To ask what you would do? (Mortgage related)

[Ofgrace]

Sorry posted on money matters but it’s quiet on there and I need to make this decision tomorrow afternoon. I’m still pondering.

I’ve just got an agreement in principle for a 95% mortgage. It’s a broker bad credit mortgage because despite not missing a payment in 4 years, no dependents, no outstanding debt etc, I have a default from when I was a student in 2018 and absolutely broke. It’s from a phone contract and for 65.00, no ccj, no anything else.

Anyways, finally got offered a AIP but it’s for 6.5%. However, the repayments are still cheaper than what I’m paying in rent currently, by 120.00 and it would mean I’d have a nice new built home and some security.

the thing is, mortgage company have offered me either a 2 year fixed or 5 year and I’m still unsure. Broker is convinced I could go high street in 2 years and lower my rate- but with the recession looming and things being bad what if I can’t? And suddenly my rate gets even higher?

ive had days to read, ponder and ask opinion and I’m still unsure of what to do. I’m a single person currently, aged 29 and will be paying everything myself. I could have a partner living with me in two years towards it but that’s a risk and who knows what the future holds.

what would you do? :)

Personally fix for two years, that's really high and in two years your default will drop off your credit file

At 6.5% I would go 2 Yr fix if the default disappearing would then open up the market to me.

I take it someone thinks that the OP is a troll 🤔🤔

I think 2 years makes most sense at that rate, and once default drops off you should have a wider choice of products when you come to re-mortgage (and rates will possibly have dropped then too).

Hi, it comes down to your approach personally - I would probably take the 5yr because that would get me past the expected recession period.

I'd fix for 2 years in your position.

Personally I'd do a 2 Yr, the market may have improved then, however how much is the max % you could comfortably afford? If it's only a small amount above what you're being offered now I might be tempted with the 5 year for the security.

@TrollAlarm9999 Get a f*ing life mate.

Really tricky one. Dh and I were in a similar position when we bought our first flat 15 years ago. We took a 5 year 6% deal. A few years in, they wrote to us and asked if we wanted to refix early, at a similar rate, which we did. over the next few years, we watched interest rates go down, whilst we were stuck on 6%. So frustrating. We paid that rate for about 8 years.

@TrollAlarm9999 fuck me, you know things like Netflix exist if you're at a loose end!

I'd Fix For Five so I had the security and try to save the early repayment charge in case rates drop so far it makes it worth buying out early

Its completely up to you and your attitude to risk. Would you rather know exactly what was happening for 5 years? Or take a risk and hopefully get lower rates.

I'd go for 5yrs. I doubt we'll be completely out of recession in 2yrs.

I would have said to fix for 2 years, but there’s also a risk with falling house prices and a 95% mortgage you could be in negative equity, temporarily, in 2 years time.

At 6.5%, I think fix for 2. Usually I'd say the longest possible fix, but it's already very high.

Did you have your IFA actually speak to the underwriters at other companies? I'd make one more attempt yourself with whoever holds your current account, who have your full history to look at; go into a branch if you can and ask that they refer the case directly to an underwriter because it's such a low amount and from student years.

What is the early redemption charge?

I would go with 5 and hopefully get lower rate in a couple of years Pay early redemption charge to get out but depending on how high it is.

Is there ANY chance of getting that credit default wiped off your history? A single missed mobile payment 11 years ago seems a tiny thing to destroy your mortgage opportunities now.

I'd keep hunting for products.

Failing that i would fix for 5 years and i did exactly this when we bought our first house because we knew we could afford the rate and we liked the certainty (same argument as you - it felt like fixed rent at a level we knew we could afford and like you it was less than rent would have been).

You simply cannot know which way things will go.

Sure, in 2 years you may think "dammit now i could fix at 4% and im missing out!"
But you can still afford the mortgage in that situation, you are still losing out financially versus what a gamble the other way would have gained for you.

If interest rates increase and your own financial position doesnt improve - and yes theoretically this can happen - then it's a more difficult path.

So in the same situation we opted for certainty even though we knew it could (and did!) cost us more money.

By the way, chatting to a family friend who is now retired and calculated that over the lifetimes of his various mortgages his AVERAGE interest rate was 7%. And he's perfectly well-off now.

Oh sorry i just reread your OP and saw it was a contractual default 4 years ago not one missed payment 11 years ago! I need coffee to wake me up. Good luck OP hope your enjoy your new home once you get it.

I'd go for 5 yrs. At least you know where you are and don't need to deal with the stress of 24mth count down

Personally I'd go for 5 years as long as I know I could afford it, but I'm risk averse and like to know where I am. If I could afford it I'd overpay too. Are there early repayment charges if you did decide to change earlier? We are paying 1% to get out of our mortgage early at the moment.

For a 95% LTV I would fix for 5 years. After 2 years, I think you’d be in negative equity the way the market is going.