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)

Our mortgage confirmed mid February is 4.9% and we had 15% deposit and borrowing 180k (up north so good house prices here!). Two salaries, no debt BUT both self-employed. I also felt there was better out there but just seized what we could at the time!

Surely the 2.77% rate you had previously wasn't with just a 5% deposit though? Have never seen 95% LTV mortgages that low

Meant to add the problem with 5% deposit mortgages is that so fewer lenders offer them. When the economy starts to look shaky they're usually one of the first products to pull
The bank I work for are still offering them but only via a broker such as L and C at about the rate you have quoted. Would need to double check as they are literally up and down day by day. You could go for it but keep an eye out and see if they go down at all.
At the moment we seem to spend all day amending offers with new rates as they are changing so frequently
But overall that's not a bad rate for maximum LTV lending
You may however struggle with the term a bit if you're 47 and asking for 33 years. Although you're not earning it is still taken into account. We wouldn't go beyond 75 on residential cases

Why have you got such a low deposit plus debts on such a large salary?

Anyway I would take the rate offered. Not much you can do about it at the moment.

One of the other firms got an agreement in principle directly from a lender for a 33 year mortgage based on his work only and that length of time. L&C are coming back to us on Monday but the OH said he thinks they're pretty confident they will get 33 years at 5.4%.

It seems to just be a thing they're doing at the moment whilst things are tough for folks. The friends we are buying from are doing it on the basis of a mortgage until he is 77 too, or something similar.

It might go away again when mortgage rates drop. I had never heard of this length of mortgage before this year.

Yup, it was 2.77% with a 5% deposit in May 2022. The. BOE interest rate at that time was 0.25% and rose to 0.5% just before we applied. I've still got the paperwork, read it the other day.

I think that period of time was the time when they were trying to get the market moving post covid, because at the same time there were a bunch of no stamp duty incentives out there for buyers too.

Because we have spent the last two years moving from one shocking rental house to another and it's cost us about 17k in savings. We had to move five counties away for our last rental house.

Renting is very different these days. You have to buy all your own white goods, ovens, pretty much everything. The market is so bad that they can take their pick of renters and say 'no' to almost any request you ask for.

We did over 4000 miles looking for our current rental house in July last year.

Cheers Jmaho. I don't think rates are likely to go down at all. Best I think we can do is find one we can overpay with a hope that 2-3 years down the line, there will be better rates out there to remortgage, and we'll have more equity and hopefully there will be better deals out there. I had a look a little while ago, and it looks as though you don't really get a significant rate drop until you get way less than 80% LTV. I dunno if that's always been the case.

It's certainly not a shocking rate when you look at historical interest rates, it's just that it's come out of the blue, so terribly unexpectedly and quickly, when we weren't prepared - we were actually in the process of committing to staying in our rental and saving for 2 years to put a 15% deposit down when our friends phoned us and said 'we can't afford to live in our house anymore.'

Two of the brokers are 100% sure they can get 33 years for the OH, I think it's mostly because he has such a big income, not certain, but I think that's the impression he got.

I think it’s difficult for anyone to make a judgement without knowing the actual house cost, income and mortgage?

Oh - the 33 years thing. They're basing it on his age and his retirement and I think, basically ignoring me and my age. Don't think they'd usually do that, but for his high income is maybe a bit less of a risk for them.

A few things to consider: is there any likely reason you’d need to sell in the next 1-2 years? House prices are predicted to fall a bit more on average by end of 2023, although I’m not convinced, but with 95% LTV, you are at risk of negative equity.

I am a perennial pessimist so I’d plan for at best having only slightly more equity in 2-3 years time. How much of the mortgage will you have paid off by then? Presumably your interest portion of your monthly repayment is fairly sizeable?

Then again, house prices have defied gravity for the last few decades, so why not a few more.

Good questions.

A few things to consider: is there any likely reason you’d need to sell in the next 1-2 years? House prices are predicted to fall a bit more on average by end of 2023, although I’m not convinced, but with 95% LTV, you are at risk of negative equity.

• No, absolutely not. OH has been WFH for his job for 3 years straight, been in the office precisely 3 times. He can take his pick from Manchester or London for an office base, which is always where the best jobs are, and he's on the promotion path with work who have offices in both places. This move makes access to London much easier than it is right now too. The industry is still very much in demand and went through the roof during lockdown. It's the place we've always wanted to live and once we're there, I don't want to live anywhere else.

I am a perennial pessimist so I’d plan for at best having only slightly more equity in 2-3 years time. How much of the mortgage will you have paid off by then? Presumably your interest portion of your monthly repayment is fairly sizeable?

• With this mortgage rate it's such a small amount of equity as to make me feel sad! The higher the mortgage rate, the less equity paid of, eh. So, over three years, equity paid off is only about 16k, plus the teeny deposit, so about 40k. That's why it's really important we plan to save or overpay the mortgage. I too am quite paranoid about negative equity/being stuck with a rubbish SVR with current lender because rates just haven't improved and we haven't paid enough off to have choices.

Then again, house prices have defied gravity for the last few decades, so why not a few more.

• So I've looked at house sale prices in the county/area, and they consistently go up year on year. From 2004-2018 it averaged 4.8% per year, then something like 7.8, 2020 something stupid like 9%, then a bit less than that but still over 6%. It's because it's a quiet, pretty village just outside a very historic market town, on the edge of the most breath takingly pretty countryside, people always seem to want to live there. We tried to get in there for two years but estate agents won't lift a finger to help outsiders because they don't have to! Again, with the negative equity thing, on such a huge mortgage, there's no way I would take a risk on house price falls by, say, 10%, so this area protects us to the best of my ability to avoid it - subject to anything outside of my control, like, idk, another pandemic, a global recession, etc. My friend's house and everyone else's in her postcode have actually increased in value in the last three months, whilst everywhere else I have looked at has fallen. None of the houses being sold are currently being dropped (a handy Chrome tool shows me Rightmove price reduction amounts). Everywhere else I'm seeing people's house prices being dropped by 10-20k chunks at a time over the last six months, and a lot of the really pricey bracket (600k +) have been dropping by a whopping 20% in price already.

• With the bizarre exception of a nearby 1.1 m house near our friends that Zoopla seems to have halved the value of, which I'm at a loss to explain.

• I've looked at land registry data for the area and not seen a price drop either, not even during, around or after the 2008 crash.

Wow. You certainly have done your research.

I’d probably go for it then. Putting 2+2 together, sounds like you are buying for £480k?

Sounds like a bit of a stretch on £100k, but probably doable.

My pessimism/not knowing where we’d live has probably cost us £200k in the last decade. 35, FTBs. If one of us had a job that allowed remote working we’d have been on the ladder right away. So yeah, don’t do what we did: pay £100k+ in rent, and watch house increase by 30%.

good luck!

Go for it. Get a 2 year fix, get your dream home and then reassess when you're settled.

Oooh, I found the quote button, now my replies make sense!

Not far off, it was valued at 485, we've got it for 465.

Tell me about it. We're paying 23k a year in rent and council tax at the moment. Two years ago this house would have rented for 900pm instead of 1700pm, but covid shot big countryside home prices through the roof.

OH is absolutely paranoid about having a comfortable retirement without being poor so I feel duty bound to be really pedantic about all outgoings until we can start chucking more money into pensions.

Funny how that stuff just hits you like a ton of bricks once you reach 40 and everything starts to ache.

Thanks for your help!

No way would I be buying in this market with a 5% deposit. If you end up in negative equity you may well be forced onto the lenders SVR when your fixed term ends and that will be incredibly expensive. For context SVRs at the moment start at around 7.5% and pre pandemic around 3.5% so you’re looking at 3% more than whatever the prevailing interest rate is minimum.

You have to buy all your own white goods, ovens, pretty much everything.

Never had to in rental
But it means you can take with you or sell 9n

Yeah, we're aware of the horrors of SVRs, which is why we're going to try to get 3 years and save up equity or overpay.

It's a market town that's always in demand (really high demand) so the chances of negative equity, whilst still always a danger, are quite slim.

Can't take full height fridge and freezer to new house with only space for under counter goods.

Can't take 90cm range when only space for 60cm cooker.

Have you tried to sell white goods recently? Even if they're a year old, you get 10% of what you paid for them new. It's kinda ridiculous. Renting is just throwing white goods money away, quite literally.

what % of income will go on the mortgage payment ?
My first thought of concern is your husband is a higher earner but you only managed to save a small deposit and also have credit card debt. In yours 40s on that kind of income without dependents I would have assumed you’d have been better off financially?

TBH, it sounds like you can’t actually afford this mortgage. Using a mortgage calculator, it works out at £2400 a month for a 95% LTV (£441k) over 33 years. You say your current rent is £1700, so this is an increase of £700 a month on your rent. You have only been able to save £23k deposit on DHs income and you plan to save more in order to increase equity when the fix ends in 3 years. You have had to take a loan out to pay off credit cards. Your finances are very shaky.
Another issue is the fact that this house, although may be idyllic, may well not suit your disability. Such areas as you have described tend to come with lovely views and country pubs, but they can also come with limited transport links, no local infrastructure and other concerns. You could be isolated, away from support and medical expertise. Is this something you’ve considered?

Are you sure you wouldn't qualify for PIP? thats not means tested, worth looking into.

Off topic i know but might help!