Mortgage question - trying to work out how to ensure I can afford rising rates

[ReallyShouldBeDoingSomethingElse]

My current mortgage fix runs 1st March 2024 so I can't just switch and fix until 1st October. My current monthly repayments are £470. At the moment my lender has fixes available which would see a rise to £650 which will be tricky but manageable for me. If rates keep rising (say by 2–3%) it would become a problem.

I've been researching rates that Nationwide offer (I need to stick with current lender as I wouldn't pass the affordability checks for a new mortgage despite never missing a payment).

The longest fix I would consider would be 3 years as there's a possibility I will want to move before DD starts secondary school.

Looking at the 3-year fix on offer, I'd actually be better on the NW tracker mortgage (interest rate + 0.14%) unless the bank of England raise rates above 6% which if they do, seems as though it would only be for a short time so for the first time ever I'm considering tracker over fixed.

I had been thinking I should pay the ERC (£700) to switch before my current fix is up and lock into a new fixed term but now I'm thinking that if I think the tracker is a reasonable bet anyway that I can save myself the ERC as Nationwide will still be offering a similar tracker when it comes to March.

Another consideration is that because I'm still in my fixed term I can only change mortgages with Nationwide now by having an appointment with one of their mortgage advisors. It's a 90-minute appointment so I'm worried they're going to look at all my finances in detail and run affordability checks which I'll fail and then I might end up stuck on their SVR mortgage forever. By avoiding switching early I can just quietly switch my mortgage online from 1st October without triggering anyone looking at my income.

Is my thinking skewed!?

Thanks @Harvey100522 this is reassuring!

I cannot see the base rate going up any more than another 1% total. They need to find otherways to reduce inflation. This is clearly not working as they intended.

March is quite a way off and a lot could potentially happen in the next 8 months. Interest rates are most effective at tackling inflation when they rise quickly and sharply and are close to the level of inflation. This is why the slow gradual rises are not working well and prolonging inflation. Recent reports suggest that the markets are now pricing in a base rate of 6%. Can you afford to take a chance on the tracker or do you value certainty enough to pay the ERC and know what your commitments are for the next few years? What is your gut telling you? How risk averse are you?

I'm generally fairly risk averse but I would be gutted to lock in paying 5.79% for 3 years if I could be paying 4–5% for most of the term and could afford a few months at 6%.

Where the risk comes in for me are if we get to a BofE base rate of 7 or 8% and take ages to come down as I would struggle to afford the monthly payments.

Look at the numbers and see what makes sense because right now there is no certainty over rates and how high or low they will go and for how long. The world is in an economic crisis. In these types of situations it is useful to write down what your outgoings would look like for a range of scenarios and then see what works best for your budget. Ultimately only you can make this decision.

If you intend to move to another purchased property, a lot of fixed rate mortgages let you port the mortgage, i.e. transfer it to the new property. Therefore, you don’t necessarily have to stick to a 3 year fix.

Just read about people taking in lodgers to help with increased costs. It's an option if you have space and the appetite for it.

Predictions have been, and are, like weeing in the wind.

You need to start reducing your spending now so by the time come you have a buffer.

I don't think there's much point trying to be too clever with this if I'm honest.

They were averaging 9% or so in the late 90s. There's no current indication that they will stop rising currently. There's no way I'd do a tracker right now. Fix at what you can afford for the next 3 years. Then you don't need to panic if rates continue skyward.

The longest fix I would consider would be 3 years as there's a possibility I will want to move before DD starts secondary school.

Not the point of your thread, but the fix doesn't mean you can't move.
I thought the same, but we moved 3 years into a 5 year fix and it didn't cost us anything in penalties etc.

Thanks everyone. I've taken all your points on board. I have a meeting with a mortgage advisor from Nationwide today. Hopefully by then I'll have decided which way to go!

Honestly - rate rises are sticky. They won't come down in a hurry, we are making up for years and years of too much cheap & free money.

I just thought I'd update following my meeting with the NW mortgage advisor yesterday. It was a very useful meeting. He showed me the figures for a 2-yr tracker vs 2-yr fixed and also how monthly payments can be brought down by extending the term. The difference in what you pay overall if you extend the term by a few years is absolutely staggering so is something I'll avoid if at all possible.

I worked out myself that to leave my current lovely low fix now and pay the ERC would see me worse off by £2300 over the next 8 months. I have decided not to leave my current fix but to put an extra £200 a month aside into a savings account to help me weather the higher rate from March and to reduce my credit card debt to try and ensure things don't spiral if my mortgage payments jump up by a lot come March. I could cope with a few months at 7% interest rates and hope they might start to fall slowly from there.

I think you are very wise to put some money aside now in case of a higher fix later. Savings rates have good interest ATM. I think Nationwide might be one of the higher interest rates for savings. Also to pay off credit cards with high interest rates. I'd pay those off first. I'd steer clear of a tracker ATM at all costs. I think rates will go up to 6 or 6.5 and who knows how long before they might come down again. In October you can look for a new fix.