Fixed-rate mortgage - 2 or 5 years?

[ginger09]

Thanks to all your advice, we are about to sign the contract (although it would be delayed in the current situation!)

The mortgage offer in place is based on 2 years fixed-rate, but we are considering to swift it to 5. The reasons are:

1. The recent interest rate cut. (Currently we have 1.5% rate, 85% LTV)

1. The house price would most likely fall down in the coming years which would make us in a weaker position when remortgaging. (This is based on the assumption it would be more or less recovered in 5 years of time than in 2 years)

1. All the hassle for the paperwork, conveyance, etc only in 2 years

Does this make sense?

My concern about having a 5-year fixed is what if it turns out we don't like the house and want to move out earlier to another one.

We are totally new in the property market. Any advice would be much appreciated!

Mortgage advisors suggesting 2 years

I think switching to a 5 year one is sensible. And if you do decide to move you can port your mortgage and just take out another if it needs topping up. Just check your mortgage allows you to do this.

I would always do 5. We have done two for the last few times as the rate was much cheaper and it's so much hassle and can cost a grand each time so we said with all the uncertainty this time we are doing it for 5. I think we paid £20 more a month to do this.

I wouldn't want to take any risks in an economy like this.

Just check you can port it if you think you might want to move out.

I would definitely do 5.

If you think you might move within that time make sure you get portable mortgage.

Don't expect to get a lower rate, lenders are not dropping their rates. It will be a higher rate and will cost you more. Also, to change product may require a reapplication. Lenders have removed large amounts of available products and tightened up their lending criteria. You may not get another application approved, whereas your existing offer will be extended for three months. Just things to think about.

Which lender are you with?

Do a 5 yr with a lender that will allow more borrowing should you need to move, and port your mortgage.

Santander, Barclays, virgin Money are usually high lenders with a 15% deposit.

@NemophilistRebel Were you explained why?

Santander are only doing 75% mortgages right now, Barclays 60% and I should imagine most lenders are the same. Now is not the time to be swapping products OP.

Because the current climate is so uncertain that the best deals aren’t currently on offer despite base rate drop and the long term prospect of low rates is even more likely than ever.

They also said that in their history people ho swap every 2 years generally beat any 5 year rate even with mild fluctuations in base rate

It gives you the flexibility to borrow more in 2 years without paying large fees

The worst time to sign up to long deals is in the midst or the beginning of a financial crisis

Some other countries are now into negative base rates.

Don’t fix for too long or go variable so you can change once things are more certain

Or you could be in 2/3 years down the line stuck paying far higher rates than what is on offer

Mortgage rates really can't go much lower. Mortgages will never be negative. Even if rates do drop, the difference in monthly payment will be small (do an online calculation).

There is a chance of high inflation. There is a chance house prices will fall. There is a chance you will want to move.

There is no right answer! You have to guess the future and your preferences then.

I'd agree , I doubt interest rates will drop much lower , I read on the BBC the BoE are unlikely to go to negative interest rates because it affects their ability to lend money. As a previous poster said mortgage rates can't really drop much lower . If I was cynical I'd suggest mortgage advisors like people on 2 year deals because it gives more business and more commission.

I'd lock in for as long as you can right now (provided you have job security and a secure relationship)

if house prices fall this gives more time for them to recover/you to pay down the amount outstanding.

It’s not the BOE rate to look at it’s the rates being offered by the lenders and so far they haven’t dropped enough.
They aren’t back to as low as they were after the last price crash where some people were paying .25 above base and some managed to get deals at negative rates against base.

Is the house a door upper? If so them 2 years. I very much doubt interest rates will shoot up dramatically in the next 2 years so wouldnt worry about that.

Biggest risk to a 2 year fixed rate is drop in house prices reducing your equity. I don't think its dead set houses prices will drop long term like in the 2008 crash due to the support of the government and also unlikely the restaurants/shops would be shut for say 12-18 months.
In saying this I think its impossible to say what the long term economic outlook is at the moment so wouldnt like to speculate either way on house prices in 2 years time which is probably not that helpful

2 years.

We fixed for 5 years on our first home, then shortly afterward interest rates dived after the 2008 crash, then we were stuck in negative equity for years and over paying a mortgage on 6% interest when everyone else was on 1.8% for years. . . .

Also with our current home we remortgaged last year for 2 years, and now think we want to unexpectedly move as our neighbour's are noisy and awful. So I would hate to feel trapped again based on those two experiences.