit vote looming. I'm glad we did. Longer fixes don't come with rates as good as for shorter ones but the pay off is certainty. By the time the current deal expires we will have paid a large chunk off the mortgage and we hope the post Brexit situation will be more certain.
It's fairly straightforward. When your new rate is coming to an end, you simply look (with your financial advisor) for a new mortgage product at the best rate available to you at that time. You may be able to renegotiate with your current lender, or you may be better off applying for a completely new mortgage. Depending on things like the size of the mortgage now, the length of the fixed rate and the overall mortgage term (and thus how much capital you will actually have paid off) you may have shifted in to a different loan-to-value (LTV) bracket, and thus have better rates available to you. However, the biggest thing that determines the new rates available to you is the interest base rate at that time. It WILL go up in the next couple of years, which means that any mortgage you negotiate in future is likely to be at a higher rate than the one you have now. How much rates will go up is the impossible question to answer.
Fixed rate mortgages are always at a rate below the lenders standard variable rate, which in turn is always at a rate above the base rate. Basically you'll always get the best rate by fixing. How long to fix your rate for is the gamble, as longer fixes have slightly less good rates than shorter ones. But no one knows exactly how much interest rates will go up by.
Your financial advisor should have "stress tested" your borrowing with you, to look at what would happen if interest rates shot up to, say 12%. You need to consider at what point the mortgage would become unaffordable (and thus you may lose your home) and factor this in to your decision of how much to borrow.
Oh and interest rates are really low at the moment so I'd go for the bigger house as you are less likely to need to move in the shorter term. If you can afford rent higher than the mortgage repayments then it could make sense to overpay.
Thank you everyone, this has been really helpful!
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