Mortgage panic- what to do?

[lalalawhitenoise]

I’ll preface this by saying I will be seeing a mortgage broker to get advice. Please no, well you shouldn’t have got htb- I did so with mortgage advise. I’ve / we’ve done my best to save and have done so but a few things happened, mat and redundancy back to back (had been in role 2 years so didn’t get a lot)

My 2% fix is coming to an end (1st jan next yr). I have a htb equity loan on my house. House purchase price was 300k, houses selling lately for around 390k. I have 40k available cash (well technically 60k but I don’t think it’s wise to get rid of every penny I have, part of that is a ‘loan’ from family to be paid back later phrased as ‘whenever/ if you can’). At end of fix, outstanding loan will be 210k.
i have quite high childcare costs relative to income. Current mortgage is £750, childcare more than that.

so I’ve worked it out that I have a few options. All assuming a 6% interest rate which when I’ve been looking up seems to be ballpark where we’ll be looking.

option 1)-use £40k to bring down the outstanding balance to £170k and then pay interest on htb for 2 years until things calm down, property prices crash and then take some additional borrowing and port at a later date. So there is the money borrowed from family here too, it’s more additional borrowing at a later date? Monthly cost for this (roughly) £950

option 2). Use 40k to pay off half of htb then half of the that 20k to bring outstanding balance to 200k, pay interest on half ouf htb and take out additional borrowing on 10% of property value to pay off outstanding htb and a bit more to pay family member back. Monthly about £1050

option 3). Payback family member now, and switch deal for balance as is and then pay interest on htb. Monthly cost £1150/1200

option 4) add it as additional borrowing now and payback family member about £1500- this is double what we’re paying now so feels very tight for me- manageable but with very little contingency.

option 5) going on that 6 month payment holiday that’s apparently been introduced- but that seems like kicking the can down the road as I don’t imagine anything will have drastically changed by this time next year?

option 6) going interest only, but with house prices bound to slump won’t we risk losing equity as we won’t have been gaining a share of the house as you could in a capital repayment mortgage.

our term is already 35 years and we can’t extend it further i don’t think as it would be well into retirement age?

(the money as been lent for the sole purpose of helping housing wise not just as a gift in case of emergencies)

there’s limited options for savings to be made, we’re a one car household (really need a second tbh but won’t be getting) no cheaper childcare (oldest is in school but it’s the wrap around childcare still adds up which we need for work) no subscriptions aside from Netflix, already shop at lidl/ aldi/ asda, dh has a penchant for being lazy and outsourcing ‘blue’ tasks such as mowing lawn or building things - this will stop and obviously takeaways are an easy one to cut away- but it’s not £700 worth of savings.

we could switch to the new SO deal on energy? Anyone seen that we’re currently on the price cap tariff.

im trying to solutionize to stop myself freaking out. What does anyone think? are there other options that I’ve not thought about?

Feel free to PM me if you need any help with it. I have wide experience of tutoring via agencies and honestly most are rubbish. I have only ever worked with two that are any good.

Sorry that was for @lalalawhitenoise

Don't go for payment holiday, it affects your credit rating.

And I'd reduce the balance as much as I could. I'm sure the person who helped by lending you money isn't going to want it back immediately, but you could speak to then about it.
Interest only is a last resort, obviously you're not reducing the money owing,

This is not good advice, you're not going to get much more than 4% return and you're paying more than this for it. Much better to pay back as much as you can afford (both capital and monthly payments) without making your lives a misery.

The OP clearly wants to keep an amount of money freely available for emergencies and other things. They don't want to overextend themselves in case of job loss, car repairs, etc. I mean, if they feel comfortable with a middle option, then fine, but they don't seem okay with that.
Look at it this way. Say they pay as much as they are comfortable with, less than now because they have less available to save with the increased mortgage costs. So, suddenly, the roof and the boiler(furnace, whatever they have) needs a major repair or replace. Now, they have to take out a loan at 11% or higher to pay to have that done instead of just pulling from a savings account. So, instead of paying a little more on their mortgage over time (which could change to a lower amount again later), they now have to pay a lot more in interest somewhere else.
Plus, by choosing the smallest payment available, they can always pay more in extra payments as they can afford, but are not locked into a higher payment.

This is rather an odd way to look at it. You borrowed an amount to enable you to purchase which gave you 5 years interest free and no payments at all. You are not ‘forced’ to sell in the future. You should have financially planned how you would have paid it back.

For example:

• an annual payment of 10% around 4k
• if that’s too much, do it every second or even third year. Saving up in the meantime to get to your 10%
• save the amount into a savings account to pay it back in the future
• Decide not to do anything and sell in 25 years repaying it then

Are these options not discussed with the broker when you decided to use this method to purchase?

i should’ve said if you can’t pay it back by 25 years in full then you have to sell.

its not an odd way to look it at, as when interest rates were low it made sense to add it to the mortgage after 5 years. Our plan was to save and pay as much as we could of in cash and then add the outstanding balance to the mortgage. Which is why we have the chunk of savings, but now it doesn’t make sense to do that as the interest is comparably very low

You don’t say what percentage of your or your partner’s pay goes on childcare. If it’s a substantial one, would it be better to take a school-hours only/work from home job and cut out childcare costs altogether? It could be with an intention to resume your/your partner’s career when your DC is old enough. This way you would get to keep all your pay which you could use to make over-payments on your mortgage.
Even a low paid job would increase your income if your current job goes mainly on childcare.

Def agree go with a broker. We didn't do HTB and I don't know too much about it, but anything non-standard they're almost certainly worth it. Most don't charge at the initial stage either afaik, only when you submit an application for a product.

Income: £5300

Mortgage balance: £210000
Mortgage interest rate: 2% fixed
Term remaining 30 years
HTB: £60,000
Interest 0% for first 5 years
Term remaining 25 years
Value: £390000

Outgoings:

Childcare: £1000
Mortgage: £750
Groceries: £600

Petrol, car insurance, house insurance, savings, holidays, clothings, phone, heating, electricity, water, council tax, netflix, credit cards, debt, eauty, ……………………

Assets:
Cash: £40000
Family: £20000 (rainy day fund)

Option 1

• Repay £40,000 off the mortgage

January 2023

Income: £5300 (will go up). Child care will go down.

Mortgage balance: £170000
Mortgage interest rate: 6% fixed
Term remaining 30 years
HTB: £60,000
Interest rate HTB: 1.75% year 1 (£1050 yearly, £87 monthly) Year 2 1.89% (£1134 yearly, £94 monthly) It seems this is ok until about year 9/10
Term remaining 25 years
Value: £390000 (will likely go down, which restricts remortgaging to put the HTB into a normal repayment mortgage, unless there is still a good deal of equity, which with time there will be)

Outgoings:

Childcare: £1000
Mortgage: £1019 (170 over 30 years at 6%)
HTB: £87 + 1 = 88
Groceries: £600

Petrol, car insurance, house insurance, savings, holidays, clothings, phone, heating, electricity, water, council tax, netflix, credit cards, debt, beauty, income protection ……………………

Assets:
Cash: £0
Family: £20000 (rainy day fund)

Increase is €357 a month. An outrageous 22 pounds a week !

You need to check the following:

• How much does your income protection cost (some are outrageously costly)
• Does it apply to both of you
• Will it pay out (these policies are notorious)
• How long will it pay out for

You need to get into any further debt, avoid consolidators or anyone who will give you magic repayments that are too good to be true.

You have to decide on a 2 year or 5 year fix. A fix gives you peace of mind. You didn’t make a mistake with your original 5 year fix, that’s just hindsight. NOBODY can predict anything. The UK in particular seems to be heading for a property crash, and a recession, a period of high interest rates. But that’s conjecture, you can ‘estimate’ a certain amount of it, but you cannot be certain, nor can the experts including brokers. (I’m not entirely sure why you’d go to a broker, you should check out a Money Expert website there’s a very well known reputable one in the UK whose name escapes me. )

You need to increase your savings and cut out unnecessary expenditure. That will stand you well if turmoil comes.

You need to sit down with your husband and put in the figures for the missing items in the list above. Check your bank accounts to see what you’re spending money on annually. And you need to know where your money goes every week/month.

HTB

You need to develop a strategy on this. An actual house price decrease seems to be a good thing for you. So you need to be saving up so that you can make a lump sum payment off this before it hits a high interest rate. This should be a separate saving, with interest, that you will not touch. You could use each salary increase to lop in extra. I’m not doing the calculations on this now, clearly there is a way to do it to maximise the benefits (interest free, then low interest and lop off when the properly value hits near rock bottom). There is also the possibility of going the normal mortgage route by adding this to your existing mortgage as a top up if it makes sense.

Please double check my figures as it’s difficult to do this on this website.

I didn't do the figures on this. It could work and give her a few years to weather the storm. So it is not to be discounted as a strategy.

For others, starting off with a 35 year loan really gives you a lot less options if you end up in financial difficulty. People like the OP are probably 25 or 30 when they get such a mortgage, with it ending then at 60/65. Far better to get a shorter term is you can, or increase your repayments after the initial year 1/2 of big expenditure.

childcare is about 19% of our combined household income after tax. It’s yucky, but I can’t see how I could either of us could reduce our hours to school hours- it just wouldn’t really be possible unless I took a new role as a teaching assistant and I don’t really have any experience of and would be a £20k pay cut

thats interesting as tbh we were told the opposite when we took it out, have a longer term when you’re younger and less affluent (as the assumption was salaries will increase) and then reduce your term as you have more disposable income. We’ve been on the phone to brokers this morning and we’re working out a term of 27 years now- as it will keep our mortgage in our max budget £1000 (sans htb)

Rates are looking like 5.9% on a 2 year fix and 5.5% on a 5 year… 😿😿😿

I'd pay money off the mortgage, not the htb loan. Then I'd sit down with bank statements and ruthlessly look at where savings can be made. Your income to mortgage ratio is good. Yes, childcare is expensive, but you shouldn't be panicking this much given your wages, so either you have debts you haven't mentioned or there are areas you can cut back.

The longer term the loan the more interest you pay. You’ll also have to pay life insurance for longer. It also means that you’re paying down little capital for a lot longer. It means in a crisis, you don’t have the extension of term option. And because you’ve not got equity, (if the market didn’t rise further example) then you’re locked out of switching to some products.

If you’re now reducing your term to 27 years that will mean higher repayments, than any of the scenarios you originally outlined. Can you explain this.

Also what is your plan for the htb.

There is a discrepancy, with your salaries and your panic. Im assuming this is due to high spend on discretionary items or a problem with budgeting.

Things like expensive holidays, too many takeaways, buying unneeded items, an expensive hobby …..

Proper financial decisions should only be taken when ALL income and expenditure is known.

We definitely don’t have debts, we have a credit card a reward and cash back card that we use to buy groceries and holidays, we want to keep that as we earned £250 cashback over the last year.

cutbacks definitely there are places they can be made, we can switch energy to the new SO green deal (£400 a year for us). For us it’s the monthly extra expenses that crop up or things that need done, for instance we definitely need the garden done (nothing fancy) but it’s not useable right now. We need some form of bathroom units put in, shelves in the garage for instance, garden is priority 1 and then a garage clean out and skip but everything else is a nice to have.

part of my panic is due to how things ‘were meant to go’ if we added the whole HTB balance to the mortgage this time last year, the monthly payments would’ve been £100 less than the quotes we’re getting now.

Our LI is largely through work, we have an extra layer that’s £50 a month on the htb.

well speaking to some advisors today they worked with budget first, (my max is £1k per month) and then worked out term accordingly, shorter the better for long term interest, so 27 still comes shorter than my ceiling so that’s what the recommendation was. But the option is there for having a longer term.

My husband is bad in terms of ‘outsourcing labour’ ie someone to mow the lawn and he’s bad for top up shops and eating out- does my head in. This can be reigned in. Kids need to start swimming lessons £6 per child per lesson- that’s the only expensive hobby.

yeah there is high discretionary spend I’d say.., things we ‘need’ done like the garden or the bed when it broke. We budget £4k per year for holidays. We’re lucky that a family friend owns a villa abroad that we use for a nominal fee.

htb would be to start saving again and when things calm down to add it to the mortgage by way of additional borrowing.

the question now is a 2 year fix or a 5 year. I’ve ruled out a tracker mortgage due to the consistent base rate rises

I think your definition of need is quite different to many people's. The garden can be done by you and your partner. Yes, there will be costs like tools, plants etc but it will still be a good saving compared to paying someone to do it. If you want decking , buy a kit and DIY. Shelves aren't going to set you back much at all. You can likely pick up plants, shelving, gardening tools etc on Facebook marketplace/local Facebook groups, olio etc for cheap/free. You can also probably skip the skip by putting everything on Facebook, olio, trash nothing etc. It's incredible what people will take.

I do completely get that you were expecting certain costs and now things feel less secure though. I had a similar panic until I crunched the numbers and realised even if the interest rates go up quite a bit more, I can survive (albeit it with a much more boring life).

The garden can’t be done by us unfortunately, because it’s a new build (and apparently they are notorious for just chucking turf on rocks) we need to level the garden which we can’t do ourselves as it’s on quite an incline right now. But we’re going for the most frugal option.

a lot of it is crap, boxes in the garage. It’s honestly huge volumes but what we need to do that will save some money will be a days annual leave and stamp the down and take the to the tip. Bits of old furniture you’re absolutely right, marketplace. Might be able to dodge the skip. Garage shelves they aren’t too pricey anyway, would struggle getting them from market place as our car is too small to pick them up, although could get a man in a van- not sure of the cost of that. But we’ve survived thus far.

its pretty much how you said, dh and I just got new jobs and we thought oh I life will get better and we can afford more and it’s disappointing that it’s the opposite- but it’s just getting through these rough years isn’t it

Fine if they use it just for this type of urgent spending, not so fine if they dip into it for non-essentials.

So, suddenly, the roof and the boiler(furnace, whatever they have) needs a major repair or replace.

Unlikely. It’s a new build.

so talking to broker, best rate (having htb as apparently that makes a difference) is 5.93% fee free and £500 cashback and ‘free’ legal fees On a 2 year fix.
anyone seen anything better?

thoughts? X

@Lalalawhitenoise what's the rate if you just refixed with your current lender? When we refixed our ported mortgage it made no difference that we had HTB and got the standard rate.