Mortgage clinic
“We’re due to come off our low fixed rate. What will our repayments be if we take some equity out of our home?”
Zoe Watson and Maxwell Broughton, both 41, live with their two children in a four-bedroom Victorian terrace in Walthamstow, which they bought in 2018 for £540,000. Since then, they’ve had a low fixed-rate mortgage rate of 2.74 per cent but that’s set to expire this month.
“We recently got a letter from the bank saying that if you don’t do anything, your rate will go up to 7.7 per cent or 8 per cent, which is not a fun number,” says Watson. Broughton works as a motion graphic designer for a content agency and Watson has just launched social enterprise wellbeing platform, Wellgood Wellbeing, which she is doing alongside being a self-employed GP, so her income is variable. “I was previously the breadwinner, but I started my business in October and I’ve had to reduce my hours as a GP to focus on that so I’m earning less at the moment. Maxwell is earning more, so it’s evened out a bit.”
It’s likely the family will be leaving London and moving to Edinburgh in the next couple of years and they’d like to use some of the equity in the house, which they estimate to be worth £750,000, to renovate their home before they sell. “We want to get rid of the pebbledash and do up the front. We think that will come to
THE DETAILS
• Bought house in 2018 for £540,000
• Current fixed rate ending in May: 2.74%
• Monthly repayments (including capital repayment): £1,782
• Balance remaining: £447,000 £40,000 and we want to take this out of the property,” says Watson. The couple would like to know what their mortgage repayments are likely to be when they come off their fixed rate and if they take out this extra equity.
THE ADVICE
Matt Marsh, founder of RBM Solutions and ROK Marsh, says:
First off, Zoe and Maxwell should see if their present lender will offer them a new product that isn’t just a 7.7 to 8 per cent rate, their standard variable rate. Typically, this does not require any additional checks, with no verification of income or assessment, but would potentially prohibit the extra lending they’re looking for. They should then compare this with a whole-of-market broker, who can assess their income, taking into account Zoe’s GP hours, as well as Maxwell’s income. Zoe can submit a tax return personally for the April
2022 to April 2023 tax year period. While this won’t show a full year’s income, it will show what she’s earned since October, which can help as some lenders will boost the amount they’d lend. Once they know what they can borrow, they can assess if it’s viable for them to leave their present lender.
I would typically recommend a two-year fixed rate for stability for those two years, leaving them free to sell without penalty. That way, when they look to purchase their new property in Edinburgh, they have a fresh perspective and know lenders who will lend in Scotland (as not all do) as well as having more accounts behind them from Zoe’s new venture. On the basis of this information, a new mortgage of £487,000 over 28 years on a two-year fixed rate would attract rates from 4.13 per cent, giving a payment of around £2,447 per month.
Amanda Bryden, head of Halifax Intermediaries & Scottish Widows Bank, says: Assuming the value of their home is broadly correct, Maxwell and Zoe would be remortgaging on a like-forlike lending basis at about 64 per cent loan-to-value for the remaining 30 years of the term. Given their desire to move in a few years, two- and three-year fixed-rate loans may be the right length to give them the flexibility they need. On both terms, rates are available below 5 per cent. These would see monthly payments of about £2,450 for a two-year fix, and £2,340 for a three-year term.
If they were to take some additional borrowing and increase their loan to £517,000 and keep the remaining term, they could expect their payment to be in the region of £2,650 for a two-year fixed rate, or £2,530 for three years. Personal circumstances will determine what products are available and how much lenders will offer.