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, as you know the payments are affordable on the 6% fix, I would consider fixing for 5 years especially as your LTV is so high. I am very risk averse and like to know that things like mortgage payments are within my control.

What you can do to get some extra clarity is make a table to calculate your potential repayments over the 5 years based on a few scenarios: first, consistent 6% rate, how much those monthly payments add up to over 5 years.

Then look at the 6% rate for 2 years and work out what your repayments would be for every % increase after that in subsequent years, eg if your mortgage rate went went up to 7% after 2 years and you then had a 3 year fix at 7%, what would repayments look like and how much more would you be paying in interest?

Do the same for everything up to 10% and get a feel for what your potential situation could be if you don't fix for 5 years and that will help you decide. There are online calculators to help you do it, so it's a ten minute task.

Think that's the right choice, it gives you certainty in what is going to be a very uncertain few years for the economy

Truthfully it's always a gamble. You need to decide what your attitude to risk is and what your priority is.

If you fix for 5 years and rates drop you will pay more than you need to, but for that length of time you have certainty in payments and you will be more protected from the risk of coming to the end of your fix and being in negative equity if house prices drop,

In 2 years the default will have dropped off so you will have more options and could potentially save money, but risk being in negative equity

Personally with things as they are and a 95% LTV, I would go for 5 years in your position. The payments are affordable and it gives you time to build equity without worry. Whatever you do, good luck in your new home!

I would go for the 5 years

You will be used to paying X amount for 5 years and you will have learned how to budget.

After the 5 years your default will have probably fallen off and if you are comfortable with paying the same amount you can overpay to match your payments now

2 years is only 24 payments to get you into the swing of getting used to it. Does Martin Lewis have anything on his website about it or can you ask in his forum?

Its such a big deal and I’m sure you need better advice

Congratulations on your first home too OP

Fix for 2 years or as close to when the default drops off your credit rating as you should be able to get a better offer once your credit rating improves

Have you tried to get the default removed? I had one on my record but made a complaint to the company that put it on (Barclays) who found in my favour and removed it. My argument was that they hadn't done enough to support or contact me

You seem to have missed a few of us saying that it seems unlikely that you have to be on an adverse rate from what you've described, but it needs to go am to a human underwriter. Are you going to try talking to a few banks first to see if you can work through this?