FTB mortgage rate advice: x1 partner works, x1 loan, tiny deposit

[KievLoverTwo]

Hello all. I used to have an old account but it went awol!

My fiance and I have unexpectedly had a call from friends who live in our almost dream house in our absolute dream area (which is hellish to try to get viewings for, such is the demand) saying they can't afford to live there anymore, and they've accepted our offer to buy it. They need to move ASAP because their mortgage keeps going up £100 a month and he is working himself to death (he's near retirement age anyway). Trouble is, we absolutely weren't expecting to move til mortgage rate silliness calms down in a few years' time, and the lowest we can find so far is:

5.4%, 3 year fixed via L&C (33 years!!)

We had a house purchase fall through at 2.77% last May, so this is a bit gutting. I'm wondering if anyone recently has similar circumstances and has found a better rate - our circumstances don't seem to be helping.

Him - works full time, very large London salary, 41 yo
Me - too ill to work, no benefits claimed (over the thresshold because of his salary anyway) no chance of returning to work - 47 years old
Savings - a 5% deposit. Can't save more in the timeline they need.
Debt - a 12.5k consolidation loan to pay off three credit cards taken out about three months ago (and used for that purpose).

He's been through calls with 3 brokers already, L&C are offering the best rate, but I feel like there might be better out there, we just don't know who. He's tried the Mortgage Advice Bureau and Mortgage Key who are quoting 5.5% +.

We're fine with 33 years because we'll just remortgage in 2/3 years and shorten it to something less obscene once we've been able to save a big chunk up to pay off some equity.

Thanks all!

(Kievs rule, though I'm a bigger fan of Wiener Schniztel these days, tbh)

If you are buying from friends get an independent valuation, ensure you protect yourselves

Definitely good advice, for sure. However, we've been trying to move to this area for two years and I am painfully familiar with all their house prices and demand and I'm convinced it's a good price for what we're getting (they've knocked 20k off for us anyway cos we can't get a mortgage for the estate agent's valuation).

I think the mortgage lender usually sends someone round if they find it hard to value anyway, don't they?

I'm not usually a penny pincher (I was going to send a chartered surveyor in to get it valued) but we need every penny we can towards the cost of the move plus maintenance of a 150-200 year old house.

If you’ve been through brokers, need a mortgage on only one salary, and only have a 5% deposit, and it’s your dream home, I’d grab the current offer and get on with it. Interest rates are going up not down, I don’t think you’ll find a unicorn just because it would be nice to see one.

Bahaha, it's true about the unicorns :)

Well, he's the salary earner, I do as much as I possibly can to look after our money cos I can't work, so that's my contribution to the relationship to help finances (he's a Yorkshireman, spending makes him nervous sometimes!).

I have been watching mortgage rate news (Mortgage Strategy is a brilliant daily newsletter) and they are saying most lenders anticipated a 0.25% interest rate rise and have already factored it in to their rates, which makes sense, because I saw a small jump in them about two/three weeks ago.

Why would you save up a big chunk to pay off equity. Unless you can get a rate on savings better than the mortgage rate you’d be better off just paying it down right away.

Yes, I know what you mean that the rate hikes have already been factored in but… you’re on a schedule, you want it to happen, and so far 3x brokers have given you similar answers. So…

If you only have a 5% deposit now and there’s no chance of you returning to work where are you going to get the money to reduce the term? It seems very risky to take a mortgage until he’s 74 - there’s no many people with big London jobs in their 70s.

There aren't currently savings rates better than the cost of the mortgage that I've been able to find. All the old investment fund ISAs that he used to use averaged him about 10% over the years, they have all fallen to pieces over the last year (we got our money out beforehand).

Happy for recommendations of savings initiatives that offer more than 5.5% though! Maybe there something out there that I just haven't found yet.

Re: paying off equity, to get the next mortgage rate at a far better deal.
(if that's how it works?? I am a newb).

I think what PP was suggesting is that rather than saving up a lump sum for the end of the fixed term you'd be better off overpaying the mortgage.

Take the rate. You aren't going to get better with that low deposit and debt.

Whilst mortgage interest rates are higher than most savings it’s better to overpay each month rather than wait and pay off at the end of the fixed term.

we fixed our mortgage for 5 years at 1.2% so we have stopped overpaying and put money in our savings instead then will pay it off in a lump sum before we come to renew.

Thanks. I pulled up the terms of our old mortgage offer yesterday and it would allow us to pay 10% of the remaining debt each year, but it had to be in one lump sum (presumably at the end of each year). Is that unusual? Do other lenders let you overpay monthly?

I think it was Leeds Building Society.

@KievLoverTwo we’ve been with nationwide and YSB and both let us pay off whenever we like

Ah of course, I'm not braining good right now.

Overpaying is definitely being considered EXCEPT that they have quite a small kitchen, I won't know until I get in there and start using it whether it will make my disability flare up and pain levels to become unmanagable, so at the moment I am sort of thinking we might have to set money aside to knock a lounge wall down, get it moved 4 foot and get a new kitchen fitted within the first year of being there.

(I'm hoping not, it's a great quality kitchen and there's no cosmetic reason to replace, but fibromyalgia is a fickle beast)

It's never simple! drama sigh

Will you actually be able to save a good chunk if you’ve previously been unable to save much and also had to take on debt?
Not being mean, just genuinely asking the question. I’m assuming you’re renting at the moment but if your husband has a large salary and you have had to take out debt I would look seriously into why this has been and whether you really want to take on a mortgage that’ll take your DH til he is 74.

Huh, interesting, thanks for that, I'll make sure the OH knows.

He currently earns 108k and is expected to get a promotion and 10-15k payrise come xmas.

I don't have a shopping habit and am good at being frugal and we don't have dependents, just a somewhat sickly cat.

We won't keep that term, we'll reduce it right down at the first possible, financially feasible opportunity. For now the 33 years is to get into the house so we don't have such a small disposable income that'll scare the living daylights out of him.

Yeah easily, appreciate your concern though, and it's the right thing to consider, thanks. His earnings will be 120k plus within the next 12 months or so and he gets occasional bonuses too.

(if he dies, I get x4 his salary tax free, so that's taken care of too)

I think your 'feeling' that there is a better rate out there is just hope op.

What you really need to do it work out your income/outgoings each month.

If you stretch yourselves too far you could loose everything, so it is better to operate within safe limits.

Put the notion of dream home/location aside and look coldly at the figures.

We’re taking a 33-year mortgage now, but we decided to cap at my DH retirement age. Our rate is 4.11% but higher deposit. I’d be very cautious still - you might think it’s a dream house but get a proper survey and independent valuation done. Be prepared for problems that may need money spent on them, inevitably really.
also, given your situation I’d make sure your partner has comprehensive serious illness cover and life insurance, and possibly income protection - think about the scenario if he couldn’t work.

Also, it is worth considering the consolidation loan - your rent, although high, would have covered things like boiler breakdowns and plumbing etc.

Lots of things go wrong with houses.

I know this isn't what you want to hear, but my dh and I lost our home when one. Of us haas to give up work to CD re for our disabled child. It still surprises me how our lives fell over like dominoes.

Oh I'm going to get the highest, most detailed survey done, absolutely, it's 150 + years old, so I will make sure we know what we're letting ourselves in for. They've been honest over the years and told us about all the problems they've had to fix too, which helps. Will have a long chat with them about a maintenance budget too - hopefully we will see them next weekend before getting the mortgage application going.

I get his death in service x4 tax free if he dies. If I die he'll probably just leave the country and buy a 1 bedroom flat in Germany or somewhere, so he doesn't care about paying the house off or staying there if I pop my clogs. Probs spends his disposable income on geeky camera gear and travel and live in an absolute hovel!

He has REALLY good work income protection with his firm. Something like a year at 80% salary, and if he gets a lifelong illness that won't allow him to return to work, he gets paid ad infinitum. I know that sounds absolutely insane and made up (the last part anyway) but that's my recollection of it - I was shocked! Will defo check that part before moving though, if it's not how I remember it then it might be sensible to get an extra insurance policy.

We took a consolidation loan to pay off all the credit cards a while ago. If the sheet absolutely hits the fan, he still has 2 of those open with a credit limit in excess of around 20k, I think. Still, I wouldn't want to buy a house without at least a new boiler slush fund, and I've told our friends I won't move until I have all the fees plus a 4k emergency slush fund in the bank because I really don't like financial risks very much at all, because we've all heard of people who have lost their homes due to unforeseen costs.

Really, I'd feel more comfortable with a 10k slush fund, but our friends really need to get going quickly before the poor old chap ends up in A&E due to taking too many shifts.

So - there are credit cards if an emergency crops up. I would just rather not, if possible.

I'm really, really sorry that you lost your home, by the way. We're really terrible at looking after people who are not able-bodied or have special needs in this country, it makes me terribly sad.

I hope you live somewhere you like now.

Have L&C actually agreed that mortgage or have you just stuck some numbers into a calc estimator? I wouldn’t think banks would offer 33 year mortgages for someone who’s 41.