Mortgage offer & rates

[Rockaroundthexmastree]

Hi,
We have made an offer on a house and looking at mortgage offer plans. We are 90:10 LTV ratio.

Terms – 30 years – can be adjusted to increase/decrease term
2yr – 5.14 – 999 fee – 1,497p/m – 500 cash back
3yr – 4.94 – 995 fee – 1,464p/m – 250 cash back
5yr – 4.49 – 999 fee – 1,389p/m – 500 cash back

this is what the broker has come back with.
I have NO idea what to do. Could anyone offer any insight on how long to fix for?
Thanks!

Do you plan to move? If not 5yr fixed.

It’s a decision for you to make depending on your situation. Nobody can say for sure what rates will look like so it depends ultimately on:

1. What your plans are for the next 5 years:

Is this your forever home? Is this a house you see yourself staying in for min 5 years? If not, and you think in a few years you’ll want to move again, steer clear of 5 year fix as then you will have an ERC to pay to move early OR you’d have to look at porting mortgage which restricts you to that lender and if you need to borrow more for next house you’d end up with a second mortgage for that amount.

2. How much of a “gambler” are you:

Do you want the security of knowing what your payments are going to be for the next 5 years? Or would you prefer to fix for 2/3 and accept that after that you may benefit from a better rate if they have fallen in that time, but equally if they increase again you’ll be paying more at re-fixing time. It’s a totally personal decision to make. 5 years of security in your payments vs 2/3 years of security and then potentially lower (or higher) payments after that.

This

I’ve always gone for a long fix

No plans to move its a forever home. Obviously can’t predict the future but that’s the plan!
Anticipating to be fairly skint for next 3-5 years whilst we claw back savings and do up house so am thinking the security of knowing exactly what our payments will be for a longer term would be more reassuring!

I wouldn't fix at all.

Is there not an option of a variable rate, no fee? That would be my choice.

There are a lot of factors to consider.

The advantage of five years is that you know what it's costing and also that your LTV will improve slightly by the end of that.

The downside is that 4.5 may be on the high side over the whole period. Although probably not by that much. Around 3.5 was standard for many years and may well be so again.

You also don't have a grand to pay in an arrangement fee in two years time.

Two years doesn't really gain you enough of anything in my view. It's a higher rate and it is less time to make any change to LTV and a greater risk that changes to the housing market could put you in negativity equity or reduce your equity (or course the same applies to five but the amount you pay off in that time is larger).

If you want to see if interest rates come down then as PP have said, a tracker might be better. But if you then fix in a year and have to pay two arrangement fees it will eat up a chunk of what you save anyway.

On balance I think I'd go for five year fix to get you through the early period where economic changes beyond your control have the biggest impact. But do so in the knowledge that you will probably save a bit for the first few months but pay more than the other alternatives later.

I would do 2 years in the current market. Also in 2 years you are likely to have more equity and so may be able to unlock cheaper 80% LTV rates.
Totally depends on your attitude to risk though and how tight your finances would be. If things are very tight and you couldn't afford the repayments if they went up a lot in 2 years then you may be better fixing for 5 to give you peace of mind. If you are very comfortable then you might be able to benefit from rates reducing in a couple of years.
Can't your broker give some advice?

Take the cash back out of the equation for a start

I just went for a tracker but no way I'd get a tracker on 90:10 LTV unless you have someone to borrow money from in case of emergency, you need security.

For that reason I'm recommending 5yr fixed.

I just coped the brokers email - can’t say the cash back is a huge incentive either way 🤣

I personally wouldn't fix longer than 2 years right now rates are predicted to go down but I have a bottom flexibility in my payment. I honestly don't think they will go up though.

Find out what the costs are without the fee. I've just fixed for 5 years, I have never paid a fee, however, when looking at the numbers paying a £999 fee didn't save more than £999 over the 5 years, so seemed a bit of a waste of money that could have been used as an over payment instead.

We are remortgaging soon and I think we will fix for 2 years. They should be going down. We don't have too long left and that's the only reason we would be going for any longer - to have it paid off after 5 year term which thanks to Liz truss, I don't think we will be doing. Fucking lettuce.