Mortgage fix now, 2 years or 5?
Discussion
Just about to take out a new mortgage and I've been offered a two year fix at 1.4% or a five year fix 2.2%. There's an 'arrangement fee' of £995, which is payable whenever I refix. Initially, I decided (on the advise of the IFA who arranged the mortgage) to go for the 2 year fix. Then planned to probably refix for five years when the initial fixed rate comes to an end.
Now having 2nd thoughts about only choosing 2 year fix to start with - could the recently reported inflation push up interest rates quicker than people had been thinking?
Now having 2nd thoughts about only choosing 2 year fix to start with - could the recently reported inflation push up interest rates quicker than people had been thinking?
Depends on the size of the mortgage, those fees are quite high, the bigger the loan the quicker you'll recover them. I would do the calculations using a fee free option.
I'm in the same position, think i'll go for 2 year fix with my current lender, 1.84% no fee, thought about a 5 year fix at 2.24% (fee free) but as I want to overpay by £1000 pm the 5 year won't let me after 2 years, it's more than the 10% allowed.
I've worked out that if I go for the 2 year fix I need a follow on rate of 2.7% or better to be no worse off, I'll take the risk that even if rates are 3% for 2 year products its not going to be a massive amount as the overpayment would of had the desired affect by then.
I'm in the same position, think i'll go for 2 year fix with my current lender, 1.84% no fee, thought about a 5 year fix at 2.24% (fee free) but as I want to overpay by £1000 pm the 5 year won't let me after 2 years, it's more than the 10% allowed.
I've worked out that if I go for the 2 year fix I need a follow on rate of 2.7% or better to be no worse off, I'll take the risk that even if rates are 3% for 2 year products its not going to be a massive amount as the overpayment would of had the desired affect by then.
Mortgage is for 130k. LTV just over 50%. What LTV do you have for those rates? I've not been offered any fee free options, broker advised this was the best all round deal available to me.
Pretty sure this one allows overpayments of 10% per year though, sounds like yours is 10% within the fixed rate period?
Pretty sure this one allows overpayments of 10% per year though, sounds like yours is 10% within the fixed rate period?
The two year seems a bit cheaper.
On a £130k mortgage, you'd save £1,040 per year in interest with the two year deal, but your arrangement fee works out at £500 a year rather than just £200 with the five year.
So you will save the equivalent of £740 a year for the first two years, and after that it will depend on what rate you are offered next time.
I personally think that they won't raise interest rates in response to inflation due to the deeper problems in the economy, but others may feel differently.
On a £130k mortgage, you'd save £1,040 per year in interest with the two year deal, but your arrangement fee works out at £500 a year rather than just £200 with the five year.
So you will save the equivalent of £740 a year for the first two years, and after that it will depend on what rate you are offered next time.
I personally think that they won't raise interest rates in response to inflation due to the deeper problems in the economy, but others may feel differently.
40% ltv here 1.99% 5yr fix £750 fee with HSBC and 10% of balance overpayment allowed every year during fixed period. I wouldn't make that level of overpayment on a tracker and can't see a tracker being much cheaper. If rates do go down or negative I doubt any trackers would follow anyway.
Lots of upside and far less downside risk to a 5yr fix right now IMO. Wouldn't bother with a 2yr the brown stuff will just about be hitting the blades around then.
Lots of upside and far less downside risk to a 5yr fix right now IMO. Wouldn't bother with a 2yr the brown stuff will just about be hitting the blades around then.
kingston12 said:
I personally think that they won't raise interest rates in response to inflation due to the deeper problems in the economy, but others may feel differently.
Agree to the extent that they won't voluntarily raise rates but my concern is as we leave the EU sterling is going to be vulnerable at the ebb and flow of markets etc and can anyone rule out a situation where UK is forced to raise rates? In that situation history tells us they may go very high very fast but for a short period? What would that do to the difference between 1.99 fix and 1.74 tracker. The margin is negligible so no downside to fix except (and let's not forget) the second product fee when the 5yr fix ends...
mjb1 said:
Mortgage is for 130k. LTV just over 50%. What LTV do you have for those rates? I've not been offered any fee free options, broker advised this was the best all round deal available to me.
Pretty sure this one allows overpayments of 10% per year though, sounds like yours is 10% within the fixed rate period?
Almost identical to mine, I've got £131k but 25% LTV, I found the best deals were with Coventry building society but due to a recent btl purchase they wouldn't allow the income from it but took into account the outgoing, I was interested in the offset 1.75 % flexx tracker, sticking the overpayments in offset account. I'm with coop and they offered the same as you, 2 year fix 1.44% with £999 PF, but the no fee option worked out cheaper. Better deals out there but no hassle option for me to stay with coop. Pretty sure this one allows overpayments of 10% per year though, sounds like yours is 10% within the fixed rate period?
I was originally convinced that 5 years the way to go but, and I've got unlit the end of the year to decide, however they allow you to lock inn a rate 4 months before. I'll move after two years and hopefully keep up the overpayments so a tracker would my preference, 5 year fix will drastically reduce the amount I can overpay. Anyone know of a fixed rate with more generous to unlimited overpayments?
With your LTV you should get a better than you've got, who's your lender?
I think L&C brokers have had HSBC for a while.
It is worth remembering that we are still benefiting from some of the lowest interest rates in history.
Many younger borrowers have never seen rates much higher by us older folks have seen 15% or more for a mortgage.
Savers are seeing record low incomes from their savings which is not encouraging saving. This is unsustainable longer term so rates will need to climb to at least keep pace with inflating for the saver after tax.
The current low mortgage rates also reflect the fact that houses are still seen as an appreciating asset. The change in economic growth in the world may well see a correction in the next few years.
Locally a 4 bed detached home is £750k. A two bed flat is £1k to £1.25k per month to rent. Roads are clogged each morning/evening with people commuting from cheaper areas. Houses are being built at a rate never before seen in this area with villages increasing in size by 25 to 40% in one hit. And we are 50 miles from London!
Ramble over.
Many younger borrowers have never seen rates much higher by us older folks have seen 15% or more for a mortgage.
Savers are seeing record low incomes from their savings which is not encouraging saving. This is unsustainable longer term so rates will need to climb to at least keep pace with inflating for the saver after tax.
The current low mortgage rates also reflect the fact that houses are still seen as an appreciating asset. The change in economic growth in the world may well see a correction in the next few years.
Locally a 4 bed detached home is £750k. A two bed flat is £1k to £1.25k per month to rent. Roads are clogged each morning/evening with people commuting from cheaper areas. Houses are being built at a rate never before seen in this area with villages increasing in size by 25 to 40% in one hit. And we are 50 miles from London!
Ramble over.
mike9009 said:
I have just renewed with Nationwide.
2 year fixed for 1.64% with a loan value of £35k (about 12% LTV). No fee and get £250 cashback.
Looks like 1.74% for new customers though..... or 1.34% with £999 fee.
Mike
Nationwide seem to have the best retention deals and follow on rate, great example of looking past the headline rate, long term you can't go wrong. Any new mortgages I'll be looking at NW, at the moment COOP not too bad, they do give slightly better rates to existing customers than new, were talking 0.05% if that but still better than charging more. 2 year fixed for 1.64% with a loan value of £35k (about 12% LTV). No fee and get £250 cashback.
Looks like 1.74% for new customers though..... or 1.34% with £999 fee.
Mike
I've got another mortgage with Platform (also coop) who don't even do retention deals, I find it amazing that after your initial deal is over you either go SRV or move, why would they not want to hang onto a customer, seems daft to me. Last person I spoke to mentioned that they are looking at the policy and hopefully will offer product switches soon.
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