2-year or 5-year fix or variable rate mortgage?

[Sheerdetermination]

What are you doing? I can’t decide!

FTB here put in our mortgage application just before the mini budget. It's now been approved 5 year fix at 3.88 we went for this for certainty and plan to overpay.

Depends what the rate is.

All the news yesterday seemed to point to the mortgage rates not going up as high as was expected under Truss, but they didn’t mention what rate they thought it would be.

Should say I fixed at 3.5% for two years but wished I’d done it for 5!

I fixed for 5 but had arranged it ASAP 6 months in advance. 1.95 which at the time seemed quite high really, was 1.83 but got pulled just before my paperwork. Extended the term by 5 yrs to give some wriggle room but hopefully will overpay.
If now, 2 years unless below 4% when maybe 5 for certainty. It's hard to know, if Ukraine is sorted and covid OK this winter probably 2 years. But we can't have low rates forever and no growth either so who knows what will happen.
Sorry not very helpful!

The recommendation by many now seems to be for variable rates because the expectation is of rates going down over time not up. When rates were low, it made sense to fix because there was only one direction it could go and that was up. Now it’s being said that as it is about to reach its highest, there is only one way it will eventually go.

If you want the peace of mind, you should fix for as long as you think gives you the stability but with the understanding that you may lose out when rates go down. How low it will go? No one knows and it may not get as low as it was previously for a long time.

Thanks all! I’m minded to go with a tracker for the first time. But who knows!

Rates might be going down

www.ft.com/content/ce61d3e9-2a32-4cca-b97b-92c563f7dbef

We are in the process of buying and mortgage was approved in sept so we have a 3.79% over 5 years

We went for a 3 Yr fix at 3.68% last month. Our lender then shortly afterwards pulled all 2 and 3 yr fixes.

It’s a tricky, tricky time.
we’ve been offered fixed at 5.8% and tracker at 3%. BoE rates will go up, but slowly, so I don’t think a fixed has a lot to offer.

Especially the 5yr, as it’s likely it will lock in to a higher rate. We’ve been advised to go with a tracker at 3% for 2 years - you don’t have to lock into this and if rates come down, can then switch to a fixed.

FTB currently looking for a property so have AIP but no offer yet. Think we’ll fix for two years, as we need some certainty but don’t want to commit to a high rate for too long.

Banks are locking people into 5yr and 10yr mortgages and they will be rubbing their hands with glee when rates fall.

I’m quite horrified at the idea of people locking into 10 year mortgages unless the rate offered is very very low. The banks have professional analysts working out what deals are likely to benefit them over time - they wouldn’t offer 10 year fixed deals unless they were pretty confident they would gain financially from them over the long term. I wouldn’t personally lock in for more than 3 years and make sure you get a product where you can move to a different provider if they offer you a shit deal after the fixed period comes to an end.

We always fixed. 5, 5, 10 years and the last 5 years the outstanding mortgage was too low to fix. We looked at the rate obviously when we fixed each time but also the costs involved for getting the fixed rate and ultimately I liked the certainty of knowing what the repayments would be every month. The knowledge that the rate we booked at the time was affordable was more important, I didn’t give a second thought to whether or not rates changed during the term or the bank’s profit.

2 years. A LOT will change in that time and the cost of living surely cannot stay this high for that long. That my opinion please no one jump down my throat

Article in the Telegraph today quoted in case it's behind a paywall.
Andrew Bailey (Governor of the Bank of England) has taken on money markets with a warning that interest rates will not rise as high as they have bet - and issued a rebuke to lenders that mortgage costs do "not need to rise as they have done".
Andrew Bailey said that borrowing costs will peak at a lower level than traders are predicting, even as he announced the biggest interest rate rise in 30 years.
The Bank put rates up by 0.75 percentage points to 3pc on Thursday, the largest increase since Black Wednesday in 1992.

However, Mr Bailey said that increasing rates to the 5.25pc level recently expected by markets would trigger a two-year recession and cut household real incomes by £800 in 2023.
He said this should serve "as a reminder that we should not increase Bank Rate too far", and added: "We can't make promises about future interest rates but based on where we stand today, we think Bank Rate will have to go up by less than currently priced in financial markets."
Mr Bailey also suggested fixed mortgage rates had peaked.
Mr Bailey said there was even a "downside" risk for fixed rate mortgages, which have accounted for 95pc of new business so far this year, because they are largely based on bets of future rate increases. These have fallen sharply since the end of September.
The Governor said: "This action should not lead to higher mortgage rates."Rates on new fixed term mortgages should not need to rise as they have done."

We always went tracker until the rate fell so low that it was the same price as the fixed. Now the two rates have diverged again - we'll be going back to the tracker when it comes to remortgaging again in the summer. 6% fixed? No thank you! But if you are the type to worry about these things, if paying the extra - and it's quite a bit, gives you peace of mind and that's what's important to you then you will pay extra and you'll feel better for it. You could go tracker and save the difference into an account - to cushion the blow if the rates shot up and if the rates don't shoot up, the cash is yours rather than the bank's - but who has the discipline to do this - you might have?

Really helpful - thanks for sharing

I think you also have to consider what you can afford.

If you can afford your fix but no increases above it, then all of a sudden the fix becomes a much more attractive option.

If you have more flexibility and can afford to roll the dice on what interest rates will do then there's less need to fix, or to fix for very long.

What was the interest rate offered on your fix?

But then presumably you’d have to track the difference and work out how much to save each month? Sounds like a headache.

You'd be amazed how much some people like doing this stuff!