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

[Thinkingswillbebetter]

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.

This gives an indication of interest rates offered by Building societies from the 1950s to 2009.
www.bsa.org.uk/BSA/files/5c/5c180498-5e52-4a41-b022-5821c25f3cbd.pdf

Don't have time to work out averages but I'm guessing it's around 7-8%.

Fix. It's extremely unlikely that mortgage rates will return to anything like those we've seen over the last decade.

I've just fixed mine for 5 years with a view to overpaying so hopefully it will be nearly paid off at the end of that period and then if rates are high I can decrease the duration that's left.

I think @remoteblanket is on the money, it’s about personal circumstances and attitude to risk.

Mmm, I think we have to assume that the era of sub 2% mortgages is over for now. It was a historically unusual state of affairs and born of quite specific circumstances which are now over.

With that in mind, there is much more room within the normal and unremarkable range for rates to rise from the 4% OP got offered than to fall. And that's just if nothing too dramatic happens. All bets are off if it does.

Yes. Obviously if you've only had a mortgage for the last 15-20 years then this rise in rates comes as a shock, but anyone as old as me (61) will have experienced far, far higher rates. I was paying 12% at one point in the early 90s. I think my first mortgage (1985) was 7%. In retrospect I was daft to pay off my mortgage in 2012 and sit back. I should have borrowed more while it was cheap. But at least I no longer have to worry about these things.

I know things are different now from the 80s and 90s and I try not to be pessimistic, but with the Russia situation and with all the quantitative easing from 2008 and Covid in the system I can't see a happy ending in sight for a while.

Some people are happy to pay a little more for peace of mind that allows them to sleep at night. Some people are bullish and can live with risks. Only you know what sort of person you are.

Just wanted to say that @remoteblanket has nailed it. Fix is safe but not always better.

Conventional wisdom on mn is to fix it whatever the cost. The analysis is more layered than that. Over the last 15 years, I went for the discounted tracker (caveat: this suited my circumstances and the wider economic outlook at the time) and re-mortgage every 2-3 years after the discount ends. I was always quids in.

The only time I fixed was when the fixed rate was lower than the tracker rate - what a topsy turvy world we live in.

Possible lower rates than expected

www.ft.com/content/ce61d3e9-2a32-4cca-b97b-92c563f7dbef

Can you summarise that article please, it is behind a paywall

I would fix at that rate. 100%

Also interested in the article please.

Just want to give everyone an update. After weighted all options, including using a broker, stay on variable rate and fix later, I decided to fix my rate for not to worry or spend time on this matter anymore.

Hope my experience will help you too.

In a nutshell: because the BoE has increased a lot less aggressively than the markets had expected, mortgage rates “will” fall because lenders are now less jittery and no longer need to price the more doomsday expectations in.

General outlook seems to be a gradual fall but it will be a while before the market sees significant falls.

HMT also saying painful two years with some level of normalcy (new normal) with lower prices expected latter half of 2024.

Thanks

Would you not be better putting the overpayment amount into a savings account, many of which at a higher % than your mortgage rate, then when it gets to remortgage time take it out and pay it into the house then? Make yourself an extra % or so which adds up!

@Spectre8

We're going with a tracker. It's a tough call

Me too!

It’s a good idea to fix as early repayment charges are on a sliding scale. In 3-4 years when / if rates are lower it might be worth paying a couple of hundred to secure a lower rate. At the moment you’d be an idiot to pay 6-7% on a 2 year deal if a lower 5 year rate was an option

Mortgage rates are calculated daily and savings interest monthly & the best savings rates are on low balances / compound interest savers. So you will see a bigger benefit by overpaying if you have a small repayment. If you have a lump sum then it might be better to wait

I work in real estate lending - not personal mortgages but interest rate principle is the same.

The 5 year fix you have is very competitive right now. But you need to make sure of a few things...

1. Is there an upfront fee - any upfront fee should be included in the total cost of the mortgage meaning the real rate is higher than the headline
2. Is there a lockin period to the lender's variable rate after the fix period finishes - avoid that like the plague

The rate market is very volatile right now - when the BoE raised its rates last week the short term market rates rose but the longer term rates fell meaning the market currently expects rates to decrease but the difficulty is knowing when this will happen.

If this is a refi then I think I would take the fix and then put any future savings into an ISA so you are earning more or less the mortgage rate tax free

If its first time I would wait to buy - price correction hasn't really got going yet and my guess is a lot of people are going to default in the next 12-18 months particularly as low rate fixes expire

I'd do the 5 year fix you've been offered.

ZOMBIE 🧟‍♀️