FTB mortgage shock

[LottaOtta]

I’m a first time buyer and basically going in blind. I saw a mortgage advisor (reputable in my area) who advised me to go for a 2 year fixed rate over a 5 year fixed rate, saying that 5 years are really only ideal for people who have close to no wiggle room each month re budget. I understood that after the fixed rate period my payments would change but I didn’t quite realise they would change THIS much.

I received my mortgage offer yesterday from Halifax and was surprised to see this. Is this a typical jump after the end of a 2 year fixed rate? I’m also confused by them seemingly setting in stone what they’ll be raising my repayments by, surely that depends on the base rates in 2025 (like they say in bold at the bottom)?

if I knew it was going to be a £160 monthly increase after the fixed rate ended, I’d have insisted on a 5 year rate (my fault for assuming the mortgage rate would change SOMEWHAT but not asking how much that might be).

is it possible (or reasonable) to ask my mortgage advisor to reapply for a 5 year fixed rate instead? Will that dent my credit score?

thanks

After the 2 year fixed deal the interest rates may drop lower than what your predicted and then you can apply for another fixed deal.

They haven't set in stone what the repayments will be after the fixed rate ends - the paragraph at the bottom explains that the repayments change depending on interest rate (the £836 is an example)

Also, at the end of the 2 years you can arrange a new fixed deal, which is normally cheaper than the standard variable, but there's no guarantee of what will be available

Ah so the £702 they mention IS a random prediction? I don’t understand why they’ve written it as if it’s ‘this is what your repayments will be for 2 years and then they’ll be £702 and then written a separate bit in bold about an example of what it could be? It seems very black and white to me which is where my confusion came from.

wouldn’t it be better to fix for 5 years if they’re predicting such a big jump?!

We've always done 5 years at a time as you don't have to think about budget for a while. It also gives you a bit of time for the house to hopefully increase in value a bit, and for you to have paid more capital. When we've remortgaged at the end of the 5 years we've always got a better deal as we own more of the house (and it's value has increased). 2 years never seems long enough to me to pay much off etc 🤷‍♀️

Yes I think with hindsight I should have asked them to apply for a 5 year rate. And now I’m wondering if I should ask her to reapply for a 5 year, or whether I’m worrying over nothing

We've never gone onto the standard variable as we always arrange a new fixed term deal with a new provider (whatever deal is the best available at the time).
That rate will only be important if for any reason you are unable to remortgage due to being out of work for example. Then you'd be stuck on the SVR.
First time buyers were often advised to get a 2 year fixed as house price growth (better LTV) and lower risk meant they could often get a better deal after 2 years. No idea what the current market advice is now though.

We started with a 2 year fix but then went for 5 years

At the end of your fix you apply for another fix. The prediction is the standard variable rate. They've suggested a 2 year fix because everyone is hoping the interest rates come down and so they anticipate you getting a better deal then, especially as you'll have a better loan to value ratio.

You just remortgage after 2 years. It's pretty much expected that you do that once a fixed rate ends.

The last few posts have blown my mind because I didn’t realise you could apply for another fix or change the mortgage provider. I thought once you agreed to a mortgage that was you stuck with Halifax (for example) at their rate until it was paid off. So that’s helpful to know thank you. Basically what I’m taking from this is that I should hopefully be able to jump ship to a better deal than that quoted £160 jump in 2025 (but obviously who knows where the economy will be then)

See I thought that remortgaging was something you did when in dire straits and in need of money urgently, I didn’t realise it was a normal expected thing that everyone does!

What @cupofdecaf said.

Your broker is suggesting a 2 year fix as it's expected that rates will have dropped in 2 years time and you should be able to secure a better rate.

For example, (numbers are made up for ease of explanation) : 2 year fix at 4%. Current standard variable rate is 6%. Your calculations will show that after the 2 years you'll drop onto the 6% SVR. However, in 2 years time the SVR might be 5% and you might be able to get a new fix at 3%.

Using the above numbers as an example, if you fixed for 5 years the rate is likely to be higher than a 2 year fix so say it's 5%. Youre then stuck at 5% for 5 years when you could have got a 3% deal for 3 of those years. (Do bear in mind that you usually need to pay arrangement fees so these need to be factored in but I've ignored for now to make it easier.)

It sounds like your broker is working on this basis but if you would prefer certainty, and there's certainly no guarantee that rates will drop, then a 5 year fix will mean no big shocks in that time period so easier to budget.

Hope that helps. The figures quoted in your mortgage offer are for illustration purposes based on current known information. They can't predict what the rate will be in 2 years and by law they must show what will happen when your fixed rate ends.

Truthfully that isn't really a big jump.

In 2 years interest rates may be lower so you just reapply for a new deal in 18 months or so, you aren't tied to this forever more

OP you are coming across as incredibly naive and like you have done very little research into how all this works, which is worrying if you plan on buying a house.

Have a look at the mortgage guide on moneysavingexpert.com, it may help you

Thanks very much everyone for the clear explanations!

Ive always taken the longest fixed that I can afford. Yes I got stung a bit using that method because I took a 10 year fix, literally within months rates plummeted and went up as soon as the 10 year period was over!!!

But, I didnt even have to think about what was happening, that was my budget, that was my payment and didnt need to worry about changes or making new decisions. Its not worth that for everyone but thats what I used to do

Before your current fix rate ends you find a new one.
Use a mortgage broker, never pay them a fee there are loads that are free.
I use London and Country.
You probably need to do some reading up because you do see very naive on how mortgages work and that is a little worrying given it's such a massive commitment.

I think you need to do some more research about mortgages. There is lots of good information out there but really your mortgage broker should have discussed and explained all of this to you. He seems to be assuming that rates will have reduced in 2 years time. No one knows if this will be the case or not; it is equally possible that they may be higher.
Are you the sort of person who prefers certainty and security and prefers to know what your out comings will be for 5 years or would you prefer to take a risk. How secure is your job? Are you likely to have significant wage increases or not? Do you have anything/ anyone to fall back on if a gamble doesn't work out? You need to ask yourself these questions. If you want security, reapply for a longer term.

OP have you even read the Ts and Cs in your mortgage offer? You really need to understand this better than you seem to now.

What @rainingsnoring said.

Definitely spend a couple of hours on somewhere like moneysavingexpert to make sure you really understand how it all works. It's a big commitment so you want to be sure you have a handle on it.

Also remember that after two years rates could be lower, similar or higher. Cleverer people than me might be able to have an educated guess, but worth making sure you understand that too.

We remortgage at the end of every fixed rate term end. We could only fix for 2 years initially now we fix for 5 usually. Regretting not fixing for 10 last time

Most people compare deals themselves to see what looks good. Then go to a Broker and see if he has any better deals.

If you need certainty take a fix. You have to decide how long you think the interest rate will remain the same to work out if a 2 or 5 year rate seems best for you.

In my experience there has always been a jump after the rate ends. Either you’re paying more or less. Usually more.

But once your 2 or 5 year deal is over you will generally consider another one. I usually move from a 2 or 5 year deal to another one once it ends. Rather than standard variable rate, which is high.

Just for info if you are online comparing the interest rates and deals, remember not to look at the APR rate across the deal as it will also take into consideration you going into the standard variable rate (svr) one your 2 year or whatever deal ends and the rest of your 25 year or whatever mortgage is quoted at the svr rate. Go by the interest rate quoted only. Not Apr rate quoted. Unless you actually intend to stay in the svr once your deal ends. I never do though. It’s like getting a credit card cheap deal that ends. Why stay there when I can go to another deal with another credit card. I go where I get the best rates. Having loyalty doesn’t help.

You seem to be thinking of remortgaging to take money out of the property (Reason A)

What people are talking about is remortgaging only for the amount due (Reason B)

Reason A - you live in a house worth £300,000 with a £100,000 mortgage. You desperately need money so remortgage for £200,000. You need to use £100,000 to pay off the first mortgage but then have the additional £100,000 to spend.

Reason B - You have a 2 year fix at 5% with Halifax. After paying for 2 years, you owe £100,000 on a £300,000 house. At the end of your fix, standard variable rate is 7% so your monthly payments will climb. However, Nationwide is offering a 2 year fix at 4%. Therefore, you remortgage for £100,000 with Nationwide. You don’t see a penny. Instead, Nationwide send it directly to the Halifax (usually via a solicitor). You pay less each month and now pay Nationwide rather than Halifax.

You should also read up on the benefits of overpaying the mortgage - if you can afford it and your mortgage allows it, it can save you a fortune in interest.

You should also read up on the benefits of overpaying the mortgage - if you can afford it and your mortgage allows it, it can save you a fortune in interest.

If you aren't able to overpay but get a pay rise you can lower the term. For example it isn't rare for younger people to be on mortgages with 30, 35 and 40 year terms. They get a decent pay rise in 2 years and when they come to fix again they change the term of their next fix to 25 or 20 years. Saving interest.

This is also one reason why mortgage brokers suggest 2 year terms.

OP, I've never chosen a fixed rate, but always a tracker where I pay base rate plus 1.5% or similar.

That worked for me because rates have been very low for so long, only rising in the last year. I've only got 18 months to go on my mortgage, so I calculated the amount I would save if I remortgaged to a fixed rate now, and the amount I would save is less than the arrangement fee. So for me, sticking to a tracker is better.

Each person's circumstances differ. I think you need to read up more about mortgages before you commit yourself. Good luck.