Fix mortgage for 2 or 5 years?(23 Posts)
Just about to buy our first home - £285k with a 25% deposit - and can't decide whether to fix for 2 years or 5 years.
2 year deal is 3.59% with monthly payments of £975
5 year deal is 4.29% with monthly payments of £1061
We can afford both and was budgeting to make overpayments to take us to £1100 total pm. We plan to stay in this house for 10ish years. We will be thinking about a second baby in the next year or so. My salary is slightly higher than DH's who is self-employed, but obviously will dip if/when I go on maternity leave again.
So I was thinking that although higher, we'd be better to fix for 5 years so we know what we're committing to for all of that time, and if interest rates go high or the market crashes we won't have a problem remortgaging (as well as the cost to do so) in 2 years time. But our overpayments will obviously be smaller and there's always the poss that we'll find ourselves locked in to a 4+% which will suck if interest rates go down.
Basically - I'm looking for someone to predict the future and tell me a) what interest rates will do and b) what my local housing market will do!
What would you do in our position?
Have you used a mortgage advisor? I think I would go for 2 years as your overpayments will make a bigger difference. Then you can look for another deal after that.
Are you getting a 30 year mortgage? If you can afford to overpay why not get a 25?
I would be tempted to go with the 2 yr and over pay as much as possible. You can always re fix at the 2 yr point. We are doing this because there were no 4 yr rates that we liked and we will have a large lump sum to repy off of the mortgage in that time and didn't want any penalties.
Have you used a comparison site at all? Those rates seem high especially the product fee! I just completed on my house and as I am an existing Nationwide customer I went directly through them as they offered the best mortgage for me.
Initially I was all about fixed rates but I have a keen interest in what is going on in the financial world and predictions are the base rate may not move until 2016 ( reported in many reputable newspapers some time ago). But don't take that as a given it can go up any time but I decided to take the risk because Nationwide offer existing customers the following: 5 year tracker mortgage at 3.49% with £99 product fee. Benefits include:
1) No early repayment charge - I can pay extra money in each month as much as I can whether it be £100 or £1000
2) If the base rate goes up and I find a better deal elsewhere I can leave without having to pay any exit fees (you have 30 day warning period from the date the base rate changes are announced before it kicks in)
3) Standard conveyancing fees and standard valuation paid for (I paid £200 more to upgrade to the homebuyer report) <<< this alone saved alot of money on fees in total I paid approx £750 - most of it made up of search fees, land registry fees etc)
4) A very low product fee = more money for furniture!
If you are not a nationwide customer you can move over otherwise they offer fixed rate mortgages with better rates and lower product fees than what you have stated.
Lol I sound like a nationwide salesperson - o dear.
I would always fix for the longest period possible. I don't like unknowns, so by fixing you have 5 years where you know exactly where you stand.
We're using my salary only (as DH is self-employed with less than 1 year of accounts - so Nationwide won't touch us, even though we bank with them)... and I'm currently on maternity leave, so our options are pretty limited. Halifax seems to be the way forward.
My fear of fixing for 2 years is - if rates go up, our monthly payments might be too high; we're hoping for another baby within the next 2 years, so if relying on my salary only still we could come a cropper in terms of being on SMP; and,if house prices go down we'll be in negative equity. Not forgetting the cost of remortgaging in terms of solicitor/product fees etc
I know this could apply in 5 years too, but I'd hope for salary increases in that time would make it easier to deal with and we could still afford some overpayments with the higher monthly payments (we're hoping to save at least £1000 between us per month next year, so I need to look into whether it's best to overpay on the mortgage or stick that in savings elsewhere... I know Halifax will let us overpay up to 10% of the outstanding balance annually).
We've always fixed, and it's cost us a fortune over the past few years. Sorry - that doesn't help much!
My financial adviser told me always to go for the cheapest deal because nobody could predict what was going to happen in the future. Brilliant advice that has saved me thousands over the years - and made me choose a tracker over a fixed rate just as the interest rate started to come down. So on that basis, I would choose the 2-year.
The general feeling is that rates are going to stay low for a few years anyway - things may change of course but I would also take that into account and assume there may be some good deals around in two years.
I've just been offered 3.75% fixed for two years on a BTL so the rates you are being offered definitely seem toppy.
We fixed for 5 years last year for a few reasons
a) the security
b) the rates that were available to us as first time buyers with a reasonable but not huge deposit meant that we only needed base rates to rise 0.5% before we'd be over our fixed percentage
c) Our mortgage is relatively small so repeat product fees would wipe out any of the savings if we wanted to fix again after a 2 year fix
The only people who told us we were crazy to fix were people who are on trackers that are 0.25% above base or similar, they didn't get the concept that those sorts of rates just aren't available to first time buyers.
OMG I am so glad that you posted this, I could of written it myself! I have been mulling this over all day - still haven't made a firm decision.
We are also first time buyers. Our choice of rates sound pretty similar to yours. We are in our 30's and also hoping to start a family in the very near future. I too am the highest earner, although not by masses.
I am leaning towards fixing for longer - I think!
Personally, as we only have a relatively small deposit, i'm worried that if we only fix for two years and then house prices take another massive drop we might end up in a worse person when we come to re-mortgage in two years time. I think if that happened and we had also got another mouth to feed, me earning less etc that would be FAR worse - for us. I've never really been one to take a risk though.
Gah! I just don't know. Seems like opinion is pretty split too.
A crystal ball would be kinda helpful round about now!
I take it these are repayment mortgages
NB Uk house prices have about another 20% to fall in real terms.
If you were not planning on a second I would say 2 years however, as you are then it's a no brainer 5 years so you can do a financial plan for your maternity leave and then recover your wages enough for when a rate change comes round again.
Has to be a longer-term fix - when you take into account that the best five-year fixed rates are very close to trackers anyway (as the banks are factoring in low base rates for this period) e.g. I think YBS is offering a 5 yr fix at around 3.09%. Plus the fees are stretched over five years as opposed to paying them again in 2 or 3 years.
Importantly, a longer-term fix will also give you some protection against further falls in property values; you'll have more chance to increase your equity, so lessening your chances of not being able to remortgage and at the mercy of your lender's SVR when its time to remortgage. And a number of lenders have increased their SVRs already this year (basically because they can).
Personally, I believe that base rates will stay low long-term - frankly the country is in such a mess economically that they will have to be kept low - although I would still go for a long-term fix for the reasons above.
With regards to house prices in general I'm very bearish - prices are falling in much of the country even with countless government/BofE props e.g. low base rates, QE, funding for lending, stamp duty holidays, lender forebearance, SMI etc. The point is, these are all artificial and temporary props which at some point will be withdrawn, and until then we have a housing market kept at artificial levels. And even prime London which has been a bubble unto itself is starting to look very toppy. As for your local area, you need to DYOR, using sites such as the land registry, property bee etc. and really just get a 'feel' for what's happening (ignoring those with obviously vested interests e.g. EAs).
We fixed and regretted it. We are also in a situation that we can regularly overpay. We broke our fixed rate to a lifetime tracker that allows for any amount of over payment. But it's a risk whether you are willing to take it. My thought is, if rates are going up, I'll be able to fix with a much smaller mortgage because of the low rate + overpayment I can do in the mean time.
TalkinPeace2 it might have another 20% to fall. But we bought in 2009, and when remortgaging in 2012, the surveyors valued our house higher than we bought. It went from £190k to £225k, which my napkin maths says 18%. And the remortgage is with first direct, who is known to be very prudent. It might not fall, or it might, just like the interest rate.
Oh you are talking in real terms, obviously inflation was very high in the last few years. But I can at least be happy in the fact that I have a place I can call my own, which I felt important with a child. I was paying the same mortgage as I did rent in 2009, but for a 3 bed house instead of a 2 bed flat.
I fixed for 5 years in 2009 and regretted as my rate is 4.79% and I am definitely worse off at the moment, however as I am the main earner and we planned the 2nd baby at the time, we could not risk not affording remortgage (with all the childcare costs). OP I would go with longer term if you planning a baby. If not, then short term fix.
We fixed for five years in 2008. Imo you do not pick a fixed rate to save money. The banks etc are generally better at guessing which way the market is going than you are and they will 'fix' at a level which supports their business not your pocket. However fixed rates give you peace of mind. If you have ample spare cash then go for it and chase the cheapest rates. Most people having dcs and paying childcare etc don't have that and a fixed rate is a gift for that scenario. I'm not sure what we'll do in May next year when ours runs out. Dd3 is at school now so we have practically no childcare to pay.
We have just got ourselves our first mortgage and we got a hybrid from woolwich. It means a tracker for the first two years and then fixed for another three. Cannot remember the exact rates but they are probably still offering it. We felt that over the next two years interest rates are probably staying low but wanted to ensure to have a decent rate for afterwards.
If you will be in a position to overpay, have you considered a fixed rate offset? (can get them for 2, 3 or 5 years) Gives you flexibility with your spare cash, and it chips away at the interest you'll be paying.
JUST MAKE SURE THAT YOU ARE ON A REPAYMENT MORTGAGE
or at least have a repayment vehicle - a proper one, not like the shitty endowments we were sold in the 1990's or the even stupider "nothing at all" of the 2000's
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