To think a 5year fix on your mortgage is a con right now?

[Bluffysummers]

Admittedly this isn’t really my opinion more of wonderment?

my fix is coming to an end (joy) and when I last took out my mortgage, you paid more to fix longer and now it’s the opposite it’s the shorter rates that are more expensive.

traditionally you paid a bit more for security, and now it’s less? Is that a ‘sneaky’ (not the right word but let’s go with it) tactic from lenders to lock in customers at a higher rate for longer as they are envisioning the BR and thus their interest rates going down?

what are people thinking 2 v 5 year? I was thinking intially 2 due to the predictions that inflation will be close to the BoE target in mid point 2025 and therefore interest rates will come down (probably not to what they once were, but down none the less) so if you’re locked in for 5 years, you’re stuck. But then 5 years grants you the ability to budget for 5 years

It's so tricky to know what to do for the best isn't it. 5 years at a set price sounds great, unless the rate drops and you're left paying more than you need to. If you only fox for 2 years though and it keeps going up and up you will be kicking yourself. I'm in the same dilemma.

I’m trying to think logically and do my research, most sources say 25 will be a more normal year and inflation will be around 3% again, so it wouldn’t make sense for the BR to stay as is, and I read that the BR will stay high until mid next year and then come down. I mean if it keeps rising we’re all screwed, especially if it’s rising Into 25/26 😵

I think the certainty is appealing to a lot of people though, even if over the term it might end up being more. When we bought our house we fixed until DS started school even though it was when rates were low so we ended up paying more so we knew where we stood whilst juggling childcare costs and maternity leave etc. But yes for those who actually want to secure a fair deal they're not the best option as you'd hope rates level off and fall a bit in 5 years!

Same situation but Sept renewal - no idea what to do at the moment. I’m watching the thread with interest.

We are currently looking to buy and thinking of going for 5 years. If we know we can afford the bigger mortgage at the fixed rate then we don't have to worry about it and will be in a much better financial position in 5 years if it keeps rising. By then we will have paid off both cars and have no more nursery fees as well as regular pay raises. For us this feels the safest bet for not being surprised and finding out in 2 years we are coming up short each month. We may end up paying more than we need for that security though.

We did that too and back then it was a no brainer but now, do we want to be locked into 6% when maybe we could be paying 3.5% in a few years?

im hoping as of by magic an actuary or an economic forecaster will come and anonymously spill be the beans as to what to expect and we can all decide from there, that’s realistic right 😅

I fixed mine for 3 :/ sick of the fluctuations. I can afford it so I won’t be going mental if it drops

I work in investment banking, selling interest rate swaps to corporate clients, these 'derivatives' are what banks use to structure fixed rate mortgages. The market in general, believes rates will start to fall around the end of 2024, but continue rising in the short term. If you look at the market swap rates, they are currently around:

2y - 5.85%
5y - 4.90%
10y - 4.25%

This is basically saying what the market thinks the average rate will be over that timeframe. Of course these fluctuate all day, every day, so if inflation remains high, we'd expect to see these swap rates rise. Personally, I'm on a tracker as I'm comfortable to take the short term risk, in the belief rates will start to fall again in 18 months time. We do have a small mortgage though and can afford for our mortgage to increase a fair bit further.

'average' was meant to be in bold, not strikethrough.....apologies....

Good question. Surely this must have killed new mortgages right now and those who need to renew will be waiting to see? This dire government needs to work out what to do

Yes I’m with you hoping for the same!

We fixed for 10 years 12 months ago, but with no early exit fee. This seemed like a good compromise for us given the volatile interest rates, and we like a bit of security.

Not sure if these are still around but might be worth looking.

I'd be cautious about expecting rates to drop in the mid-term future. Historically, the rates we have now are not unusual - it's the past decade of a BoE base rate at 1%-ish that is the anomaly. When I had my first mortgage in 2004, memory suggests I had the sort of rates we're talking about today. In five years, I'd expect rates to be somewhere near where we are today, possibly having peaked in the interim.

Obviously, none of this is much help to someone seeing their mortgage payments shoot up.

(disclaimer, I'm not financially qualified and only have a subjective personal opinion to bring to the conversation. Don't take this as investment advice. Etc!)

A year ago I think that made sense as rates were still ‘low’ right now the 10 year fixes seem to be cheap ish whereas historically they were the most expensive and that’s got me wondering if there is a strategic decision there by the lenders. I’m hoping the rates are below 5% in the next few years

What’s the feeling mortgage rate wise, im in life insurance and this and next year are considered periods of contraction but 2025 of ‘considerable growth’ which means more disposable income which would normally mean inflation is back to more comfortable level and mortgage rates are also but to what extent on the mortgage rates. I used to work for a bank but not anymore so don’t have access to those conversations or feelings

I studied economics and generally
good at forecasting what's going to happen.

If we don't have WW3, nuclear disaster or climatic termoil my feeling is

When inflation lowers interest rates will reduce. We are about a year into the shit storm. I would give it another 18 months to 2.5 years for standards of living to stabilise. Subject to the General Election Result it will depend on who it stabalises for.

Just read Sainsburys have made price cuts across their products. Some profiteering has definitely been at play here and it's disgusting the banks are making huge profits from the interest rate hikes and the profit the energy companies have reaped makes me baulk.

I honestly think under a different government these profits wouldn't have been so grotesque or in other words would have been windfall taxed.

We just fixed for 5 years the other day, it brought our payments down by nearly £300 a month and honestly I'm happy with that even if it comes down more in the meantime I'm just glad I know what we need to budget for in the next 5 years.

I'm in the same boat OP - my 2.2% fixed expires in October after five years.

I've been sent the rates from my bank and have decided to lock in for just two years. Hopefully by October 2025 things will be looking a lot better.

I fixed for 5 and paid off a chunk so that the increase wasn’t as bad
I prefer to have a set budget to plan round

We have been following the rate situ since about September last year. The 5 year has been pricier than the 2 for at least as long as we started monitoring it, which we took to mean the rates are expected to come down. Nobody knows for sure what will happen but it's been 9 months and the shorter fixes are still at a premium. We got a 2 year decent rate last month and just hope the calculated risk pays off, I think it will. Aware it might not! Toughie for sure.

Financial adviser here..fixed for 5 years based on my own beliefs and what I have read but then..our new fix which we locked into was 4%, which was about £170 a month more and a good deal. I preferred the set increase per month which we can afford rather than risking they wouldn't go down in two years..which looking at current data there is a very small chance they will.
I have zero attitude to risk and didn't want to take a tracker based on the thought they 'may' come down. I think the ultra low rates of the past few years are very unlikely, I could be wrong if there is a recession and therefore rapid cuts but with inflation proving sticky I'm happy with our decision.
We also plan to overpay as much as possible in the 5 years now we aren't paying more than our mortgage in childcare from Aug!!

Have a look at the forward Libor rates in the FT which should give you an idea if fixing is a good thing or not, and for how long.

5 year rates are lower than 2 year rates as the base rate set by the Bank of England is expected to come down again over the 5 year period. On average the base rate will be lower over the whole 5 years than over the first 2 years. The base rate determines (roughly) the cost to banks of lending you money. The higher the rate, the more expensive it is for the banks to lend and therefore the more they charge you. It's a pretty competitive market so not much chance to "con" you through pricing.

So you only believe there is a small chance interest rates will come down in the next 2/3 years?

That’s why I said a con isn’t really my opinion, it’s as you said, the base rate is expected to come down in that 5 year period so might not be worthwhile taking years