AIBU to take out this mortgage?

[helptodecide]

Hoping someone will tell me if this is a terrible idea or not before we proceed.
Myself (F24) and my partner (M29) have had an offer accepted on our first house. It’s £325,000 and we are putting down a deposit of £21,000. The mortgage we are going for is a 2 year fixed at 5.69% and it’s a 40 year mortgage. we can’t get any better without fixing for five years which I do not want to do in this climate. Our monthly payments will be £1600 gulp for 2 years. After the 2 years I’m hoping to remortgage at a better rate (fingers crossed the interest rates aren’t so abysmal by then!). For context although the house is expensive for a first home it is in exactly the area we want to be in, close to work and both of our families, and is a 3 bed semi with lots of potential for extension in the future (ie this could be our long term home). In this area we won’t be able to buy much cheaper (even a 2 bed terrace is £300,000).

I am trying to work out whether this is going to be affordable for us. Our combined income is at least £4500 (fluctuates between £4500 and £4800 depending on partners overtime, and I also do some online teaching as well). I’m a vet, my partner is a HGV driver, so both in secure work. We have no kids and definitely no plans for them in the next five years.

I’ve calculated our monthly outgoings on bills including mortgage, car payments to family for both of us (we both borrowed money from family to buy a car to avoid debt), car insurance for us both, council tax, gas and electric and petrol to be around £2800. This would leave us with £1,700-£2,000 month for food, social (we currently spend FAR too much on this and would hugely cut down), the cat, money towards the house (it’s liveable as is but lots of cosmetic work to do gradually) and savings.

I feel like this sounds okay, but I am currently saving £800 every month and to be honest not really having to budget at all as our current rent is only £800 between us. I know it’s an awful time to buy a house at the moment, but I’d rather take the hit for 2 years and then remortgage when times are hopefully better.

What do all you wise people think?

40 year term doesn't matter IMO if it's allowing you to afford the payments. You'll probably move on up or down the ladder well before that's up. I also think a 2 year fix is best because prices are expected to fall. You can always check what the ERC would be if you did a 5 and then moved to another deal.
All opinions of course! Others will have theirs but that's my 2 cents. Good luck!

Oooo I was so set on only fixing for two years and now everyone’s making me questions whether we should go back to the drawing board and fix for five!

Interest rates were artificially low for a long time. My first mortgage rate was 4% which was good for the time.

Interest rates might come down a little. For the sake of £200 a month in your position (with you both contributing) I would go for it. I wonder if you could negotiate the price a little more? It's always worth a try!

I know you have a good deposit but if you could possibly find more you'd have more mortgage rate choices.

Generally property is a long game and whilst you will feel this increase initially (the first year of my mortgage was terrifying) it is much better than renting.

Personally I would go for two based on current inflation. I work in risk in property and would be comfortable with this gamble at the moment. Any savings in terms of interest rates I would put away to make a capital reduction, overpayment annually.

Go.for it.

I agree about the 5 year fix, especially if its £200 pm less. Interest rates would have to come down a lot for you to be worse off because you have the extra £200 a 2 year fix costs to overcome first and if there's fees on the mortgage, obviously they need considering.

Mortgage brokers like 2 year fixes because it gets them more than twice as much in commission. Don't fall for it.

I also agree with others about a 40 year term being insanely long (look at the amount of interest extra it will cost you compared with 25 years) but if you overpay as much as you can, or save into an account if there's a limit before penalties apply, it gives you a bit of slack in your budget of costs that you have to pay.

Also make sure you have considered if either of your can't work due to ill health and have sufficient savings/insurance/employer sick pay to cover this.

Sounds doable to me.

Look at moneysavingexpert.co.uk budget planner. Its lists everything! I hadn’t realised until we first did it how much we spent on haircuts as a family.

Also, go through it with dp so you are both in board with how much you spend, income, outgoings etc.

Take the 5 years and put the £200/month saving into a separate account. When you come to remortgage in 5 years use the saved sum to pay off some capital then hopefully you can get a shorter term. Enjoy your new home!

How did you manage to find a mortgage that allows less than 10percent deposit? We really struggled to find one and had to have at least 10 percent down-payment for them to accept us you have done well.

Agree with this. I would absolutely go for 2 years fixed.

People who go for 10 year fixed just sound silly to me, I'm sorry. I can't even bear to think of how much money I would have lost if I had fixed rate on my homes.

Congratulations btw!

Yes that stood out to me as well, and someone even said the OP had a good deposit? How?

We paid $350k deposit on a $1.8mil property, and that was the minimum required. I guess depends if they're getting a lenders mortgage insurance, we wanted to avoid that and it meant we needed a higher deposit.

If your deposit is small then lenders mortgage insurance is required which is a lot of 💰

If you are paying £800 a month rent and you are saving £800 a month that's the mortgage covered. You have a pretty high monthly income and secure jobs so it seems fine to me and as others have said if it wasn't affordable the mortgage company wouldn't have offered you the mortgage they are very picky these days.

Sounds OK to me.
Your salaries & the value of the house will in all likelihood increase giving you more equity in the house and a better LTV for the remortgage

35% of income on the mortgage is OK.

I honestly don’t know! I thought we would need 10% but we fell in love with the house (mainly because of location) so went to talk to the mortgage advisor about it. They said because our combined income is relatively high and we have no kids (so relatively low outgoings as no childcare etc) we could borrow 4.5x our income which was over 300,000.
It’s not a brilliant deposit for the value of the house so we can’t access the best interest rates but to be honest we just really want to get on the ladder, in the location where we want to live.

£4500-£4800 between you as a HGV driver and a vet? Do you both work part time or have large student loans etc as that's low take home payfor those two occupations. In regards to your actual question though - you'll be fine. P.s I'm an ex mortgage adviser.

@Mummy2mybear I underwrite mortgages. We offer max 95% LTV. It's all I'm looking at lately.
Have to be first time buyers and have to apply via advisor or broker. Can't apply direct
Need a good whole of market broker. Quite a few high street lenders offer 95%

I only graduated last year so I’m on 34, going up to 37 next year. God knows after that, we don’t make as much as people think we do though😂My partner is a class 2 driver and usually takes home similar but it’s overtime dependent. Both of us will hopefully see our wages increase as we both get more experience, he wants to do his class 1 which will give him access to better pay.

Makes sense - I guess you're paying student loans too which is impacting your net pay? I've never met a Vet on less than £50k which is why I was a bit confused. Go for the mortgage- 2 years is correct in this climate. Congratulations on the house 🏠

Buying a forever home as your first home will save money over time in legal fees, moving costs, and stamp duty, plus estate event fees. It sounds fine assuming you aren’t planning to start a family in the next couple of years (get a good savings cushion and reduce your outgoings first! Eg pay off the cars).

For reference, I am a single parent with a lower income and a higher mortgage, and I manage. Mind you we don’t take expensive holidays or eat out, but that’s because I prioritise things like DD’s swimming lessons. Honestly, it sounds fine.

On the 5 vs 2 year deals, lenders are already baking in their expectations of future base rate decreases into their pricing. That's why the 5 year deal is at a lower interest rate than the 2 year deal. By the time you refinanced the 2 year deal, the interest rate curve might have changed- even if base rate is lower, the lenders might then expect future increases in rates and would reflect that in pricing.

I'd go for the stability of knowing you should be able to meet the repayments for the next 5 years and not risk a payment shock after 2 years.

Wow, we had to find 40k it was a struggle to scrape it together and a lot of money to us we almost lost the house we wanted but we managed, In the UK they are so strict on everything they offered help to buy scheme but did not want this and so glad we didn't would have been in a mess now if we did x

It sounds like you've done really well at only 24 OP, go for it, good luck!

There are people who went for 2 year deals 3 years ago who are absolutely kicking themselves (and were probably poorly advised) because they're now facing much higher rates when they could have been locked in at 1-2% for the next 5-10 years.

As a PP has said, expected rate drops are included in 5 year fixes, which is why they're cheaper than 2 year fixes. If they take the 5 year, they're already ahead, and rates will have to drop a lot to catch up on how far behind they are at the beginning by paying an extra £200 pm for the next 2 years. And that's before you account for paying extra fees because you change your mortgage more than twice as often.

Thanks so much!! You must have ever met a new grad - I won’t see 50k for about ten years I imagine!😂