2 or 5 year fix?

[Conniedescending]

Hi all - can anyone savvier than me tell me whether I should go with a 2 or a 5 year mortgage fix? Thanks

There is no definite right answer. Presumably, the 2y rates you are being offered are lower than the 5y rates. So, you take the 5y rate for the certainty and if variable rates rise in the next few years then you are laughing as you have bought that protection. For the past few years, it seemed obvious that rates will start to steadily rise soon, but there is a lot more uncertainty, so who knows.

Away from the pure financial calculation of what is going to cost you less, there's also the practicalities. If you fix for two years, that means you might be shopping around again in two years time. It's good to shop around, but I'm not sure I'd have the stamina to go through it all that often. (And there are fees associated with remortgaging).

how long is Carney in charge? He will set rates negative if he gets half a chance - and he is wondering why there is so much borrowing going on....

my choice would be five years but it all depends on how the sums stack up.

We chose a tracker back in July. Then the rate dropped so it was to our advantage.
Just remember, whatever happens to rates, they will never shoot up over night. Base rate increases will always be in small increments. How much do you think it could increase in two years? Probably less than the difference between the two and five year rates. That's always the chance you take though. It all boils down to how risk adverse you are and your personal circumstances.

WE went for a 2 year fix back in August , because we could do with the extra £200 now and are putting it towards paying off debt we took out to do the house up (bought a much cheaper house that needed work rather than a ready done house). We decided in two years we can swallow an increase as will have no debt payments,no nursery fees, more hours at work, no major ££ on the house. We'll be financially better off,and are not missing the debt repayments as are used to the previous mortgage amount.

Our mortgage is relatively low in relation to our income though and our equity jumped from 10% to 30% since we bought so interest increase wouldn't make a massive difference.

Worth considering potential impact of Brexit in next 2-3 years?

We went for a 5 year deal. Not that much different per month than the 2 year - under £40 but our fear was brexit. If we launch article 50 in march a 2 year deal will need to be renegotiated just before the split with the EU takes place. 5 years gives things a bit more time to settle down.

Thanks for the views - difference is about 150 a month which we would pay straight off mortgage so would pay off 3.5k extra doing 2 year fix. The 5 year fix is what we currently pay now. My concern is what the market will fe like in 2 years? We do have a large mortgage so would be affected by rate increase but the Brexit will be kicking in in 2 years so really not sure what to do!

The DMO is offering fixed rate loans for 20 years at under 3%
They are required to make money on every loan they issue.
That says all you need to know about future base rates.

Seminar I was at this week : brexit will take 10 - 15 years to complete.

Why fix at all? We've always had a lifetime tracker and it's always being cheaper than a fix. Banks are conning people into paying hefty fees to sign up to short term fixes by encouraging fear of an interest rate scenario that will probably never happen again in the next few decades.

Banks seem to be throwing money at people at virtually zero interest. I currently have about £15k of credit card 'debt' at zero percent offset by savings paying up to 5% pa plus a mortgage with an interest rate of 0.6%.

One bank even paid me £32 cashback in addition to lending me £6k to put in a savings account paying 3% pa (Tesco) so fixing a mortgage at 3% looks quite expensive to me really.

We've just fixed for 5 years. The 2 year option was obviously cheaper (but by around £30 I think so not hugely) but my recent work contract has just ended in time for my maternity leave. Will be job hunting at the end of maternity leave so will be nice to know where we stand with regards to the mortgage for a little while longer. The best option for you will depend on a few different factors.

we went with a tracker last time, all that's happened is it has got cheaper and cheaper as time has went on. interest rates are going nowhere at the moment and wont for a long time yet. all this hype about rates going up is just nonsense. they know the rates are not going to go up any time soon.

I wouldn't fix. 2 years of fixing isn't worth it. 5 years is too much of w gamble. I'd go tracker.

Nobody knows that rates are not going up, just as nobody knows that they are. Even the people who set the rates don't know, although clearly they can make informed predictions and guesses.

The fact is that there are inflationary pressures out there (weaker pound means the things we import are more expensive, plus oil price has been rising) and there are massive uncertainties about international trade (Brexit, Trump etc). As the Bank of England is specifically mandated to keep inflation under control, there could be increasing pressure to raise rates. On the other hand, the economy could continue to look fragile making a rate rise less likely.

If the experts can't get it right, I'm sceptical that the rest of us can!

It's not a gamble to take a 5y fix, it's simply paying for some certainty which may or may not turn out to be more costly than a tracker. A tracker is a gamble that they won't rise sharply.

Within the next 5 years, there will a general election. Before the 1997 general election, the base rate was 5.9375%. Just over a year later, it was 7.5%, a rise of over 1.5%! Clearly, 1997 is very different to today, but can you be confident something like that wouldn't happen again?

DadDadDad has a point. I'm not sure there is a 'right' answer. If you are risk adverse, then possibly paying more for your mortgage for the certainty of fixed is worth it. If you've got more flexibility in your budget then you might want to (relative) risk a tracker.

I fixed 2 years ago at 3.39% and wish I had done it for 2 years instead of 5. Interest rates are very cheap now, I probably would fix for 5 years at the moment though.

I've just done a 5 year fix. I am planning on reducing my income significantly so the certainty was important to me so I could budget. The fact is interest rates are already amazingly low. Even if they drop more they can't go that much lower surely. I did get a good deal though and the interest rate for the 5 year wasn't massively higher than the 2 year, plus we stayed with the same provider and had no fees for switching.

As others have said, there is no clear cut answer right now on this. I agonised for months about it. It depends on your situation, plans for the future, and your own personality.

i've stuck with trackers and always will as the amount it needs to rise in the next 5 years to benefit from a fix is massive - on my mortgage anyway.

daddaddad
Comparing 1997 - a time where much of the world had high inflation
With today - where only Zimbabwe and Venezuela do
Is not particularly useful.

Sure - I did say 1997 was very different to today, but these things do happen and can be a surprise. In 2007, the base rate was 5.5%. If you had said then that within two years the base rate would have fallen to 0.5%, we would have probably dismissed it. If you had added that it would stay that low for a decade, we would have probably thought you crazy. Shocks happen.

But I work in life insurance where we have to consider risks at the 1-in-200-year probability, so maybe I'm too focussed on the worst case!

Interestingly, October 1993 (4 years before the 1997 election), RPI was 1.4%. October 2016, RPI was 2.0%.

A few tariff wars between US and China, or UK and EU, oil soaring with the Trump stimulus, and who knows what else, where might inflation be by 2020?

Of course, there could be massive deflation, and negative interest rates. Who knows?

Ah, and I thought we accountants were pessimists, you actuaries beat us every time

Well, someone has to keep a check on the accountants.

Actually, the acceptable level of pessimism is ultimately determined by our regulator, the PRA, which as it happens is part of the Bank of England. Time for the conspiracy theorists...

Here is my favourite page for guessing future interest rates
www.dmo.gov.uk/reportView.aspx?rptCode=D7A.2&rptName=cdb5387f-060a-4b0d-b8f0-5544b94c9383||PWLB%20(2)&reportpage=Current_PWLB_Fixed
20 year loans jumped a whole percent (from 2.2 to 3.2) within hours of Trump being elected ....
Renzi's failure dropped them back a tad
the Supreme court decision will be "interesting" to watch

but from the point of view of mortgages, the chance of the base rate rising above 2% in the next ten years or so is very, very slim

I really don't know how you can make any kind of confident statement about where the base rate will be in TEN years! Ten years ago, Blair was still PM, the credit crunch was not on the horizon for most people, we'd had no Euro crisis, Syrian war, etc. A lot can happen economically in 10 years. If the pound keeps sliding, putting the base rate up and up will be on the cards.