First mortgage what maximum interest rate to budget for

[peterh2]

I'm looking to buy my first house with a LTV of about 80%. I currently earn ~£40kpa and was looking at (sadly very very small) properties around the £120k mark. I'm trying to work out how much I can sensibly afford to pay for a house and have been working on a worst case scenario of the interest rate on my mortgage hitting 15% and me still being able to meet the repayments reasonably comfortably.

After talking to a mortgage broker he seems to think I could afford to borrow a lot more than I expected and said realistically the total mortgage interest rate won't go above 8-9% in the next 10 years.

Is this realistic? I want to make sure I don't end up in a tricky position if the rates shoot up...

[scotal]

THe amount you can borrow will be more tied to the size of your deposit, if you have 20% on a £120k house its only 8% 16% on a £150k house. Which will change your choice of mortgage quite substantially.

Have YOU got an ida of how much you want to spend on your mortgage? What will that get you? How much could it go up from where you currently are before you were financially stretched by the monthly payment?
How is your broker backing up his 10% ceiling on Mortgage rates?

remeber any mortgage broker, me included, is to an extent selling to you. and the larger the mortgage the more commission he earns.

Edited by scotal on Wednesday 23 September 13:10

[peterh2]

I was looking at getting a mortgage of £95,000 on a £120,000 property.

Repayments of ~£1,250 a month would be reasonably comfortable.

Initially on a starting rate of 7% this would mean I'd be overpaying by IRO £500 a month (so hopefully clearing it off sooner) and I'd assumed a worst case of 15% whereby I'd just be making the normal payments.

What's the chances of rates going as high as 15%? If they're extremely unlikely to go over 10% I could save for a few more months, have a bigger deposit and get a bigger property.

Really my question is assuming I can afford a MAXIMUM monthly repayment of £1,250 what would be a sensible size mortgage?

[Soir]

I think you are being very sensible with this.

40K salary 95K mortgage is very manageable.
6% rates at the moment (25yr) is repayment of £612 - as you say you will overpay by £500 anyway

My parents always said budget in case rates double - (I don't believe they will hit 10% in years to come but you never know) on that basis 12% rates (25yr) would be around £1200-1300 a month - still very manageable on your income

go for it

[peterh2]

IL_JDM said:

Where are you getting 15% from? You can secure a 5year fixed deal for around 5.5%

As for paying off an additional £500 capital per month, you'll have to read the t&c on your mortgage, some companies only allow you to pay off £x or x% on top of their fixed monthly fee.

I'm probably going to go for a 5 year fixed deal. My concern is that should rate shoot up to >15% (or >10% if I take a larger mortgage) over the next 5 years at the end of the 5 year fix I'd struggle with the repayments. I'm just trying to do a bit of research into the probability of this happening.

[scotal]

peterh2 said:

Really my question is assuming I can afford a MAXIMUM monthly repayment of £1,250 what would be a sensible size mortgage?

Tricky one that. If you were in the position to stretch your term to 35 years then a £120k mortgage at 12% would be just under your £1250 per month.
a £100k mortgage over 35 years would be just (really just) over your £1250 budget @ 15%
At 10% (again with a 35 year term) then you could go to £145k without busting your budget.

The liklihood of that happening? Today I think its unlikely, but who knows what will happen over the next 5 years.
(Not financial advice.)

[Soovy]

If your broker can project 10 years ahead then he can have a job with me.

[scotal]

Soovy said:

If your broker can project 10 years ahead then he can have a job with me.

Soov, if the guy could predict 5 years ahead with any shred of accuracy, you couldn't afford him.

[Gareth79]

You are being quite conservative, and IMO you could comfortably borrow a bit more. If it does hit 15% for any length of time there will be many more people in deep trouble far earlier than you, and hopefully keep a savings pot if it gets tight.

I have done all the same calculations recently and have borrowed £105k on £32k pa. Thankfully living with my parents for a long time enabled me to borrow 60% and able to get a decent house.

[fido]

You can't predict the future, but you can certainly plan for it. IMO 15% is a very prudent figure to use, but heck, we wouldn't be in this mess if everyone did the same .. lots of other factors like job security, inflation (would affect your disposable income) etc.

[Buzz word]

I just got my first mortgage. I'm borrowing 110k fixed for 3 years. I wanted a 5 year fixed but couldn't afford it. as the rates were significantly more. It's worth bearing in mind the LTV makes a massive differance. When I was looking if you had less than 20% to put straight in to the deposit the rates you could get were significantly worse. I guess it depends what you can afford but because I have a good LTV my morgage is costing ~550ppm. If you can I would keep the LTV as high as possible but I borrowed about 3.3 * salary no worries.

I'm completing tomorrow and a lesson I just recently learned is that furnature costs lots of money and takes ages to arrive. So when you budget for kitting it out to see how realistic your deposit is make sure you do it propperly. I just added up stuff in ikea quickly to give a budget then actually went to look at it and decided i couldnt live with it so I'm buying fewer better items to balance it out.

[bogwoppit]

I think your 15% is a bit conservative. Yes, rates have gone as high as that in the past. However, it's not at all the same situation as it was then. I would say 10% is far more than most would plan for, which sounds a weak argument but actually it's exactly the thing that prevents the rate getting so high - mortgages right now represent a much higher proportion of people's outgoings. Besides, by the time it hits that you'll be in a totally different situation. Ever plan to move? Get paid more? Get married?

Remember also that if things got bad, you would simply switch to interest-only, increase the term, etc etc. In fact, if you couldn't afford the repayments the lender is unlikely to refuse a voluntary arrangement, no matter what the rate is.

[scotal]

bogwoppit said:

Remember also that if things got bad, you would simply switch to interest-only, increase the term, etc etc. In fact, if you couldn't afford the repayments the lender is unlikely to refuse a voluntary arrangement, no matter what the rate is.

Not all lenders are allowing borrowers to switch out of repayment mortgages to I/o at the moment.
This is especially tru in high LTV cases.

Whilst most lenders will lengthen the term, they are tightening up on lending into retirement, so taking themortgage out too far might not be possible.