Mortgage rate predictions?

[Moonlightmadness]

I know nobody has a crystal ball but I’m hoping for some advice. We are due to borrow £260k at a LTV of 87% over a period of 40 years (how depressing!).

Our current options are:

5 yr fix 4.3% £1149 per month plus £1295 upfront fee

2 yr fix 5.12% £1274 per month no upfront fee

Part of me was leaning towards the cheaper option however I’d kick myself if interest rates were to have a decent fall.

Would any one be able to give me some advice please?

If you can afford the extra £100 a month (once you add on the product fee), I'd go for 2 years. From all I have read, I'd expect rates to be lower in 2 years' time. You are only paying 100 x 24 months more.
If you tie in the 5 year deal, you will likely pay more than that over the following 3 years, compared to what you could have. No guarantees.

Those who are in a position to make any sort of predictions have priced the deals accordingly. It looks like they are not expecting big drops over the next two years with small falls thereafter. If decent falls were expected, the 5y rates would be cheaper.

You never know, Labour might get in and will give us a ‘better Brexit’, the economy will boom, waiting lists will disappear and housing will become affordable. Or it will just be more of the same.

How secure are your jobs? Are you planning big changes, like having kids? Do you get bonuses that you could chuck at the mortgage? Are you likely to see big pay jumps? What's the max payment you could afford on one salary? Might you want to move before 5 years?

I'm not trying to be facetious- but those things all matter, possibly more than short term fluctuations in the interest rates. FWIW I think they will stay where they are for a while with small decreases through the year and into 2025, but the years of sub 2% rates are done, if certainty for 5 years is valuable to you take the longer deal.

Thanks for your replies

@grosslyunfair jobs are very secure and although pay rises have been agreed until January 2025 it is only around 5% between now. We have a baby on the way and won’t move within 5 years, we are likely to live in the home for 10 plus years.

I suppose I would rather the security of the lower payment and we could overpay whenever possible

Bear in mind that nursery fees will be included in the assessment when you come to renew in terms affordability.

This may not impact you but full time nursery in my neck of the woods is £1200.

Thanks @namechangnancy thats very helpful. We very fortunately have £20k saved for nursery fees. Would this be taken in to account if we were to take a 2 year fix and have to go through affordability in 2 years time?

What would be more beneficial to you? Lower monthly outgoings or a lower rate?

We've just fixed for five years. Who knows what will happen? They might fall they might go up! We like to know long term that that is the sum we will be paying each month. Guess it's what is important to you.

I think it would be so in your case you should be fine !!

Just thought I would mention it either way.

I would go for 2 years if I were you. I think the Houthi situation has added some uncertainty, but inflation etc has calmed down. I’ve read that there is an expectation that there will be base rate cuts in the coming year, certainly next year.

Im not too good with numbers, but you could track your LTV and see how much would drop you to the next bracket as this would significantly impact the offers too.

We have fixed our mortgage for the last 23 years, most of the time we have beaten the market but that is not actually why we do it, we do it for the certainty of the next X number of years we know what we are paying. The last time we fixed is to see us until the end of Ds2 finishing uni. Yes it would be annoying knowing the rate had dropped but equally satisfying if the rates went up and we were on the fixed rate.

Have a look at Bank of England base rates over time to show you what has gone before. For me having a baby now and thinking about the next 2 or 5 years I would probably opt for the 5 so I know exactly what I am paying. Always be aware of any Early Repayment Charge if you want to exit and do a new deal. Re the £20k for nursery fees how fast will that be eaten up?

https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp

In 2007 we fixed for 5 years at 5.4% and then rates plummeted. At the end of the 5 years our payments dropped but for 3 years we’d “over paid”. But, we knew we could afford the payments and just tried to not think about it. Our next home we benefited from the 1.9% rate. It’s all a gamble but I’d be inclined to go for the 5 years and over pay a bit to try to bring the renewal down.

we renewed in 2022 and went from 1.9 to 2.19 but also took two years off. 5 years will get you through to funded preschool.

Savings are never taken into account when looking at affordability. Simply because you could just spend it on anything. We have substantial savings and they have never been taken into account by any lender.