Mortgage dilemma - around 1 year til 5yr fix ends WWYD? Anyone else in the same boat?

[TunnocksTCake]

We have a 1.89% mortgage which will end in October 2024 and have a sub 50% LTV, need approx £200,00 mortgage on a £410,000 house. Our Early repayment charge is around £6k. I am going to be going on mat leave in January 2024.
Currently we are getting quoted 5% rates. Anything much higher would be fairly disasterous especially with mat leave coming up... Really dont know whether to:

1. Stick with low rate we have until the end of the fix (would lock in rate 6 months before) bt this comes with risk of lenders not looking favourably on Maternity leave... Obviously would try to save as much as possible to overpay.
2. Get a rate now to start in 6 months time so we still have that time to save before mat leave starts/ mortgage increases. This means paying the £6k early repayment which, thinking about it, would take us over the 50% LTV threshold if they put it on the mortgage
3. Option 3 that I have not thought of.... enter suggestions here!

What would you do? 5% is a jump but manageable for us, it doesnt look like these rates are going to come down for at least 1 - 2 years and we are right in the middle of that timing so thinking waiting it out might leave us with a worse deal than if we do it now, and the ERPC if added to the balance doesnt make a huge difference to our lives.... Just after opinions of what others would do in our position, I'm really torn!

Sub question on ERPC - if you stick with the same lender do they still whack this on?

TLDR: cheap fix ends in 1 year 3 months, do we suck up ERPC and fix now or wait it out?

I’d go with (2), we took the hit on an ERPC when we moved last year which was really annoying, but with hindsight I’m glad we did as we’d have paid far more if we’d got the new mortgage after the mini budget.

If you don’t overpay on the mortgage at the moment is there any scope to save up the £6k so you can pay off the ERPC rather than adding it to the mortgage? If I could keep myself in the sub 50% LTV bracket I would.

I don't have an answer but I am in a similar boat so watching with interest

Our 10 year fixed rate ends Jan 2025 and our LTV is around 25%. My current inclination is to save as much as possible and then use this to overpay at the end of the term to reduce the new loan.

We are fortunate in that we can manage the new rates but our son will hopefully/possibly start Uni in Oct 2025 and will only qualify for the minimum loan so we also have to factor in for large maintenance expenses. I'm really not sure what to do for the best.

@ShadowPuppets thanks, its so frustrating isnt it! Sadly couldnt save £6k in 6 months but could save around half that which will help I guess... then possible I might get a bonus at Christmas which would be a bit more towards it.

We remortgaged when I was on maternity leave, all I needed was a letter from my employer with my salary on return.

No expert but consider how much interest rates have changed in the last 15 months and calculate what that could mean for the just under 5% fixes by that time. I went fixed for 10 years around 18 months ago at 3.5% and wish I'd done it a year previous at 1.8%. Peace of mind is really helpful.

@Outfithelp89 oh thats interesting... I was under the impression that your choice of lender/ product was much more limited when on mat leave and some wont even consider your income.

You'd have to do the sums and calculate what % rate rise would be equivalent to paying £6k. I'd lean towards option 1- as a pp said your mat leave shouldn't count against you if you have a permanent contract.

Im due to finish a 5 year fix in July 2024. I’m going to stay on my fixed rate but I don’t have a maternity leave to throw into the mix.

How much would your ERC be? I would be tempted to get a 2 year fix if affordable just to take me past mat leave?

This is pre rate rises but we specifically sought out a 5 year fix when I was on ML with our second (last) baby so that by the time we needed to remortgage we’d be past crazy childcare costs being on our bank statements.

Remember that the cost of option 2 isn't just the early repayment charge, it's also the extra interest you'll be paying between the switch and October 2024. Those hundred per month will add up.

You mentioned locking in a rate now, for 6 months time and I think that's a very sensible thing to do either way - it gives you the option to delay the decision til then and still take advantage of today's rates if things have gotten worse.

@LittleRedY0shi thats true
does anyone know if you pay any fees for locking in a rate 6 months in advance if you then dont take it? I keep seeing this as a recommended thing to do but not sure of the specifics.

If they won't take assurance from your company that you'll be back on same salary after maternity, could you bob along on SVR (I know painfully high) for the few months until you get back to work and then fix. Being on SVR for a couple of months at the end of the fix will probably be a lot cheaper than losing your lower interest rate now.

Especially if you'd have to pay the early exit fee...

This is what I'd do. OP you can use one of the online mortgage calculators to see what increase in rates would make it worthwhile spending that 6K to to leave the fixed mortgage earlier. A simple interest calculation isn't very accurate is this situation, but 1% difference in rates is 2,000 dollars difference in interest charge for a year. So if you were fixing for say 3 years and in 6 months the rate is 1% higher that would mean you'd be better off exiting early especially once you do proper calculations which would make the lower rate better than shown here. But that's a big movement in rates. You can play around with a loan calculator like this to see what difference different rates make both repayments and to the total cost of the loan over its life. https://moneyfactscompare.co.uk/loans/loan-calculator/

They're not allowed to penalise you for being on mat leave. They can however factor in childcare costs when you return to work.

You can book a rate in advance and then prevaricate/delay etc.

With speaking to an ifa I would have thought. They are usually pretty good at sketching out different scenarios.

Anything you can overlay or save in the wintering will be potentially significant in increasing your options as you're so close to the 50 LTV once you start factoring in erpc and fees for new mortgage.

Just check your lender will let you add this to the mortgage as another sub account and not an arrears balance.

Option 1 sounds more sensible. Interest rates will soar and then predicted to drop. Always check the length of time the lender offers with a low interest.

https://www.moneysavingexpert.com/ is a good site regarding finance.

Does anyone think interest rates next October will be higher than now? If they're about the same as now, then you be best stay put and saving as much as you can.

I easily switched product recently at the end of my 5 year deal with natwest. As i was staying with same provider no affordability questions were asked.

Same position as you minus the maternity leave issue.

i’m saving like crazy to pay off a chunk when I remortgage at the rate expiry point and am hoping interest rates go down over the next year!

i’ve come off fixed deals lots of times before (am old!) usually my lender contacts me three months out with their offers. I’ve never found it to be cost/hassle effective to change lender.

Hi OP, I'm not an IFA (or any sort of FA!) but having done it a few times, it's my understanding that staying with your current lender doesn't trigger ANY affordability checks.

In your shoes I would NOT say the words "mat leave" at any point, would just call your lender and ask what kind of rates they are offering at present and then call again 6 months before your fix expires and ask the same...

I also don't believe that "locking in" a rate ahead of time carries any penalty if you then decide to switch lender or otherwise change your mind. It's only a good thing, as I understand it - if you locked into a rate which goes down when your fix is up then you'd go onto the lower rate, not the one you "locked in". But again this is a reasonable qu to ask the lender directly.

Depending on the political situation the markets may rally after a GE next year. No one would have predicted where we are now 12 months ago! So IMHO there's not much point paying a £6K penalty based on a guess of where we'll be in 12 months time...?

We also have a fix expiring (in Oct 24) and for us the only strategy that makes sense is to call our lender in May to see what we are offered.

Wish you all the best.

As PP’s have said, we remortgaged with the same lender and it was basically a tick box exercise on the website. No questions about affordability at all.

Another one voting for option 1 and sticking with the current lender. They typically offer very competitive rate and and don't run affordability check. Didn't ask for a single piece of paper when I did product transfer in May.
I wouldn't pay 6K ERC because I personally don't think rates will get much worse from what they are today. But many people (trolls most likely) will mention 15%...

Even if it is with the same lender, they can add to it in the small print. Make sure the length of lending period has not been changed too. for example. they could attach another extra 20-25 years to the existing mortgage to keep it low interest. You would have the burden for life.

I've never heard of a lender changing the term on the small print. Also I don't think the lender would know or care about mat leave as long as the mortgage was paid.

Whenever I've remortgaged with same lender, it's been a very short process online, no questions about affordability or anything of that nature. I fixed in 2021 for five years at 1.7% with existing lender because I couldn't be bothered having to remortage any time in the near future, and at that time I took a slightly higher rate than was available just for the reduced hassle of staying with existing lender (I figured all the gathering paperwork and back and forth wasn't worth saving a couple of hundred quid). It really was a 30-second job. So I wouldn't worry too much about not being able to remortgage to a competitive deal - your existing lender will most likely offer around the same as everywhere without needing any checks.