Interest rate going up...

[onelittletwolittle]

We bought a house last year, and borrowed £700,000 (London). We got a 5-year fixed at just shy of 1%. I now wish we'd fixed for longer, but we were worried about tying our own hands etc.

In 4 years, what sort of interest rate might we be looking at? We're going to try and overpay as much as we can in this time, but it's stressing me out! I have even read about people early-exiting their fixed term mortgage now and paying an exit fee in order to lock in a 3% 10-year mortgage. Should we be considering this??

Interested!

You may not want to overpay but save the extra instead as you will get a better rate on your savings than on paying down the debt. You can then overpay a lump sum as your fix ends and so keep your monthly payments low.

I wouldn't personally pay an early repayment charge and miss out on such a low rate for the first 4 years.

I like this. Good advice on saving the overpayments and paying it off the mortgage as a lump sum towards end of the fix term.

The alternative is to make the overpayments if it makes you feel better and removes any
temptation to use the money for something else.

Thanks all. Completely, I wouldn't be making overpayments now, only right at the end. If we don't make overpayments, I think we'll end up with just north of £500k at the end of the mortgage, which is a worryingly big number.

I wouldn’t exit the deal, it’s a bloody good deal! Save save save and pay off a lump sum of rates are shit when you come to re-mortgage

Given the BoE's current trajectory, they want to protect sterling and work in tandem with the US Fed to get inflation under control. Unfortunately, to do that they need to destroy discretionary spending, because when the only tool you have is a hammer...

Rates are still negative in real terms, so expect much more down the piper. Remember, they were in double digits decades ago during high inflation no less before the Volcker shock killed off the economy in the late '70s/early '80s.

The problem is we don't have unions to fight for better pay these days, and we also have utterly anæmic growth with little real prospect of the economy going back to a '90s like boom. Our economy is not going to run into a magical discovery of North Sea oil and gas to break us out of the Sick Man Of Europe period that Maggie inherited.

@Liebig so based on that, what’s your advice? Just interested to know

Is the advice to freak out?

I wouldn't panic as you have a low rate. Overpay & save as much as possible. No one can predict what interest rates will be, the more pressing issue is the predicted recession & increase in unemployment

I’d stay in your deal and try to focus on saving/overpaying to improve your LTV when the deal ends. I don’t think rates will go back down but in 5 years inflation should be under control so without other bills like energy going crazy like they are now you should be able to afford a slightly higher mortgage better then.

I think we'll end up with just north of £500k at the end of the mortgage, which is a worryingly big number.

it depends on your salary surely

It does depend on our salaries. And one's propensity to worry. I'd say my salary is high but so is my propensity to worry!

We have two young children, one in (state) primary and the other in nursery. I'm not sure whether to expect any big expenditures in the coming years? My parents didn't really buy me much in my childhood and I don't remember feeling particularly sad as a result, but I'm not sure if that's the norm.

Put it all on black and pray.

But actually, stay the course on the current rate. When it comes due, we'll see. Unless it works out for you to come out of this current contract and move into whatever ten year fixed you can get (assuming the market has any decent ones now).

Following with interest as our term ends next autumn and we've been debating the same thing!

HSBC's 5-year fixed is slightly lower than its 2-year fixed (controlling for whether there's a booking fee), which tells me the bank thinks rates are coming down between year 2 and 5...?

I’d keep that 1% which is very low

The markets think rates will peak in 2/3 years then stabilise or start coming down

whether they’re right or wrong, who knows! Only time will tell

Markets also think the Fed is going to bail them all out and revert to QE at the first sign of equities tanking. I'd probably not go in with the moral hazard guys with such a bias right now. Especially as we're in this mess for that reason.

In your case it may be worth looking for a new deal as rates will certainly be higher next autumn then they are now - but it would depend how much any early repayment charges are.

Our mortgage is fixed until June 2025 at 1.6%. I plan to stay with this mortgage and once DD2 gets her funded hours in April save as much of the extra we will have not paying nursery fees. Then see what interest rates are doing at the start of 2025.

I stupidly dithered over fixing when my 2 year fix ended in January, for complex yet boring reasons. .I've fixed now for 5 years at 2.48% which is higher than it needed to be, but considering how much it's gone up already, since then, it's ok.

you're in a better position & there's 2 of you!

I'm looking at moving if I can find a suitable house.

once that's done, I'm going to look at whether there a not too risky investment that has a better return than paying down the mortgage, but you need to think about the compound affect of paying down the mortgage, not just the interest rate.

It’s a good rate, I’d ride it out for now. Keep an eye on what rates are doing vs what your exit fees are.

For those who have fixed deals coming to an end in the next 12 months - check the terms of your deal. Some fixed deals let you move to a new deal six months before the end of term. It’s well worth looking at the terms - if you can do this, it might be worth looking at.

The market will always operate in such a way that they make money so the fact that they are offering low 5 year deals to people suggests to me that they believe interest rates will rise then fall within those 5 years. I wouldn’t switch to a 10 year deal. Always remember that they know more than us about what is likely to happen with interest rates long term. Do you really think they would be offering lots of low 5 year deals now if they thought interest rates were only going to climb over the next 5 years?

The danger of a 10 year deal is the potentially large redemption penalty if you move. You may be able to port your mortage but it isn't always possible e.g if you go overseas or have to rent due to a chain. Having said that I wouldn't be surprised if rates peak at around 7% particularly as Liz Truss seems pretty clueless about managing the economy. Given you are on such a low rate I would focus on building savings so you can pay it down in 5 years.