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? :)

I’d fix for 2 years and go to high street then

Will the adverse credit drop in 2 years? If so I would be inclined to go for 2 years, if not I'd do 5 years.

I’d fix for 5. We’re staring down the barrel of a financial shit-show and you’ll likely be in NE and in a deep recession in 2 years.

I agree with this - we are now predicted 8 quarters of recession and the Tory budget is abot to make it longer and deeper, so anything that gets you past that is a good thing.

I would fix for 5 years in your position. There is a good chance in 2 years you would be in negative equity so 5 years will give you longer to make a dent. 2 years we could be in the eye of the storm and personally I wouldn't want to remortgage then. I'm not convinced by how much lower a rate you could get anyway - the best I've been able to get is 5.09% and that's with a 65% deposit, a 10 year history of owning with no issues and no credit issues.

Presumably if OP doesn't have the equity to refix or remortgage they would go onto the SVR, what is the current SVR OP?

I'd go for 5. With full awareness of what your redemption rate is. You'll have certainty. Its a very volatile world out there.

Definitely 5% … lets you settle into your home with security for a longer time .
Current situation is not likely to improve in 2 years … you really don’t want to be at the mercy of a SVR as a FTB.
as a previous poster says you could be in negative equity then and remortgaging then will be an issue ..

Those who say 6% is high and can only see it going down are probably way younger than me and don’t remember the rate going to 15 % .
Its been done before - could again though of course wecall
hope not .

Go for 5 % … overpay any month that you can and then try for a great rate after the 5 years is up .

Congratulations 👏 on your house and enjoy it !
I love a new build - so little to be done !

Sorry - go for 5 years 🤦‍♀️

this makes most sense to me, too

Fix for 2, but be prepared to get a lodger in future if needs be.

to be able to give an answer more than gut feel you'd need to provide the martgage amount, the early repayment fees and your salary and non guaranteed overtime. But as a very rough, gut feel, it's all about risk, the risk of not knowing what deal you'll get in 2 years vs 5 years. Personally i'd go for the 5 years, but completely dependant on early termination and if I can overpay at all.

I'd go for the 5 year due to probable negative equity in the short term. 6.5 isn't much higher than standard rates atm

Except you don't know where the house is, what it is worth and what it will be worth. Just because the news says that house pries are going down, it doesn't mean they are in the area where this house is.

A default and not arrears?

A lot of high street lenders will take this into consideration. Are you sure your broker is getting you the best deal (the adverse lenders give much higher kick backs).

Phone defaults are usually easily set aside and if the underwriter has any common sense they won’t lost the business of a £65 missed payment. Halifax, NatWest and HSBC would consider you. And that just off the top of my head without my morning coffee.

I'd go five years. My worry is at 95%, you might be in negative equity in two years.

Either is ok. Probably personally I would go 2 years and hope to get a better rate at the end but more cautious people might say 5 and that's sensible too.

You've done really well to get a mortgage by yourself, on a nice house for less than your current rent! That's fab either way! Congrats

I’d go 5 years personally. You can afford it and it’s less than rent and it’s gives you a lot of security while you’re getting to grips with homeownership and all the hidden expense that can bring. Yes you might end up paying more and the front end of your mortgage but you’ll still have the house and mortgage in 5 years time.

This is the gamble you make, but it's worth paying more for peace of mind I think.

We fixed for five years at 3.73% in 2015 and I know plenty who got lower rates in the next couple of years. But it did what we needed, and we are now on 1.6% for the best part of another five years when most we know are at the mercy of current rates. Most of it comes down to chance.

I'd go 5 years- the 2 yrs goes so quick and you'll be looking at securing your new rate in 18months time. I don't see that rates will have recovered that soon. If you can afford the repayments, then at least 5yrs saves you the stress of worrying for the next few years

You shouldn't need a "bad credit" mortgage
I work in mortgages and work for a high Street lender and even we would overlook a default from 2018 with a mobile phone company
I would find a new broker

Personally I’m risk adverse so I would fix for 5. Then I’d over pay that £120 difference from your current rent to build up equity. On 95% and in a recession/falling market there is a risk of negative equity.

Broker should have told you to clear default and then once it shows satisfied most high Street lenders would ignore as its less than £200.

But negative equity just means the OP goes into the SVR which may well not be as high as 6,5% in 2 years, I don't think it's as cut and dry as 5 years being the answer. 6.5% is a high rate to be locked into for 5 years. It's a shame they don't have a 3 year option like Nationwide do.

Thank you all, it’s a tough one isn’t it? Not exactly the best time to be buying a home and most of my friends either still rent or put down larger deposits 20% or more so don’t have this worry of being in negative equity.

I’ll probably go for the five year and muddle through and see where I am then.

As a side note, I really wish they’d teach young people at school about credit. I work for a university and I see our students being offered 2000 overdrafts and credit cards as “free money” and pay off when you graduate. I wish there was a better understand of the impact of missed payments and adverse credit.