To fix mortgage or not?

[Landladymews2]

Hi

Our fixed term mortgage is coming to an end and I’m wondering whether to go for a fixed term one again or tracker? The problem with the fixed term is we play to move in a few years but not sure when, so if we fix for 2 years and aren’t ready to move we have to pay a fee again or go onto the standard interest rate so paying more interest than we need to. If we fix for 5 years but want to move before then the broker is saying porting is complicated. If we don’t fix, what are the changes of interest rates going up a lot in the next 3-4 years? Would love some thoughts/advice

Following with interest. Our 2 year fixed is up next month, but this is a 5 year house.

There’s been no catch with any of our fee free mortgages but we didn’t use a broker apart from initial mortgage. Remortgaging is relatively easy and we’ve always done it via the web or when staying with the same bank but choosing rate we’ve just ticked a box and signed.

It all depends on your view of the future. Rates are currently at an all time low. My view would be that they will increase somewhat, but not very substantially at all over the next 3 to five years. Maybe looking at a top level base rate of 0.75-1% over this period (currently 0.1%). My mortgage (now paid off), tracked the base rate, and I did quite well out of this rather than fixing over a ten year period. But I emphasise I cannot give advice, and the call must be yours.

@Landladymews2

Is there a ‘catch’ with no product fee mortgages? I’ve just found one one online. My mortgage broker has only given me options with fees 🤔

The interest rate is likely to be higher but it depends on the size of the mortgage whether it is worth paying a fee to get a better rate, the bigger the mortgage, the more likely it is to be worth paying a fee. There are calculators online that can help with this - try Moneysavingexpert.

It's highly likely that you'll be able to get a fee free mortgage later on, if that's what you need.

I don't think interest rates will go up significantly for a long time. Like a PP says, they've been historically low since the 2007 crash and we're probably in a far worse situation now. There's an awful lot of government, business and personal debt propped up by cheap interest rates that's not going away any time soon. Increasing costs by increasing interest rates is going to make the whole mess even worse.

Fixed rates are usually more expensive, certainty costs and it's in the lenders and brokers interests to keep you on short term products with fees every so often, because that's how they make a lot of their money.

We've never fixed and it's always been cheaper apart from a few months in the last 25 years. We haven't even had to change our mortgage since early 2007 because we got a lifetime tracker so are currently paying under 0.5% pa.

Having said that, interest rates are so low, that the sums might look different these days. But seeing as the Bank of England has told banks to make sure their systems can cope with negative interest rates, which are already in existence in other countries, I don't think we're expecting much of a rise in the short to medium term.

I fixed for 5 years and it was the worst decision. It means that you don’t get the benefit of house increases until the fixed term ends. For example with a 2 year fixed deal, after the 2 years is up you remortgage against the increased house value so you get a better loan to value and therefore will probably get a better rate because you have more equity in the house. There are also loads of mortgages with no fees.

However spending on the rates available a fee upfront might still be cheaper over the 2 year deal.

Same. First mortgage was with broker (good deal with cashback) and then I fixed online with few clicks. Still got very good interest especially when I took into an account fees elsewhere AND my time

I ported and it was really straightforward - with Clydesdale. I would also fix for 2, and look for a fee free product now or in two years which will mean the financial impact is reduced...

Most mortgages are portable, so you can move to a new house and add a chunk more. Even if it's a tracker you will still have an early redemption charge.

I remember this day fondly, people were crying at their desks...

Black Wednesday September 1992
The UK’s withdrawal from the European Exchange Rate Mechanism on 16 September 1992 meant a rise in the base interest rate from 10 per cent to 12 per cent at 10.30am on that day; later that day there was a promise from John Major’s government to raise the rate further to 15 per cent. These actions were taken to encourage speculators to buy sterling. When this failed to materialise, the government reduced interest rates on 17 September 1992 back to the original rate of 10 per cent.

@XjustagirlX

I fixed for 5 years and it was the worst decision. It means that you don’t get the benefit of house increases until the fixed term ends. For example with a 2 year fixed deal, after the 2 years is up you remortgage against the increased house value so you get a better loan to value and therefore will probably get a better rate because you have more equity in the house. There are also loads of mortgages with no fees.

However spending on the rates available a fee upfront might still be cheaper over the 2 year deal.

This is a really good point. Our house value is going up £30k every 2 years minimum. We bought 8 years ago on a 90%LTV and now are on a 60% LTV despite remortgaging to borrow for a small extension

Used to get good returns on savings though.

OP, I’m renewing with Halifax and they have offered rates either with product fee (£1495) and without.

I’m going for a 2 year fixed at 1.31%, no product fee.

It depends on guesswork - and your guess is as good as mine - but also on what your current lender is offering at the end of your present arrangement, which in turn depends on your individual circumstances, size of loan vs equity and also whether your lender has a policy commitment to keeping their existing customers.

I am coming to the end of a two-year tracker (no fee and can make unlimited overpayments) and my lender has several offers which are fixed or tracker for 2, 3, or 5 years with choice of fee or no fee and all are for little more than my current low rate, in the range of 0.3 to 0.5% more. I'm spoilt for choice. For comparison, if I were to do nothing, my mortgage would go on to standard mortgage rate which would be 2.40% more.

A mortgage with a £1k fee will have a slightly better interest rate so will be slightly cheaper over the term of the fix than one with no fee. It is usually only a couple of hundred pounds so if you don’t have/can’t spare the cash for a fee based product then it isn’t the end of the world.

Your broker should be able to show you the comparative costs over the fixed term to compare.

Sorry for dim question, do tracker mortgages also have fixed terms or can you get out of them any time?

If you aren't sure, then it's probably worth speaking to a good mortgage broker.

The problem with porting, is that if you are looking to borrow a lot more and your existing provider is a very conservative lender (or they put a very conservative valuation on the house you want to buy), you might not be able to borrow what you want. Being able to switch provider gives you more flexibility.

And whether to pay the fee or not has to be a personal decision based on what works better for you- look at the overall cost over the fixed term and think if you have the funds available. Whether you will save money or not partly depends on how big your mortgage is. Also, if you are hovering around the next drop on the loan to value rate you might not want to fix for too long and then remortgage when you can get a cheaper rate.

We have been with Nationwide since we moved in 2015, and they offer really good rates so we've always stuck with them. On our first mortgage for this house, we fixed for four years and paid the £999 fee for the lower interest rate as it saved about £2500 over the course of the four years. When time was up for that we took a two year fix as we knew we wanted to extend in a couple of years and borrow more. Even for that it was worth paying the fee.

We took out additional borrowing last year, but took the no fee tracker so there would be no redemption fee. We've then just switched the previous mortgage and the additional borrowing onto a five year fix (paid the fee as it will pay for itself after a year).

Interestingly, the interest rate Nationwide were offering was about the same on the five year fix than the two year fix, and the five year fix was cheaper than the three year fix. That means that current estimations are that interest rates won't really be going anywhere for a while.

@cassilis- that depends on the terms of the mortgage itself. Some tracker mortgages will have redemption fees if you leave early, but I suspect most won't.

A mortgage lender's website may allow you to see the cost of different options, so you can select for example, lowest cost; with fee; no fee; fee payment upfront; fee added to loan. Mine does all that, so you don't have laboriously to work them all out to compare.

Thanks perenially

My fixed term is coming to an end and I’m taking over the mortgage on my own. Do I need to take another mortgage or can I just get the mortgage transferred to me even when we are put on the standard variable rate?

@Cassilis

Sorry for dim question, do tracker mortgages also have fixed terms or can you get out of them any time?

Yes, my current tracker is for two years and is coming to an end in a couple of months. If I wanted, I could then choose another tracker for a fixed term of 2, 3 or 5 years or whatever other number of years the lender offers.

Even if you go for fixed you should be able to port it to another property. Also at the moment there are plenty of low fee fixes? What rate are you trying to fix on? What is your ltv? Have you spoken to your existing mortgage provider you may find they will have some special offers for existing mortgage holders? I moved to a new deal last year with my existing provider on a fix for 2 years with no fee? So yuu may want to try that? It saved me 300 a month.

Bigtruth

*@Ermidunno*rates are largely expected to rise in the short to medium term in the UK. They will most likely remain historically low but I'd put money on them being 5 times higher than they are today within 18 months.

Haha. Sorry, but that just isn't going to happen, especially not in the UK where housing is the most precious source of national 'wealth'. So I wouldn't put too much money on something that unlikely unless you mean base rate will go from around zero to 5x0.

I think someone else mentioned it upthread but I can't find it now. If you go onto Money Supermarket or MSE they have mortgage calculators and you can search for the best mortgage deals, and they show "term comparisons", so how much you pay over the length of the fixed term in fees and interest so you can compare if a fee is worth paying for a lower interest rate.

No way are they going to be 5 times higher. They've been 0.5 bank base rate for years

We ported with no problems recently, obviously if we wanted to switch banks we would of had to pay an early redemption fee.
We also paid no product fee. For us overall there was no savings to be had by choosing a fee product.