Mortgage advice please (Nationwide)

[notanothernam]

I think I know what we need to do but I keep going back and forth and would appreciate your input.

House is small, ideally will move by the time eldest is in high school (3 years). Remortgage to Nationwide. If you have experience of their affordability strictness I'd be interested to know.

Fix for 5 years, very good interest rate, stability through Brexit, hopefully port mortgage if we meet affordability criteria (have found them quite strict compared to other places, but we'll be overpaying and reducing outgoings so hopefully they'll be able to lend more for an upsize if we do move within 5 years) only £10 more a month than the 3 year fix.

Fix for 3 years, a very good rate, we are likely to move around that time. This seems the more flexible option for moving so we aren't stuck with Nationwide or a big fee if we have to rebroker. But obviously rates will most likely rise in the next 5 years.

Is there an early redemption charge if you leave the fixed mortgage before 5 years?

Yes if we leave early it is 5%-1% per year left, there isn't if we port it.

Best piece of advice I was given was by a mortgage advisor, when we decided to change from a flexible rate to a fixed rate mortgage, he asked why and when told it was because of the uncertainty about whether mortgages were going up he said" if and when the mortgage rate starts going up come back and see us we will change your mortgage to a fixed rate if you want but until then stay on a low rate flexible mortgage. He saved us a lot of cash that day and ensured we'll bank with them for a long time to come.

We're just moving to Nationwide, fixed for 5 years (2.09%). Had no issues whatsoever.

You think you’ll move in 3 years but are considering a 5-year mortgage? Just because “surely” interest rates will rise?

First things first, if you knew for certain how interest rates will move, you’d be the richest person on the planet. No one knows how rates will move. We can all have views and opinions but they’re just that.

You seem to have ignored quite a few points:

Most crucially, you have not compared the rates and therefore the cost. Your only hint that one mortgage charges only £10 more per month might suggest a most common failure to distinguish between the cash outgoing (your mortgage instalment, which comprises principal repayment + interest) and the real cost (interest and fees). The principal repayments are NOT a cost because that’s money you are paying to yourself. If you have repaid £10k of your mortgage, it means that you can sell the property and get £10k more in the bank than you would have had before.

Let me make an example with some random numbers. Say you are comparing 25-year mortgages to borrow £250k. The 3-year fix charges 1.7% and the 5-year fix charges 2%. After 3 years, you would pay ca. £12,100 of interest in the former case, and ca. £14,300 in the latter; there you go: over the first 3 years, the 5-year fix will cost you ca. £2,200 more of interest. Now let’s say you stay put and don’t move for the 5 years. Depending on what interest rates will look like in 3 years, taking out a 3-year mortgage and then another in 3 years may cost you more, less, or the same than taking out a 5-year fix now. No one can forecast the future, but you can at least quantify by how much interest rates would need to rise in 3 years before the 5-year fix becomes convenient, simply playing around with a spreadsheet. If you’re not familiar with spreadsheets, there are many templates and apps available for free.

Also, your strategy seems to rely on your ability to port your mortgage. But you cannot know if, in 3 years, Nationwide would offer a competitive rate, or if other lenders would offer a better one. Porting doesn’t only rely on you meeting their new criteria at the time – it also requires you being able to sell and buy in a chain. For example, you won’t have the option of selling, renting for a while, then buying. Not sure where you are based, but in the South East the market liquidity has dried up big time.

PS Some lenders reimburse the early repayment penalty if you take out another mortgage after a few months.

In exactly the same situation here. Wish there was some guarentee that we could port later.

@SouthLondonDaddy thank you for your somewhat brusque but very helpful reply. I had worked out the equity in both scenarios and while I know we can't predict interest rates as they are historically low it is a concern that they have said they want to raise them by x amount by x date, though Brexit has obviously paused that! The main reason I want fix for 5 years is the security of knowing what we are paying for 5 years, in case you haven't noticed I'm somewhat highly strung ha! Anyway, you're right, it's silly to fix for more years than we want to be in the house, we will fix for 3 years. To be getting a rate of 1.99% after taking out a 95% mortgage only 2 years ago I think that's pretty good going! Now if someone could tell our broker as she didn't seem best pleased that we were thinking of adjusting it....

@user1471451986 I sympathise, I'm so scared of doing the wrong thing.