Mortgage fix for 5 or 10 years?

[KatSlayMoon]

We are due to start the house buying process soon and in the current economic/political/whatever climate, should we fix for 5 or 10 years?

It will be a 20 year mortgage and the repayments will be equivalent to 25% of our take home pay. We are late 30s/early 40s.

You also need to consider what is happening or you are planning to happen within that 5 or 10 year period. For us we base fix rates on what we are paying our for, ie young children and childcare costs, house renovations, replacing the cars, that sort of thing. Our last fix was 5 years because it was a steal and it saw us through to the end of a child in uni. We prefer to know exactly what our mortgage costs are for that period rather than beating the market. We have been paying a mortgage for over 20 years and moved 3 times.

I would also consider how much you can overpay by and if you can save more than your overpayment amount allows you can save this elsewhere, Consider an offset mortgage too, run the numbers. Our mortgage overpayment is the usual 10% but it isn't on our last fix amount but on when we took our original mortgage out with them so it is more, not a huge amount but more.

So think beyond the whole economic/political climate and consider what affects you specifically. Early retirement access to private pensions will be 57 shortly and probably going to 58. I don't know if that comes into it. Some pension advisors would suggest drawing down to pay off the mortgage at that point, still working if possible and feeding the money back into the pension now you no longer have a mortgage. But again, all very personal choice.

@FloralAllTheWay thanks for this. We are not expecting any big life changes in that time period (child free and no other financial dependents). We will also be saving/investing a further 25% of our take home pay and living off the remaining 50%, so will be able to make additional payments along the way. Both have good workplace pensions and no debts. I am erring on the side of a 10 year fix as that would see us through the next government as well. I just can’t see interest rates going much lower any time soon but I’m sure that’s been said before!

I am no economist but remember my parents worry over mortgage rates in the 80s and 90s so interest rates have always been on my radar well before I got a mortgage. If you look back over time these rates are within that "normal" range. As I said I am more of a payment certainty than beat the market. We all make decisions based on the information we have now.

One thing to consider then is if overpaying when would you reach the 60% LTV as that is where the lowest rates are. There are mortgage overpayment calculators online. I googled a long time ago so have my own spreadsheet for our mortgage based off done kind person providing the formula.

I am also one for certainty @FloralAllTheWay, especially at the moment. That is good to know about the LTV, thank you. I have just had a look and we should actually be able to get our LTV to 60% (currently around the 65% mark for the types of houses we like) so fixing it at the best possible deal for 10 years at 60% LTV might be the best option.

Any reason you're looking at 5 or 10 and not 2/3?

Because I’m expecting the economy to tank to be honest and would like some certainty, particularly as according to polls Reform may very well win the next election and I expect they’ll do an even worse job than Labour and the Tories have.

I would go for 10 years for similar reasons you mention, we didn't have anything like that particular shadow on the horizon when we fixed 3 years ago but we still fixed for 10 years.

The risk of paying a slightly higher rate long term is something like paying for an insurance policy against crazy increases (although in our case it didn't turn out to be a higher rate because of the Truss debacle)

If you are anticipating a significant economic downturn then the opposite could actually happen where interest rates reduce. Historically central banks have cut interest rates during recessions in order to try and stabilise the economy. There are exceptions to this for example if inflation is particularly high.

I personally have never even considered a fix rate of more than 5 years. I usually have gone for 2 or 3 years fixes where in most cases that has paid off, an exception being in 2021 when I only took a 2 year fix where in hindsight I wish I had gone for a 5 year one.

10 years is a long time to fix for in my opinion. It's a personal decision, however it's difficult to predict what will happen in those 10 years. i.e. what if you need to move then you could face a hefty early repayment charge if you can't port the mortgage etc.

@Hitchens I would say I’m not expecting a significant economic downturn (at least in the short term) but rather just nonsense and playing around with markets (a la Truss and Trump) that may lead to interest rate rises for a couple of years. So not necessarily a recession but more volatility.

I think ours is up this coming Feb and I am definitely thinking of 5 or 10 years this time as well. For the reasons you state. We were hit, not as bad as others as we had a 2.1% which raised to 4.9% last fix.

Given you’re so secure financially, I’d be tempted to float because the weakening economy will probably lead to a rate cut in the next year, and ten year fix then for the reasons you state.

but I fixed for 10 years just before the rates jumped and it is indeed really nice knowing that this one major cost can’t increase for 7 more years…

If you fixed for 10 years ... In 5 years time how would you feel if the rates were lower than the 10 year fix? Accepting that was the gamble but happy to know you have the security of knowing your outgoings?

If you fixed for 5 years .... In 5 years time how would you feel if the rates were higher than you could have fixed for 10 years for

We had an option of fixing for 5 years at 1.6% or 10 years at 2.1%. the process to renew the 5 year fix started a week before the Liz truss mini budget. We ended up renewing at 3.2%. In hindsight we would have been better off fixing for 10 years but up to the few months before our fix expired it was the right decision to fix for 5 years it's just the way things panned out. We are happy on balance with our decision to fix for 5 years. Had we renewed a month later post budget when the rates were more like 5% we'd probably have been feeling a bit more regretful!
we went on to fix for 5 years again and for the second mortgage after we moved house.

I regrets fixing recently and wish I’d gone on a tracker

yeah I know what you are saying, I just don't understand why you are thinking that would lead to a rate increase? Historically the opposite has happened.

This is what I’m worried about: https://www.bbc.com/news/articles/c4gzv41kw3jo.amp

If we take a two or three year fix in 2026 then we will be looking at remortgaging either just before or just after a new government, and who knows what will happen then?

Recently had to think about this too and decided on 5 year. Like you I think that 2 year fix is simply too big risk. But 10 years had much higher interest and I think that even if it gets to it in 5 years, at least I saved on the first 5. So 5 year fix it was. Mortgages are not at all time low that it would be worth it for 10 years imho.

You are now entering slight rises as well btw. Banks have already risen by 0.1 or something like that in anticipation of BOE rising base with next vote.

slight rises yes but you’re looking at a forecast of two pc inflation by 2027 from that article. If that does happen or even get under 3 percent inflation, the interest rates will slash to boost labour for the election. And if rates so to three percent by 2027, how much is that going to cost you if you fix at 4.5?

bit there’s no wrong answer here, certainty is good, even if it costs more.