Does anyone understand mortgages??

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  • Nick Staff 25 Feb 2007 12:02:21 618 posts
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    Hello

    I'm a newcomer to the sordid world of borrowing money from banks to buy a house ... does anyone have any opinions on current mortgages?

    Particularly, as I understand things currently the Bank of England have raised interest rates several times in succession - does this mean that a variable rate mortgage would be the one to plump for, on the basis that they must drop it at some point in the mid-term?

    Or does it mean that on past performance they are likely to keep raising the interest rates and thus a fixed rate mortgage would be better???

    I understand the basic principles but I have no idea what the current advice might be is in the UK...

    Gracias

    Nick.
  • Lutz 25 Feb 2007 12:09:01 48,854 posts
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    Nick wrote:
    Or does it mean that on past performance they are likely to keep raising the interest rates and thus a fixed rate mortgage would be better???

    Gracias

    Nick.
    IMO if I was getting a mortgage ATM I'd be getting a fixed rate one.
    At a push I'd get a lower rate tracker one, but if the rate was raised again I'd jump ship to a fixed rate one.

    Just make sure that whatever mortgage you get that you're paying off both the capital AND the interest, otherwise you're just effectivly renting your house from the bank (If you're paying interest only)
  • racingrob 25 Feb 2007 12:14:56 41 posts
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    Lutz has hit the nail on the head, if you are not sure then plump for a fixed rate that you can afford, also make sure that you have a standard repayment type mortgage, not interest only.

    Remember that just because the bank will lend you 5 times salary or whatever does not mean that you should borrow that much.

  • Errol 25 Feb 2007 12:18:46 12,457 posts
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    Mortgage advice/info from the FSA.
  • Deleted user 25 February 2007 12:25:59
    There's plenty of reading material online but if you've still got questions you can always arrange to speak to a mortgage advisor at a local bank/building society. They're always willing to talk to people for the slightest chance of arranging a mortgage with them, but if you just make it clear you don't want to arrange anything quite yet you can get a whole lot of information from them for free.

    Also one aspect of mortgages that I found was relatively vaguely specified was all the fees involved for arranging the mortgage, surveys, etc. Make sure you look into this as taking out many mortgages will basically involve you spending several grand, and that's excluding deposit.
  • Lovemoose 25 Feb 2007 12:51:31 999 posts
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    Have a look here. The man's a frickin' genius.

    Best advice from me? You'll get much better help from an independent financial adviser than a "mortgage adviser" in a bank. They're just there to sell you things, preferably at 5 times your salary.

    Oh, and on the "will the rate go up or down gamble", just remember, even with rates at the current level, they're still quite low compared with the historic rates.

    Edited by Lovemoose at 12:59:13 25-02-2007

    twitter: @chockey

  • Nick Staff 25 Feb 2007 12:56:29 618 posts
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    Cheers chaps

    Lutz/racing rob: What would be the rationale plumping for a fixed rate mortgage at the current time rather than variable?
  • heyyo 25 Feb 2007 12:58:54 14,374 posts
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    Nick wrote:
    Cheers chaps

    Lutz/racing rob: What would be the rationale plumping for a fixed rate mortgage at the current time rather than variable?

    The Bank of England might raise the interest rates which in turn causes the High Street Banks to do the same.

    Then again, the Bank of England might lower it and you'll be stuck with the current interest rate.

    EDIT: These people decide the BoE base rates

    http://www.bankofengland.co.uk/monetarypolicy/overview.htm

    Edited by heyyo! at 13:06:10 25-02-2007
  • MetalDog 25 Feb 2007 13:05:10 23,708 posts
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    Five times my salary wouldn't buy me a shoebox under a bridge at current house prices. How can anyone afford this shit?

    -- boobs do nothing for me, I want moustaches and chest hair.

  • TR421 25 Feb 2007 13:59:12 380 posts
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    Isn't 5x salary for those in "stable" jobs ie. 6 figure salaries to begin with.

    Personally I'm waiting for the market to crash or at least level out. It seems almost impossible for first time buyers at the moment.
  • deem 25 Feb 2007 14:30:09 31,641 posts
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    Post deleted
  • MetalDog 25 Feb 2007 14:33:51 23,708 posts
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    deem wrote:
    MetalDog wrote:
    Five times my salary wouldn't buy me a shoebox under a bridge at current house prices. How can anyone afford this shit?

    There is plenty of cheap housing in London, you just need to look in the right places.

    Even 2 bed flats for 130k aren't that unusual. Especially if you don't mind ex local authority.


    5x my salary is /significantly/ below 130k

    -- boobs do nothing for me, I want moustaches and chest hair.

  • Merlinho 25 Feb 2007 14:34:57 5,909 posts
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    But 5x you and someone else's salary wouldn't be.

    /needs to find a woman just to afford moving out.
  • Nick Staff 25 Feb 2007 14:35:34 618 posts
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    Now I didn't do well in GCSE Economics but isn't the situation at the moment that the base rate is rather high to try and keep a lid on inflation and that you might predict it will go down in the mid-term i.e. change of government etc.?
  • Lutz 25 Feb 2007 15:15:56 48,854 posts
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    IIRC the base rate is quite low ATM, so any lowering of it is unlikly.

    The way I see it is this: If you can afford the fixed rate at the moment then go for it. If the rate goes up, you're covered. If it goes down you do lose out, but at least you can still afford it. Whereas if you get a variable, and the rate goes up too high, then you *may* be knackered. Also many bank are twats for not lowering their variable rate mortgage rates when the BoE reduces theirs.

    However IMO the most important thing is making sure the captial is being paid. Unless they interest rates go *loopy* then even with a variable you'll be OK, but if you're only paying off interest you're getting no where with having a mortgage. I know of people who've got interest repayment only mortgages, not know what they're doing, and they still owe the bank the same now as they did a year ago. They only pick them cos they look cheaper.

    And make sure you shop around, and don't hesitate to jump ship when your mortgage period is up (usually after 2 or 3 years) Loyalty in the mortgage market will usually get you no where.
  • FairgroundTown 25 Feb 2007 15:22:54 2,522 posts
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    One other option is a "combined" current account and mortgage. Although they only make financial sense if you have a lot of savings (the rate is always higher than a non-combined account) the other advantage is that you are not committed to paying x per-month, so if the rate goes up, you can keep paying the same... although obviously you pay for this too over the long term, as you'd still be charged the higher interest rate, and you'd end up paying back for longer.
  • TR421 25 Feb 2007 15:24:50 380 posts
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    Merlinho wrote:
    But 5x you and someone else's salary wouldn't be.

    /needs to find a woman just to afford moving out.

    The average salary in the UK is around 23k last time I checked and you wont qualify for 5x with that income.

    First time buyers will be on less than that generally as well having just started work (graduates get around 18-21k as far as I can tell).

    Even with a partner you wont get 5x the combined income. It's normally about 3x you own salary and 1.5x the partners salary.
  • Lutz 25 Feb 2007 15:29:15 48,854 posts
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    TR421 wrote:
    The average salary in the UK is around 23k last time I checked and you wont qualify for 5x with that income.
    Yes, but the average household income is only 14k.
    Even with a partner you wont get 5x the combined income. It's normally about 3x you own salary and 1.5x the partners salary.
    Yep, which is why the Mrs and I can't afford jack ATM. Our best mortgage is around the 85k mark, a clear 20k short of a basic house in this area. And I live in the shit part of my area.
  • Trowel 25 Feb 2007 15:38:49 17,459 posts
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    General consensus is that interest rates have more room to rise, primarily because inflation is currently well ahead of the government target (2.7%, with a target of 2%), which isn't good news with an election coming up in the next couple of years.

    Tellingly the vote to keep interest rates on hold at the February was 7-2 in favour, suggesting that some of the board think they should be raised sooner rather than later. I'd expect rates to hit 6% by the end of 2007.

    You should be looking for a fixed rate mortgage as there's no chance of interest rates falling. However it's vital that you know the term of the fixed period, as you'll usually get switched to a standard tracking rate afterwards which will generally shaft you compared to whatever the leading deals at the time can offer.

    An excellent way to educate yourself on mortgages - and finance in general - is to pick up a coursebook for one of the financial certificate exams, particially the Certificate in Financial Planning. Very straightforward stuff and can hopefully save/make you some cash.
  • doctor_nick 23 Mar 2012 15:48:03 172 posts
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    We want to reduce our monthly payments and our mortgage company seems pretty happy about us extending the length of our term (we took out a 25 year mortgage 4 years ago, and apparently we can extend it up to 40 years in total). If we extend to the max term we'll take over 200/month off our payments!

    Is there any obvious downside to doing this? They said there's no restriction on us switching back to a shorter term if we want in the future, and either way we're bound to change products in the next few years.

    Seems suspiciously too good to be true to my paranoid mind.
  • mrpon 23 Mar 2012 15:51:47 28,486 posts
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    You pay more interest.

    Give yourself 5 or gig, you're worth it.

  • Popzeus 23 Mar 2012 15:55:02 8,272 posts
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    Yes, as pon says your monthly payments will be less but over the full term you'll end up paying quite a lot more overall. It's a bit like paying off the minimum payments on a credit card each month vs paying off as much as you can afford.

    Currently playing: Standing In A Car Park Simulator 2013

  • doctor_nick 23 Mar 2012 15:59:47 172 posts
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    Yeah, just realised that. I'm not so worried about the overall cost (since we'll change products at some point) but paying off less of the capital each month isn't great.

    I'm beginning to see why mortgage means 'death pledge' :-(
  • TheSaint 23 Mar 2012 16:03:02 14,201 posts
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    Assume you had a 200,000 mortgage over twenty five years (at 6%). If your interest rate remained the same for the duration you would pay about 1200 a month and pay back about 380,000.

    Now extend that same mortgage to 40 years, you would only pay 1100 a month but the total cost of the mortgage would be over 520,000.

    Quite a huge difference for very little monthly saving.

    Edited by TheSaint at 16:03:52 23-03-2012
  • LeoliansBro 23 Mar 2012 16:28:46 43,246 posts
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    High inflation and lower interest, I'd advise you do it. You can always restructure later.

    (Caveat: this advice was brought to you by the man who gave you the global economic crisis)

    LB, you really are a massive geek.

  • disusedgenius 23 Mar 2012 16:36:21 5,225 posts
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    As this topic has come up... What do people thing of these part buy/part rent deals going on at the moment? Something about the concept seems... messy to me.
  • SuperCoolEskimo 23 Mar 2012 16:36:45 9,725 posts
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    What age will the 40 year term take you to?

    If you leave a large-ish debt outstanding into your 60's/70's you may find it hard to move the mortgage to different products/lenders due to your age. Might be a while away yet but still something to bear in mind.
  • TheSaint 23 Mar 2012 16:36:53 14,201 posts
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    Wouldn't the low interest rates make it better to overpay if anything?
  • LeoliansBro 23 Mar 2012 16:43:43 43,246 posts
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    Part rent is great at the moment, you essentially freeze a part of your outgoings but there is a danger that you can find yourself tied to a house with a landlord able to charge whatever he pleases.

    Lose the flexibility which keeps landlords honest, lose the security of fixed and diminishing costs. But it can work in some situations.

    LB, you really are a massive geek.

  • doctor_nick 23 Mar 2012 16:43:44 172 posts
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    @SuperCoolEskimo
    A 40 year term would take me to...old age. Seems to depend on lender but your term needs to end before you're 70-75 and extending to 40 years is too close for comfort.

    I'd much rather stick with the 21 years we have left *and* overpay to the max each month, but our cash flow just ain't up to that right now (since taking the mortgage out I've changed jobs to a bit less pay, we've had a kid, my wife's old job no longer exists and she's not working right now).

    Edited by doctor_nick at 16:44:24 23-03-2012
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