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Original poster

Fix for 5 years or 2 years variable???!

81 replies

Cake4 · 04/11/2022 21:32

I know I know another mortgage one, everyone is sick of it.

But what do I do?!

I know none of you have a crystal ball, and it's my own decision etcetc but any advice?

I read online one minute, interest rates have peaked. The the next is interest rates to rise over the next 2 years.

What would you do take the variable at about £850 a month or the fixed at £1100?

£1100 is near the top budget I can manage, so should I just stick with this incase it gets worse?!

OP posts:
Normandy144 · 05/11/2022 08:35

We took a tracker mortgage out in July for 2 years which was 0.75% above base rate. Even then the rates for fixed were still more expensive. We've spoken to our broker again and we're still of the same mind which is to ride this out on the 2 year tracker (no exit fee) which ends mid 2024. The alternative is to switch to a fixed rate which is over 6% and just seems like a crazy idea to lock in at a high rate when we're happy on a lower, albeit variable rate.

Original poster
Cake4 · 05/11/2022 08:43

Normandy144 · 05/11/2022 08:35

We took a tracker mortgage out in July for 2 years which was 0.75% above base rate. Even then the rates for fixed were still more expensive. We've spoken to our broker again and we're still of the same mind which is to ride this out on the 2 year tracker (no exit fee) which ends mid 2024. The alternative is to switch to a fixed rate which is over 6% and just seems like a crazy idea to lock in at a high rate when we're happy on a lower, albeit variable rate.

This is what I am thinking of. But it understandably makes me nervous.

OP posts:
UnionGlassCloth · 05/11/2022 08:43

Rates on offer aren’t going to increase atm. There’s never been such disparity between rates on offer and the BOE base rate. The rates on offer are where they are because Truss’s disastrous mini budget spooked the gilts market.

A sensible statement from the government mid November could see that rate gap start to close.

Original poster
Cake4 · 05/11/2022 08:44

Alarae · 05/11/2022 08:20

If it's of any use, I spoke with my mortgage broker two days ago and said the real change to mortgage rates will happen after the bank reconvenes in December to discuss interest rates. Economists now believe rates will peak at 4.75% next year, to then fall partially and stabilise.

Of their customers who fix, there is a 70:30 split between 5 and 2 years. Of the 30%, generally it is people working in financial services who think it is crazy to lock in a high rate for 5 years (therefore expecting they will come down again during that period, and things will be better when remortgaging in 2024/25.

I'm getting a mortgage offer to hedge my bets, but don't need to take it up until May. I'm leaning towards a two year this time round, as I'm hoping this crap with Russia will stop/investments in other energy sources will realise and therefore the energy market will stabilise.

A two year fixed?

Things do seem to be changing daily at the moment.

OP posts:
SkylightSkylight · 05/11/2022 08:49

@Cake4

why are you surprised at a 2 year fixed?

SkylightSkylight · 05/11/2022 09:02

@Cake4

Maybe I'm too uncaffinated, but some of your posts are confusing me. How can you have a 'discounted' 2 year SV or tracker?

SV the bank just sets the rates it wants to as it wants to.

tracker is a % over the BoE base rate (near enough).

I don't see where you're getting your 2.99% rate from.

I'll make some coffee, just in case it's me!

SkylightSkylight · 05/11/2022 09:07

Are you looking at porting your mortgage?

SkylightSkylight · 05/11/2022 09:09

Have you already sold your house?

are you looking at porting your mortgage?

BarrelOfOtters · 05/11/2022 09:14

I’d track but but the difference away as a buffer. Nice if you don’t need it, lifesaving if you do….

Alarae · 05/11/2022 10:54

@Cake4 potentially a 2 year fix or a tracker, it depends how much the tracker is above BOE.

If rates peak at 4.75% and I get a tracker at 1% above BOE, it's not worth it to me to fix for rates higher than 5.75%.

I do personally think the markets react better to Sunak (to be he was quite pragmatic about the economy while chancellor and the need to plug the deficit hole) so I think the horrors of 6% under Kwarteng/Truss are very unlikely.

Original poster
Cake4 · 05/11/2022 11:05

SkylightSkylight · 05/11/2022 09:02

@Cake4

Maybe I'm too uncaffinated, but some of your posts are confusing me. How can you have a 'discounted' 2 year SV or tracker?

SV the bank just sets the rates it wants to as it wants to.

tracker is a % over the BoE base rate (near enough).

I don't see where you're getting your 2.99% rate from.

I'll make some coffee, just in case it's me!

Hi, it's a discounted variable rate. So a discount on the Standard variable rate.

Sorry getting the terminology wrong.

OP posts:
Original poster
Cake4 · 05/11/2022 11:05

SkylightSkylight · 05/11/2022 08:49

@Cake4

why are you surprised at a 2 year fixed?

No sorry not surprised. Wasn't sure if you had 2 years fixed or variable.

OP posts:
Original poster
Cake4 · 05/11/2022 11:07

SkylightSkylight · 05/11/2022 09:09

Have you already sold your house?

are you looking at porting your mortgage?

Yes sold house.

Was going to move in to a rental, but a couple of properties have caught my eye.

Unfortunately I cannot port my mortgage as my circumstances have changed.

OP posts:
Heyahun · 05/11/2022 11:08

We took the 2 year variable

the 5year fixed option payments were massive like 2k 😭 we are starting out with the variable at 1325£ a month

wel manage just about it it goes high but it’s only 2 years at least and we can revisit it then 🙈🙈 impossible to know what to do

Original poster
Cake4 · 05/11/2022 11:09

Alarae · 05/11/2022 10:54

@Cake4 potentially a 2 year fix or a tracker, it depends how much the tracker is above BOE.

If rates peak at 4.75% and I get a tracker at 1% above BOE, it's not worth it to me to fix for rates higher than 5.75%.

I do personally think the markets react better to Sunak (to be he was quite pragmatic about the economy while chancellor and the need to plug the deficit hole) so I think the horrors of 6% under Kwarteng/Truss are very unlikely.

I would agree.

To be honest it may not be required. Looked at the 2 properties I had in mind this morning and they were both bloody awful.

Might just go for my rental and see how the land lies in 12 months!

OP posts:
Original poster
Cake4 · 05/11/2022 11:10

Heyahun · 05/11/2022 11:08

We took the 2 year variable

the 5year fixed option payments were massive like 2k 😭 we are starting out with the variable at 1325£ a month

wel manage just about it it goes high but it’s only 2 years at least and we can revisit it then 🙈🙈 impossible to know what to do

2k 😫😫😫

Hope it works out for us all 🤞🏼🤞🏼

OP posts:
SkylightSkylight · 05/11/2022 13:41

@Cake4

Sorry to hear your circumstances have changed (never usually for the better. I presume though you've checked out being able to get enough money to buy something else? With the interest rates going up so much/so quick the amount one can get on a mortgage has decreased significantly.

I've never heard of a discounted SVR.

I won't bore everyone with my situation, but I'm now stuck here for a while, so I took the 5 year fix (it's 2.48%, should have taken it sooner as they'd offered a better rate)

I'm sorry the places you looked at weren't any good.

are you on your own? Or kids to consider?

I'd consider some kind of house share if no kids & try to build up the deposit as much as possible. I've decided not to sell just now as I don't want to end up in an expensive rental

there is next to nothing coming on for sale here and that's across all price ranges.

I hope you got a good price for your sale at least!!

let us know how you get on 💐

Original poster
Cake4 · 05/11/2022 13:53

SkylightSkylight · 05/11/2022 13:41

@Cake4

Sorry to hear your circumstances have changed (never usually for the better. I presume though you've checked out being able to get enough money to buy something else? With the interest rates going up so much/so quick the amount one can get on a mortgage has decreased significantly.

I've never heard of a discounted SVR.

I won't bore everyone with my situation, but I'm now stuck here for a while, so I took the 5 year fix (it's 2.48%, should have taken it sooner as they'd offered a better rate)

I'm sorry the places you looked at weren't any good.

are you on your own? Or kids to consider?

I'd consider some kind of house share if no kids & try to build up the deposit as much as possible. I've decided not to sell just now as I don't want to end up in an expensive rental

there is next to nothing coming on for sale here and that's across all price ranges.

I hope you got a good price for your sale at least!!

let us know how you get on 💐

Thanks so much @SkylightSkylight

Better that I'm away from a horrible ex, but not so nice having to downsize and leave my lovely home. But I'm trying to not to dwell on it. Change is always going to be hard.

I had also never heard of a discounted SVR.

I basically can't port my mortgage as they won't take my maintenance as a form of income without a court order. There are only 3/4 that will accept it, which is really disappointing as I have another 2 years in this good rate! But my affordability is just shot without that additional income. Looking at Santander and nationwide as they don't require this, and I can borrow what I need and can afford.

2.48% is really good, im really happy you are secure for a few years! 💐💐

Just me and my daughter, I'm very lucky in some ways. That I can even look at buying!!

I think I will go for a rental for 6 months and then start looking again. I will get some help with rent for the first 6 months from UC as they don't take your savings in to consideration, after that I will have to move sharpish at looking to buy again as my savings will be obliterated.

Thanks for your help!

OP posts:
WonderWoop · 05/11/2022 16:55

Cake4 · 05/11/2022 06:48

Gosh how do I even work that out.

Looking to borrow £205,000

Discounted variable (2 years) = 2.99% = £767.51
Fixed (5 years) = 5.39% = £1,071.82

Is it just the difference in the interest rates? So could I take a hit of another rise of 2.4%?

Show quote history

Okay let’s work this out. What’s your actual discounted rate? 2.99% discount off SVR? If so what’s the SVR?

WonderWoop · 05/11/2022 16:58

& what’s the time period you’re looking at in total? 25, 30, 35 years?

Original poster
Cake4 · 05/11/2022 17:59

WonderWoop · 05/11/2022 16:58

& what’s the time period you’re looking at in total? 25, 30, 35 years?

Looking at 37 years

Discounted rate is 2.99%
Normal rate 5.8%

2 years at discounted rate
Looking to borrow £210k

Thank you for your help!

OP posts:
WonderWoop · 05/11/2022 18:18

Okay so if it's 2.99% discount on 5.8% your actual rate as it stands today is 2.81% (SVR 5.8% - 2.99% discount)

So £767 per month vs £1072 on your fixed. Monthly difference of £305.

Best way to look at is probably something like impact of every 0.25% rise to the SVR.

So if BOE raise base rate by 0.25% and the bank you're lending from raise their SVR by 0.25%, your discount of 2.99% will stay the same but your rate will go up. Based on the above -
SVR 6.05% - discount 2.99% = your rate 3.06%

For every 0.25% rise your monthly payment would go up roughly £30.

So as it stands, given there's a £305 difference, you have roughly 2.5% increase you can swallow before you end up paying the same as the fixed rate.
If SVR was 8.3% - discount 2.99% = your new rate of 5.31% which is same as the fixed, there or thereabouts.

Now - very importantly - the number of 2.81% I presume is now out of date and was quoted to you before the Bank of England changed rates last week. As base rate is now 3%. Therefore my assumption is that your bank's SVR is no longer 5.8% as of now, but is now 6.55% and therefore the maths you need are:
New SVR of 6.55% - discount 2.99% = your new rate of 3.56% and so your payment is actually £859.

If your fixed is still as quoted at 5.39% then the monthly gap is now £213. However I imagine that fixed has probably given up too (which bank are both with?)

It will depend from here what you think will happen to base rates. If the gap remains the same between the discount offer you have and the fixed, then in essence you are better off on the discount unless the BOE rate goes above 4.75%.

There's a lot of info there... shout if doesn't make sense!

Original poster
Cake4 · 05/11/2022 20:40

WonderWoop · 05/11/2022 18:18

Okay so if it's 2.99% discount on 5.8% your actual rate as it stands today is 2.81% (SVR 5.8% - 2.99% discount)

So £767 per month vs £1072 on your fixed. Monthly difference of £305.

Best way to look at is probably something like impact of every 0.25% rise to the SVR.

So if BOE raise base rate by 0.25% and the bank you're lending from raise their SVR by 0.25%, your discount of 2.99% will stay the same but your rate will go up. Based on the above -
SVR 6.05% - discount 2.99% = your rate 3.06%

For every 0.25% rise your monthly payment would go up roughly £30.

So as it stands, given there's a £305 difference, you have roughly 2.5% increase you can swallow before you end up paying the same as the fixed rate.
If SVR was 8.3% - discount 2.99% = your new rate of 5.31% which is same as the fixed, there or thereabouts.

Now - very importantly - the number of 2.81% I presume is now out of date and was quoted to you before the Bank of England changed rates last week. As base rate is now 3%. Therefore my assumption is that your bank's SVR is no longer 5.8% as of now, but is now 6.55% and therefore the maths you need are:
New SVR of 6.55% - discount 2.99% = your new rate of 3.56% and so your payment is actually £859.

If your fixed is still as quoted at 5.39% then the monthly gap is now £213. However I imagine that fixed has probably given up too (which bank are both with?)

It will depend from here what you think will happen to base rates. If the gap remains the same between the discount offer you have and the fixed, then in essence you are better off on the discount unless the BOE rate goes above 4.75%.

There's a lot of info there... shout if doesn't make sense!

Thanks for this. It was really helpful.

I really appreciate you taking the time to help me. 🌻🌻🌻

Both the properties I saw today were awful. So think I am going to go in to a rental for now, as originally planned. Need to complete by end of Jan latest on our very long chain. so it would have been very very tight anyways.

I will bare this in mind for the future, when I start to look again!

OP posts:
SkylightSkylight · 03/03/2023 19:56

@Cake4

Hey, I was just wondering how you're getting on?! & what you did?

Original poster
Cake4 · 03/03/2023 20:05

SkylightSkylight · 03/03/2023 19:56

@Cake4

Hey, I was just wondering how you're getting on?! & what you did?

Hellooo!

So, still in the buying process. It is taking forever.

But I've had my mortgage agreed/ offer and I've gone for..

A fixed 5 years. The fixed rates dropped enough so I was able to get a competitive rate at 4% (well I thought it was competitive).

I think the rates will stick around this point for a while (perhaps drop to 3%). But I felt I could afford it, and my financial situation is only going to get better with my LO going to school in 18 months, so stuck with the safe-ish option.

The 2 year fixed was approx £50 more a month, but I did also consider this option.

I will also rerun the calculators, prior to my completion on my purchase to see if there is a better deal available.

How are things with you?

OP posts:
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