Talk me through your mortgage decisions, 2yr 5yr fix?

[mumarooni]

We had a mortgage offer through this morning. Hurrah! We are pleased as we are not completely straight forward, I needed lenders to take a new salary into account even though I don't start that job for 3.5 months and don't have the contract through, and added to that wife is self employed with a big difference in earning this year to last year. So we had a broker, who was great.

The only thing is, I didn't realise that the broker applied for a specific product/fix, I had mistakenly thought that he would apply for the figure we needed and then there would be the option of which fix to choose after.

The offer that came through is for 2year fix, at 4.79% for 80% LTV. There is a product fee of 999, 500 cashback, and free valuation.

I don't feel we are in a position to be super picky, given that lots of lenders wouldn't have the risk appetite for our situation with the new job/self employment. But I'm wondering if we should try to get a longer fix, 3 of 5 years, given the product fee. I know this depends on whether mortgage rates will be higher or lower in 2 years time, which nobody can possibly know, but I would love to hear others talking through how they are making decisions on wht length of fix if they are taking out new mortgages or renewing right now.

Just hearing how others work through their own decisions would help me to decide whether to try to swop to a longer fix (does anyone know how easy that is at this stage? Is it a whole new application - and therefore broker fee?!) or whether to find peace with the 2 year fix. Thank you!

Longer isn't always better imo.
A lot of mortgage advisors/brokers recommend 2 years fixed at the moment, as forecasts say that interest rates will plateau out around August after the latest increases, and then slowly drop back down thereafter over the next few years. So in two years time, you could remortgage at a lower interest rate, on top of being in a better position with your LTV after paying two years worth of repayments.

We’ve done a 5-year fix for 4.17% with no fee, 75% LTV. (And valuation included but was just a desktop one.)

It seemed the least-worst option and we wanted certainty for a bit.

Forgot to say, went for the fee-free version as there wasn’t that much in it. Dealt directly with the lender (First Direct) so no broker involved.

Seems weird they haven’t talked to you about how long you want to fix for. Did they at least discuss fixed vs tracker with you?

I don't think you'd need a new application - the broker would just ask the same lender if they can offer any other products (eg 5 year fix) and they would presumably say yes or no and at what rate.

We already have a mortgage of £220k which is fixed at 1.7% until December 2025 (fixed for five years in 2020). This will be ported to our new house when we move.
We are also taking a new mortgage of £264k which we have chosen to fix for five years at 4.24%.

Whilst rates are higher for 2-3 year fixes, indicating a forecasted drop in rates, we wanted the security of knowing exactly what we will pay for the next five years on the new loan.

We made peace with the fact that rates might reduce in that time, but because we have the existing mortgage rolling off in that 2-3 year period, we feel we can use that milestone to benefit from that. It felt better than having two mortgages coming off fixed rates at the same time.

We also have some significant investments which will mature in 2025 which we can use to reduce the balance of the first mortgage if needed.

We are not big risk takers and I think we would rather know what we will pay for as long as possible and know that is affordable, even if it means we end up paying “more”.

We paid a fee as it was cheaper over the fixed rate period to do so (this is easy enough to figure out, just calculate the difference in the monthly payments between the fee rate and the fee free rate over the fixed rate term) and see whether it’s more or less than the fee.

It’s very odd that they didn’t confirm your choice of fixed rate period/fee before application.

That’s odd they didn’t send you an overview of the product before they did the application. We’re buying now - going for 5 year fixed it’s 4.11%. 80% LTV. We appreciate rates may drop but doubt it will be much - and we prefer the reassurance of a static cost for 5 years

First rate I’ve seen better than mine! Are you willing to say who the lender is?

5yr at 3.8%

didnt think rates would drop much in that time. Takes it way past us paying nursery fees so the rate plus certainty seemed like the right thing to do.

I wouldn’t fix for 5 years anyway at that rate as think they will have reduced within that time. You’re not in a strong position to negotiate as you have acknowledged but maybe try asking if you can fix for 3 years instead of 2 as long as that won’t cost you more money?

WOW I have rate envy. Guessing this is lower LTV?

Thanks all. Interesting. quite a few confirming my sense that knowing where you are has benefits. I guess the recent economic situation has just made me feel unsure of how predictable anything is, and therefore more likely to lean towards stability even if it does cost more...

We literally just remortgaged at the beginning of this month to a 2 year fix at 4.1%. I feel like rates will stagnate now with a gradual decline in 2024.

Not expecting the ultra low rates again, but would be happy to be able to remortgage to something <3.5%, as I feel like that will be around the norm.

Need to caveat that our LTV is just under 50% though, so we had the pick of the best rates.

I think we have agreed the exact same deal as you. 4.8, 500 cashback, free valuation and 999 fee with Nationwide. We are going for 5years. We originally said 2 but halfway through the application decided we wanted 5 and our broker just contacted the bank and switched it.

I forgot to mention we can make unlimited overpayments on ours.

Why will rates reduce?

I've gone with 5 year fix at 4.2% and a fee because I'm a first time buyer and I want to get used to the mortgage, it gave me the lowest monthly outgoings and the ability to overpay every month flexibly up to 10% of the value of the mortgage. As much as people say rates could come down, they could also go up

Also remember mortgage lenders don't always get their forcasts right I'm sure they were offering 10 years fixed at under 2% just a couple of years ago... ;)

I'll be going for a 3 year at least but probably a 5 year just so I have a fixed idea of my outgoings. I tend to play it safe though (and also remortgaging is a pain in the arse)

It’s not a particularly good rate which is understandable given the fact that OP is not a straightforward client. From research I have done I think rates are likely to fall well before 5 years & I expect OP would be able to switch to a better rate. But they need to do their own research and form an opinion from it because of course no one knows for sure.

We’re below 60% LTV and applied before the last interest rate rise.