Do mortgage repayments usually go up or down?

IamtheWalrus

I am researching mortgages with a view to buying a flat in London.

I'm told, for argument's sake, my monthly repayments will be 1000, fixed for 2 years. I know I can afford this for 2 years, but not much more.

My fear is that after the 2 years, my repayments will be even more. I've been told that, discounting interest rate rises, that I could find a second 2-year fixed product at less than 1k per month because in 2 years time I'll have paid off some interest and my flat may have increased in value (smaller LTV). This will mean repayments are likely to be less.

My broker said I could increase my term from 25 to 30 years. Is this silly considering I'll be paying much more?

Is this true? I don't want to sign up to an affordable 2 year fixed now if I know that the following 2 year fixed will be more expensive.

Gumbo

Depends if you get a fixed or variable rate. I currently have a 7 year fixed rate in a property here in ireland.

IamtheWalrus

kceire wrote: »

Depends if you get a fixed or variable rate. I currently have a 7 year fixed rate in a property here in ireland.

Fixed. After the first fixed ends, is it the norm to be able to get a new fixed that's greater or less than the previous monthly repayment.

johnnyskeleton

IamtheWalrus wrote: »

Fixed. After the first fixed ends, is it the norm to be able to get a new fixed that's greater or less than the previous monthly repayment.

It depends on the UK banks really. In Ireland id say the fixed rates might not be as good for existing customers as the teaser new business rates. Probably the same in the UK.

In any event, having paid interest for 2 years will not make any difference. If youve paid off some of the principle and the property goes up in value then you may be able to remortgage on a lower ltv deal with your own bank or another, although there may be conveyancing/valuation fees if you switch banks.

My advice is that unless you can comfortably afford the repayments its a risk so be careful. On the other hand, id be amazed if the bank would offer you a loan if a small interest rate increase is unaffordable to you.

davo10

Banks will usually do a stress test of +1% when offering a mortgage to see if you can cope with an increase in rate/repayments. If you cannot afford anything above the current rate, don't take out a mortgage. Interest rates, though variable are higher here than in other countries, are low. They may stay this way for a while until the ECB/BOE rates begin to rise, so OP the likelihood is that in the years to come both variable and fixed rates will increase. Also, don't assume the rise in value of the property will coincide with your application for a new fixed term, prices may stagnate or even go down especially in the UK where they are at the top of a bubble and rates are at 0%.

Sono

kceire wrote: »

Depends if you get a fixed or variable rate. I currently have a 7 year fixed rate in a property here in ireland.

Hell of a long time to fix for, max I would do would be 3, the market can change so much in a 7 year period and usually does.

Do you regret signing up to these terms?

athtrasna

OP are you talking about dealing with an Irish Bank or UK bank? This is an Irish site so you may not get accurate information if a UK transaction

IamtheWalrus

athtrasna wrote: »

OP are you talking about dealing with an Irish Bank or UK bank? This is an Irish site so you may not get accurate information if a UK transaction

UK bank but I'm guessing the rules are roughly similar with respect to LTV, etc.

Regarding the stress test, I am a contractor so must go through a broker. The broker tells me that the banks take my day rate, convert it to a permanent salary equivalent, and stress test on that.

The issue here is, that my converted permanent salary is pretty high and I'd be easily be able to make the monthly repayments. The problem is I'd be taking a fair bit of money from my business per month and with contracting, there is the risk that one can be out of work for a while.

Victor

Interest rates are at historic lows. Realistically speaking, they can only go up.

You will pay off very little in the first two years and you can't rely on a capital gain in that time. Price might even fall.

So, you need to balance the importance of a fixed price with the price being offered.

ED E

IamtheWalrus wrote: »

I'm told, for argument's sake, my monthly repayments will be 1000, fixed for 2 years. I know I can afford this for 2 years, but not much more.

Sounds like you cant afford the mortgage you're looking at. Think smaller or wait.

Gumbo

Sono wrote: »

Hell of a long time to fix for, max I would do would be 3, the market can change so much in a 7 year period and usually does.

Do you regret signing up to these terms?

No, not at all. It's an investment property in a very rentable area and bought at under half the boom price so not sorry at all to be honest. My other is a tracker with BOSI and there's not a lot of difference all been said.

IamtheWalrus

The property is a 2 bed that I hope to rent out to a student (it's in a student area). I was hoping the student would stay 9 months of the year to help out with the repayments. I'm currently single and was thinking that in time, I would be living with someone to ease the mortgage burden.

If I buy a 1 bed now, and I outgrow it, then my fear is that as the time has passed, I'll be frozen out of being able to afford a 2 bed. If I buy it now, make it happen, then I'll have a 2 bed as opposed to a 1 bed.

What do you think of that idea.

goldenhoarde

IamtheWalrus wrote: »

The property is a 2 bed that I hope to rent out to a student (it's in a student area). I was hoping the student would stay 9 months of the year to help out with the repayments. I'm currently single and was thinking that in time, I would be living with someone to ease the mortgage burden.

If I buy a 1 bed now, and I outgrow it, then my fear is that as the time has passed, I'll be frozen out of being able to afford a 2 bed. If I buy it now, make it happen, then I'll have a 2 bed as opposed to a 1 bed.

What do you think of that idea.

Have a play here with this and this will tell you what an %rate increase will be monthly.

https://www.drcalculator.com/mortgage/uk/

on a 250,00 @2% over 25 years its 1,060 a month
on a 250,00 @3% over 25 years its 1,185 a month
on a 250,00 @4% over 25 years its 1,319 a month
on a 250,00 @5% over 25 years its 1,461 a month
on a 250,00 @6% over 25 years its 1,610 a month

Roughly 125 per 1% rise!




As rates are at the lowest ever! it's going to start going up at some point

so best to start with the figures from the broker and then start upping the interest rate and see then the affordability for you.

Can you afford the initial repayment without a lodger or is having a lodger the only way you can see that you can afford it.

Also council tax etc have you factored those in. The mortgage repayment alas is only one payment out of many these days for homeowners both here and in the UK!

IamtheWalrus

goldenhoarde wrote: »

Have a play here with this and this will tell you what an %rate increase will be monthly.

https://www.drcalculator.com/mortgage/uk/

on a 250,00 @2% over 25 years its 1,060 a month
on a 250,00 @3% over 25 years its 1,185 a month
on a 250,00 @4% over 25 years its 1,319 a month
on a 250,00 @5% over 25 years its 1,461 a month
on a 250,00 @6% over 25 years its 1,610 a month

Roughly 125 per 1% rise!




As rates are at the lowest ever! it's going to start going up at some point

so best to start with the figures from the broker and then start upping the interest rate and see then the affordability for you.

Can you afford the initial repayment without a lodger or is having a lodger the only way you can see that you can afford it.

Also council tax etc have you factored those in. The mortgage repayment alas is only one payment out of many these days for homeowners both here and in the UK!

I can afford it without a lodger because, as a contractor, I can take money out of my business at any time (I must pay extra tax though) so I'm covered that way. I think I'm just trying to figure out if my 2 bed is worth the money, not if I can afford it. Right now, with the figures I have, I think it is, but if the repayments start rising a lot, then the purchase then seems less attractive.

I suppose what I'm trying to gauge is, does home-buying get more expensive as years go on. I'm a first time buyer. I am researching buying but it;s only until I've actually done it will I know for sure exactly what it will cost.

goldenhoarde

IamtheWalrus wrote: »

I can afford it without a lodger because, as a contractor, I can take money out of my business at any time (I must pay extra tax though) so I'm covered that way. I think I'm just trying to figure out if my 2 bed is worth the money, not if I can afford it. Right now, with the figures I have, I think it is, but if the repayments start rising a lot, then the purchase then seems less attractive.

I suppose what I'm trying to gauge is, does home-buying get more expensive as years go on. I'm a first time buyer. I am researching buying but it;s only until I've actually done it will I know for sure exactly what it will cost.

Good The best thing then is to do a good evaluation of the area - schools (maybe not for you but for potential renters in the future!) transport facilities etc as well as checking out the avg rent for the area as if you do find someone at some point this may become a renter property for you or if you start a family it may be too small!


If the max rent attainable is less than the mortgage payment (stress test the repayment by at least 2/3% over the initial rate) you would have to fund the difference at that time. I know you mentioned student area but is it also an area that would appeal to professionals so is it close to underground, rail or bus?

IamtheWalrus

goldenhoarde wrote: »

I know you mentioned student area but is it also an area that would appeal to professionals so is it close to underground, rail or bus?

Yes, it's relatively central with walking distance to 2 train stations and 3 minutes from the underground. It's also an area with good social life, bars, cafes, etc.

davo10

kceire wrote: »

No, not at all. It's an investment property in a very rentable area and bought at under half the boom price so not sorry at all to be honest. My other is a tracker with BOSI and there's not a lot of difference all been said.

That is really strange. Your tracker is at a historic low, it should be far below the current variable rate and fixed term rates are nearly always higher than variable. Who is your fixed with? I'd be really interested in a fixed that compares favourably with a tracker at the current ECB rate.

The problem with long term fixed (apart from variable rates dropping) is that there are huge early exit penalties if you sell before the fixed term.

goldenhoarde

IamtheWalrus wrote: »

Yes, it's relatively central with walking distance to 2 train stations and 3 minutes from the underground. It's also an area with good social life, bars, cafes, etc.

All good selling/renting points. As long as you stress test the repayments versus the rental potential and feel that it will not cost you or hinder any future mortgages, your rent will be paying into an asset that you will eventually own rather than some Landlords pocket:)

A lodger will reduce the burden further but I would put the first 2 years rent from any lodger into a "Rainy Day" fund. This would be for times you have no lodger/repairs and maintenance.

PS decorate the place with an eye to what appeals to the masses and don't spend fortunes on stuff that one day you be complaining "the tenants don't look after MY stuff". Yes your tastes may not transfer readily to a rental only property

IamtheWalrus

goldenhoarde wrote: »

A lodger will reduce the burden further but I would put the first 2 years rent from any lodger into a "Rainy Day" fund. This would be for times you have no lodger/repairs and maintenance.

That's a good idea.

jester77

I would fix for as long as possible. You can get 20+ years fixed here in Germany for under 2%, I would imagine the UK is also fairly competitive. Rates are not going to go down much more, so it's a good time to fix as long as possible.

jimmycrackcorm

IamtheWalrus wrote:

My broker said I could increase my term from 25 to 30 years. Is this silly considering I'll be paying much more?

Increase your term. In the coming years should you improve your income or settle down then overpay it to bring it back in line.

if you are at your limit after two years then it just doesn't bode well.

IamtheWalrus

jimmycrackcorm wrote: »

if you are at your limit after two years then it just doesn't bode well.

So costs increase as opposed to decrease over time?

davo10

IamtheWalrus wrote: »

So costs increase as opposed to decrease over time?

Op. Do not buy until you have time to do more research and a get a better understanding of how this works.

The ECB cut its lending rate to 0% yesterday, never in your lifetime will interest rates be as low. If you buy now, the only way interest rates will go is up. The higher the variable rate goes, the more you have to pay in mortgage repayments each month.

IamtheWalrus

davo10 wrote: »

Op. Do not buy until you have time to do more research and a get a better understanding of how this works.

The ECB cut its lending rate to 0% yesterday, never in your lifetime will interest rates be as low. If you buy now, the only way interest rates will go is up. The higher the variable rate goes, the more you have to pay in mortgage repayments each month.

I understand that, I have done research. I had hoped that even when rates increase, that following the initial 2 years, that the LTV would be lower (and get lower with every new fixed term period) meaning it would if not cancel out, then at least lessen the blow of interest rate rises.

Iago

Interest rates are at historical and unsustainable lows imo. I think you should be looking for a mortgage where if the interest was 6%+ you could continue paying it comfortably. You need to look at it over the very long term rather than just the initial 2 year fixed period.

If in 2 years it drops or stays the same then you'll have extra money to put towards it, however if it increases then at least you'll know you can cover it.

In general though I would expect rates to rise over the next 5-10 years, not go down.

The only way is up.

However Central Banks realise that a substantial increase in interest rates feeding through to mortgage payments would cause a major recession so they will do their utmost to keep rates low for the foreseeable future (whether they succeed is another matter). By the way Ireland and the UK are much more exposed to rate rises as variable mortgages are used much less in other juristictions.

jester77

jester77 wrote: »

I would fix for as long as possible. You can get 20+ years fixed here in Germany for under 2%, I would imagine the UK is also fairly competitive. Rates are not going to go down much more, so it's a good time to fix as long as possible.

What if you want to overpay or clear the mortgage early you are going to be hit with fees if they even allow you to overpay which many fixed rate mortgages don't allow.

I couldn't see myself going for anything but variable personally, it's far more flexible. You can set the term at the max but repay as though you have a shorter term safe in the knowledge that if your circumstance change you can drop back to the minimum repayment.

riclad

MY friend borrowed 80k, in 2004,
after 10 years , the payments are basically the same,
the yearly statement show,s the capital owed is going down,
from 80-70-60k and so on.
After 9 years the capital owed amount started to decrease .

your monthly payment is in theory interest paid and x amount of the loan
repaid , capital owed payment .
Loan is standard variable rate ,
i don,t think the interest rates have changed much since 2004 .
What you can do is pay an extra 100-200 euro per month on top of the
Basic payment if you want to pay off the loan early .
Since loans are 25 years plus ,
you may reduce the period of payment by a few years .
IF you can afford it .
My friend got 2 loans in 2005,
so she will be aged 62 0r 67 when the 2 loans are paid off .
One loan is a btl mortgage .
I do,nt know if the loans are 25 or 30 years long.
Paying off the loan early saves you money,
reduces the total interest payments paid on the loan .

uberwolf

IamtheWalrus wrote: »

I am researching mortgages with a view to buying a flat in London.

I'm told, for argument's sake, my monthly repayments will be 1000, fixed for 2 years. I know I can afford this for 2 years, but not much more.

My fear is that after the 2 years, my repayments will be even more. I've been told that, discounting interest rate rises, that I could find a second 2-year fixed product at less than 1k per month because in 2 years time I'll have paid off some interest and my flat may have increased in value (smaller LTV). This will mean repayments are likely to be less.

My broker said I could increase my term from 25 to 30 years. Is this silly considering I'll be paying much more?

Is this true? I don't want to sign up to an affordable 2 year fixed now if I know that the following 2 year fixed will be more expensive.

a few thoughts.

Banks, in the UK in particular, are offering teaser rates on their mortgages. Fixed or variable there is hike at the end of the teaser. In the normal course you'd be looking around to refinance.

Which is fine if you've been paying C&I and the current level of capital appreciation continues. This (IMO!!) is a huge if. London property by any normal measure is experiencing a bubble at present. So you'd find yourself with an increased interest rate and a depreciated property if things turn against you.

The_Conductor

London prices are acknowledged by most contemporary economists, to be firmly in bubble territory. It would be foolish and imprudent to factor any price rises into an expectation of a better LTV opening up further fixed rate products for you down the road (on favourable terms)- you could in all actuality find that you're in negative equity in less than 2 years.

Further- if you're finding the going tight now- are going to very little principle paid down in 2 years, are in a climate where interest rates can only go in one direction- and are looking at very possible capital losses on the purchase- you really have to ask yourself whether purchasing is a good idea at all.

As-is- from the little you've told us- if you're not in a position to pay a higher mortgage interest rate in 2 years time- you're going to be looking at selling- which may be difficult to do at a reasonable price (time will tell).

You just don't have any leeway built into your equation- if you said you'd stress-tested your repayments factoring in at very least a normalisation of interest rates (aka wholesale rates of 4.5-5%) and could make it work if you ended up in that situation- then, it would be entirely a different situation- but expecting to lock-in historically low rates down the road- when you've Brexit and god only knows what else happening in the UK economy- would, in my humble opinion, be foolhardy in the extreme.

jester77

Joyce Skinny Catfish wrote: »

What if you want to overpay or clear the mortgage early you are going to be hit with fees if they even allow you to overpay which many fixed rate mortgages don't allow.

I couldn't see myself going for anything but variable personally, it's far more flexible. You can set the term at the max but repay as though you have a shorter term safe in the knowledge that if your circumstance change you can drop back to the minimum repayment.

Up to you what terms you want to negotiate, I settled with paying off up to 15% of mine every year without any penalties.

I have the first 100k at 1% and the rest at 2% fixed for 20 years, I can negotiate between years 11 and 20 if I want to extend the fixed term or pay it off.

riclad

You have to think interest rates could go up by 1 or 2 per cent in the future ,
IF you can afford to pay off a loan even 5 years early you can save alot of money,
on the total amount you pay back on the mortgage .
Most people are on standard variable rate mortgage,s .

The_Conductor

riclad wrote: »

You have to think interest rates could go up by 1 or 2 per cent in the future ,
IF you can afford to pay off a loan even 5 years early you can save alot of money,
on the total amount you pay back on the mortgage .
Most people are on standard variable rate mortgage,s .

1 or 2% ????
Normalisation would be a 4.5-5% increase in base rates.
The current interest rates are an abnormality- they may be around for a while- but with the ECB printing 80 billion a month, and a statement that there will be no further cuts in rates- don't count on it.

riclad

ON a standard variable rates your payments stay the same ,
unless interest rates go up or down,
obviously in 5 years at some point interest rates will rise .
ITS better to assume your payments will go up at some point,
maybe save money as an emergency fund .or else try and pay off the loan early if you can afford it .
People i know for the Last 10 years have not seen much change in the monthy loan payment .

IamtheWalrus

As the London prices are very high, even for 1 beds, I'm considering buying a place in Dublin to rent out (so that I could move into if/when i move back there).

Most good condition 1 beds in London cost £400-475k.

What could I get in Dublin for that price?

sKeith

http://www.myhome.ie/residential/dublin/property-for-sale?minprice=500000&maxprice=600000

Dodge

riclad wrote: »

i don,t think the interest rates have changed much since 2004 .
.

yes they have. My mortgage is lower now than when we were on a special introductory rate at the start in 2003. It is currently at about 55% of what it was in 2008.

so while we're close to what we started with, it did increase significantly in between.

There is literally no way it can get lower for us

IamtheWalrus

I've been told that for me to buy a property in Ireland with an Irish mortgage provider, I'd need to get a 'non-resident mortgage', have a deposit of 65% with a buy-to-let rate of 5%+.

I think that rules me out of that endeavor.