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??

That's not how it works.

No one has a crystal ball. I wouldn't exit your deal for love nor money. I'd on my fix for 10 years if I was sure I wasn't able to clear the mortgage beforehand re early repayment charges. This is a storm to weather, and you are in a better position than most being on a dive year deal. Plenty will be on SVR, trackers or part way through two year deals. 10 year fixes are not common and the rates haven't been what I would call competitive when I've looked.

Your LTV must be good for 1% so your risk of negative equity low. Our LTV was about 75% when we got our current deal which is 1.64%. I've overpaid and we are down to 50% LTV now and the rates weren't significantly better at that level to care.

It’s a good deal that you have, 5 years, it’s anyone’s guess at the moment isn’t it?

Your circumstances will be different in 5 years though, youngest child will be at school, so no longer nursery fees, unless you plan on another baby of course, salary inc promotion etc.

I would stick with what you have now.

5 years is a long time. If you can pay down £200k as you say in that time then that is huge. Your house will have increased in value so your LTV will likely allow you to access the lower rates. You'd probably both have had numerous pay rises since then. In 5 years you'll be wondering what you were ever worried about. Enjoy your home and stop worrying.

I've just lost my buyer on my property because this, the lender agreed a mortgage in principle on lower rate but then the rate increased and buyer can no longer afford it. Second sale to fall through. I'm not holding my breath now for new buyer. looks like my onward purchase will probably fall through as well now

The mortgage rate was 15% when I bought my first property in the late 80s

Thanks everyone for the reassurances and comments. LTV is below 50% so already accessing the best rates. We also don't plan to move again. Will concentrate on saving over the next 4 years!

Whippet, I'm sorry to hear that. I hope you find a new buyer - don't lose hope ❤️

and omg Truss. We'll all be on special Truss rates in a few years, only 20% 😃 in Liz we Truss 🙏🏼

I'm a bit confused by this thread. You have a 700k mortgage at 1%, in 5 yrs you will have paid off 200k & LTV is already below 50% and you are panicking because?

Same here!
Car loan has finished so was going to overpay til the deal runs out next year but not sure whether to just save it til then!

@giffyg Because hypothetically if interest rates go up to 7% and they have 500k debt not only will house value be wiped out but it will be an expensive debt.

@trolleybusses but that is true for everyone with a mortgage & the vast majority of young families don't have 700k plus equity & 6 figure salaries. If interest rates really did get to 7% the OP is far more insulated than most to ride it out.

Given where we are, I think it’s fair to stop assuming that houses are going to be worth more like it is a physics law. London affordability ratio is historically sky high, plenty of room to move down although and lose tons of equity, I would say OP should be fine from a cash-flow perspective, 500k on two salaries in London is very feasible even at higher rate.

It doesn't make sense for you to do anything other than stick with your deal as it's so good.

The numbers are quite scary but given you'll have lowered it by 200k without overpayment it will make a significant difference.

You'll be through the worst of the childcare years by the time your deal ends.

The only thing you can do is put something aside to overpay as already suggested.

You made a very sensible decision on a product and have an interest rate we'll probably not see again on your mortgage while it is at it's highest. Try and look at the good as well as the bad

I agree that assuming prices will see the historic gains of the last 50 yrs is wrong.

The OP doesn't need to be panicking about losing her house or not been able to afford it.
The main concern for high earners in a recession would be job loss but as the OP doesn't seem concerned about that so is likely insulated eg savings, investments, insurances, family support no need to panic about switching from an excellent deal.

Am definately not trying to make anyone feel bad but part of taking out a mortage in recent years has been stress testing to see what it would be if rates rose by several percent.

Did you do this, OP? Because you ight find it reassuring to know you've already been through this hypothetical scenario and found it was OK for you?

If you haven't then use a rate calaculate such as www.landc.co.uk/calculators/mortgage-interest-rate-calculator/

You can then look to see what your mortgage payments might be like if they went up by 5% at the end of your fixed term. Might help you feel better or plan?

Thanks all. Sorry if I was insensitive worrying about this. I know plenty are in worse situations, and indeed, my situation isn't 'bad'. It was just stressing me out because I did some rough calculations and saw that if interest rates skyrocketed, over half our monthly repayment could potentially be just interest. Which was a sobering thought.

We did stress test, you're right that's an important part of taking out a mortgage. I'm not worried about defaulting, more worried about high interest rates and the impact on discretionary spending, and wondering whether there's anything I can do now to mitigate.

Not insensitive at all- yes you’re in a better situation than some but rates going up is still a concern.

I don't think the post is insensitive just thought the panic was a little disingenuous. It's fine to be bothered about paying back extra debt.

Overpaying now rather than saving and adding a lump sum when you come to remortgage makes more sense financially - it will save you lots (compound interest). However it depends on your ability to do this and whether you feel financially secure enough to have less savings available in case of unforseen circumstances.

Paying down the mortgage as quick as you can in these circumstances, beats everything else though on paper.

You are very lucky to be at 1% for 4 years!!
ours finished last month and we locked in at 3.4% for 3 years, I don’t think they’ll climb much higher now.

We are in the final year of a 5Yr fix - we were doing the prelim checks to see what's out there and picked a great deal with our current provider ready for when we came to the end of this fix in the middle of next year.

Then this was announced yesterday. I realised that offer would just vanish.

I absolutely hit the numbers hard yesterday to see if it was worth paying to leave as we are outside the 6mo window for a free move so had to cough some savings to move over.

We made the decision yesterday and paid to leave and secured the new offer. Time will tell if this was a poor choice on our part - but house prices are a huge bubble in our area and felt like I was buying insurance against the loss of any accrued LTV if the market cools and any other rate changes for the next five years.

I have put a diary reminder in my calendar for the fix end date to see if we did make a good choice.

Like White Wolf above we have moved to a 3.4 but we went for 5 years.

You might be surprised

I think it's dangerous how many people seem to think this, or that property values will keep going up. The economy is turning to shit. Things are looking the worst they have for a few decades. And we have serious political instability to boot...there are huge redundancy processes being launched in the public sector right now that haven't been well publicised.

I've checked out historical BOE base rates. Over the last 25 years, you can see clearly it diving around the time of the credit crunch. Over the 10 years prior, the average looks about 5%, meaning retail interest rates were around 6.5-7%. I'd rather not look further back as it's a bit scary! So going back to a time of 6-7% interest rates is not unimaginable.

I saw that a PP said it was always better to pay into your mortgage as you go rather than pay a lump sum at the end. Sorry to teach grandma how to suck eggs but for the benefit of anyone not familiar with this area, this is not so. If you instead invest your money in an account that gives a higher interest rate - which is always guaranteed now - then do that instead. Take the money out just before the mortgage expires and pay it down then.