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Original poster

Shall I fix my mortgage for 5 years or it is worth the risk

72 replies

Thinkingswillbebetter · 19/10/2022 20:54

Hi everyone,
NC as it is about personal finance. I am seeking a second opinion and will take full responsibility on my own decision.

I recently got a deal to fix my mortgage at the rate of 4.37% for 5 years. If I don't fix, at the end of December when my fix rate expired and the variable rate kick in at 4.74%. The difference between the 5 years fix and the variable will be around £40 per month. I expect the BoE rate to go up therefore my variable will increase too, but my other friends told me that it will come down after one year or so. I am in two mind as 5 years seems too long. Not sure if I should take the hit for 12-24 month maybe at @6% and then fix at a lower rate.

Appreciate that it is a difficult question, any suggestion/second opinions are welcomed.

Thank you so much.

OP posts:
LadyApplejack · 19/10/2022 22:58

@LadyRoughDiamond who's that with please? Everything I'm seeing online is 5s and 6s, even with a good LTV.

LittleRedYoshi · 19/10/2022 22:59

In a similar situation and not yet made up our minds! Some of our current thinking, if it's any help...

While it's true that interest rates are very unlikely to return to their former levels, at the moment they're predicting that the interest rate will peak some time next year - i.e. in 2 years from now, they won't be as high as they're going to be in the interim. The rates on offer from the banks are also based on predictions and the fact that the rates for a 2 year product versus a 5 year product are so similar suggests that they agree with that outcome.

On the other hand, nobody - even the experts - has a crystal ball. A few months back, nobody could have foreseen the situation we'd be in now, otherwise rates wouldn't have rocketed the way they did.

LadyRoughDiamond · 19/10/2022 23:08

@LadyApplejack with Barclays through a broker (brokers get the best rates) - unfortunately that rate has now been withdrawn. Keep looking and have everything at the ready - we had to scrabble around to sort paperwork after getting 2 hrs notice that our rate was being pulled.

I’d also try to get something sorted by November - next BoE interest rate decision due on the 2nd and I don’t think it’s going to be pretty.

Interested in this thread?

Then you might like threads about this subject:

General money
cantba · 19/10/2022 23:10

I have just fixed at 3.69 for 5 years whilst on a lifetime tracker of 0.5 above base.

It was a very difficult decision but if rates went to 6% (which is a really normal interest rate) we would have lost our home as it would be completely unaffordable. Its put our mortgage up £500 a month as it is.

Yabado · 19/10/2022 23:12

My son got his mortgage in Sept with Barclays through a broker and it was 3.6 for a five year fix
Now the same fix is around 6 percent
Hes only borrowing 94k though so it makes it manageable for him

I’m glad that for once he listened to me
When I told him to fix for 5 years 😂

Birthdaycake25 · 19/10/2022 23:16

Ask yourself...and what if it doesn't come down after a year? What if it goes to 7% or 10%? Could you afford it then? It's unlikely but not impossible. Who knows what's going to fuel inflation next or what economical crisis there will be. If you can afford the fix now at 4/5% then do it, especially if you won't be able to afford a much higher rate in a years time. Look at the two options and see which is worse - paying a bit more by fixing now if it does comes down next year, or overpaying A LOT more next year if it DOESNT come down.
I don't think the rates will go much below 5% for a long time.

stevalnamechanger · 19/10/2022 23:19

I would fix

ManAboutTown · 19/10/2022 23:33

At 4.37% right now I would probably do it - some of the 5 year fixes are over 6%

5 year gilts are just under 4% per cent and that is risk free which is always lower than retail mortgage

Base rates are going up that's for sure - question is how far - I would insulate myself from that at the rate you've been offered.

I work in Real Estate Investment Management in case you think I don't know what I'm talking about

blueshoes · 19/10/2022 23:35

The variable is presumably a discounted rate. How long is the discounted rate for? Is it also for 5 years?

You mustn't compare just the rate, but also the arrangement fees. I have seen arrangement fees as high as 2,000 which will eat into any interest savings. Spread those fees out over the 5 years for each of the deals, add them to the monthly repayment and see whether they are still as attractive.

Personally, if the difference between fixed and variable is only 40 per month (and you have accounted for the arrangement fees), I'd be prepared to fix for the peace of mind if inflation and energy costs are so high.

I say that as someone who has always gambled for the variable and ended up quids in. But that was in a low interest climate, I knew I could re-mortgage easily (2 stable jobs) and could afford it if the rates went up unexpectedly. The good thing about variable is you can prepay any amount and redeem at any time. The fixed only allowed 10% overpayments per year and had penalties for redemption before 5 years. I factored the arrangement fees into the calculation and the hassle of re-mortgaging every 2 years on the variable.

jellydaydream · 19/10/2022 23:39

Take the 5 year fix.

AndTwoFilmsByFrancoisTruffaut · 20/10/2022 03:28

Fix. 100% fix.

Peace of mind is priceless

Allthegoodnamesarealreadytaken · 20/10/2022 03:53

welshweasel · 19/10/2022 21:20

I've remortgaged today for 5 years at 3.5%. We have to pay a 1% early repayment charge but I think it will be worth it for the peace of mind.

Where did you get this rate @welshweasel ? I’ve got a 60% ltv and am due end of next year but all I can find is around the 5% mark

remoteblanket · 20/10/2022 04:45

We’re going discounted tracker in the summer, but this all depends on your attitude to risk and how much income you have leftover, fixed rates are a costly way (unless rates are very low) to lower risk but that might be important to you. The thought of paying 6% fixed for 5 years when the interest rate falls wouldn’t give me peace of mind - it would taunt the hell out of me. From Nationwide I can get a tracker of base rate plus 0.94% which atm is 3.19% vs nearly 6% fixed. We only moved to fixed when internet rates were so low the tracker function was disabled - fixed rates at 0.95% were a no brainer. No way is 6% worth it for me.

remoteblanket · 20/10/2022 04:55

freakonomics.com/podcast/are-personal-finance-gurus-giving-you-bad-advice/
OP Listen to this podcast - you’ll find a massive dose of emotion is added into a lot of financial advice - get the facts first and then figure out your attitude to risk given your personal circumstances.

Sheenqueen · 20/10/2022 04:57

To climb out of the recession wouldn’t interest rates have to fall? So it stands to reason that interest will need to come down to push the economy out of recession.

If interest rates do not fall during the recession we would enter a deflationary period. The Bank could not sit by and let that happen.

The Bank has an incredibly tough balancing act to perform. Let’s hope the MPC are better at their jobs than the current government.

remoteblanket · 20/10/2022 05:40

Thinkingswillbebetter · 19/10/2022 20:54

Hi everyone,
NC as it is about personal finance. I am seeking a second opinion and will take full responsibility on my own decision.

I recently got a deal to fix my mortgage at the rate of 4.37% for 5 years. If I don't fix, at the end of December when my fix rate expired and the variable rate kick in at 4.74%. The difference between the 5 years fix and the variable will be around £40 per month. I expect the BoE rate to go up therefore my variable will increase too, but my other friends told me that it will come down after one year or so. I am in two mind as 5 years seems too long. Not sure if I should take the hit for 12-24 month maybe at @6% and then fix at a lower rate.

Appreciate that it is a difficult question, any suggestion/second opinions are welcomed.

Thank you so much.

Op why are you comparing Standard Variable rates to fixed rates? No one in the right mind pays Standard Variable rates - have you not looked at a discounted tracker?
And people on the internet have no idea what is affordable for you, they can only talk about themselves - get your facts straight - understand your own finances, your future plans, your contingencies and what you’d do if you couldn’t pay your mortgage. For example - we’d have sold and downsized, I could live with that option - that’s how I could get peace of mind - I didn’t need to pay extra to the Nationwide to obtain it.

MrsMinted · 20/10/2022 06:45

I would fix. It is peace of mind, gambling on the intersst rates seems like a bad idea right now unless your finances are very secure and you really wouldn’t mind being exposed to much higher rates.

Beachhutnut · 20/10/2022 06:49

We are fixing for 3.7 % for 5 years. It's a pain because massively more expensive than our current rate but everything is just so unpredictable at the moment.

Allthegoodnamesarealreadytaken · 20/10/2022 07:05

Beachhutnut · 20/10/2022 06:49

We are fixing for 3.7 % for 5 years. It's a pain because massively more expensive than our current rate but everything is just so unpredictable at the moment.

Where’s that rate? I can’t find anything that low x

Beachhutnut · 20/10/2022 07:07

Lloyds

Starsinyoureyes12 · 20/10/2022 07:35

Can I just add something please to all those asking “where are you finding this rate?”, the posters will have secured this previously, have had their mortgage offer for a while and will just mean they are switching to their new rates now. There are no fixed rates available on the market at 3.something now.

Allthegoodnamesarealreadytaken · 20/10/2022 08:52

Beachhutnut · 20/10/2022 07:07

Lloyds

Yeah I saw that rate too but didn’t it expire 1st October? Now it’s 5% online

Allthegoodnamesarealreadytaken · 20/10/2022 08:56

Starsinyoureyes12 · 20/10/2022 07:35

Can I just add something please to all those asking “where are you finding this rate?”, the posters will have secured this previously, have had their mortgage offer for a while and will just mean they are switching to their new rates now. There are no fixed rates available on the market at 3.something now.

That was precisely my point, wondered if there were anymore 3s around as my erc lessens, sadly not apparently

PerfectlyPreservedQuagaarWarrior · 20/10/2022 08:57

I would take the 5 year fix, because these are unpredictable and messy times and 4.74% isn't too bad a rate when looking at what they typically are.

bigbluebus · 20/10/2022 08:57

I'd fix - at least then (all other things remaining equal) you know you can afford the repayments. Martin Lewis's advice IIRC was to make sure it's portable if you're fixing long term.