Stick or twist

[mnaylor]

Hey all,

To cut a long story short I am currently trying to decide whether to pay the early repayment charge of £7.5k on our mortgage and fix it up for 5 years now. I am tied into the current deal until December 2023 and it's on 2.34%. I can probably get a deal now of somewhere between 2.7% and 2.9%. If I wait until next year when the current deal expires I won't have to pay the £7.5k but will likely end up with a worse interest rate the way things are going.

It feels like an impossible decision as you are basically trying to predict how bad the mortgage deals will be in 12 to 18 months time!

Anyone else in the same boat or got some sage advice?

[ATM]

Lots of factors to consider here. One is LTV. If house prices drop by say 25% before you fix your next deal you may find that affects the mortgages on offer if you can get an offer. So if you have a high LTV now you may need to get fixed for a deal sooner rather later. Obviously that depends on your belief that house prices could remain stable or if you think they might drop. A drop in values could make your LTV 100% or just higher which means the offers you get will be less favourable as they carry more risk for the lender.

[mfmman]

Two things there for me. But theoretical as you haven't stated the mortgage balance. You have £7.5k in ready cash, you must also think that you can afford the higher payments that the rate you could get now would mean. Put the £7.5k into the highest paying instant access savings account (Chase or Marcus probably at the mo) and drip in the difference between your current monthly payment and how much you would pay if you changed now.

If you then can't get a rate close to the one you have now, you will have a lump sum to use at the end of 2023 that could be what £10k? (dunno without knowing the mortgage balance) Plus you will have paid another 18 months of mortgage capital off. Will an additional 0.5% - 0.75% - 1% negate the lower balance? If it does, you might end up with a few quid left over (for spending on frivolous PH-style stuff). If it doesn't, then this advice was terrible

Edited by mfmman on Friday 17th June 19:56

[mnaylor]

Thanks guys. Keep the advice coming.

My mortgage balance is about 370k. House is worth about 500k. Live in the south east, in an area that is very sought after locally. I would be surprised if house prices went down much but who knows with the state of the wold these days!

[ATM]

mnaylor said:

Thanks guys. Keep the advice coming.

My mortgage balance is about 370k. House is worth about 500k. Live in the south east, in an area that is very sought after locally. I would be surprised if house prices went down much but who knows with the state of the wold these days!

Most people I know who own property don't believe it can go down. But if you believe mortgage rates are rising from basically nothing then surely you can imagine a world where house prices suffer. If prices drop by 20% you are then trying to secure a mortgage of 370 against a property worth 400. That is going to be a bit more difficult than 370 against 500. If they drop by 15% you're at 370 against 425. Hopefully you get the idea as the maths isn't difficult. I think most lenders like to see an LTV of 75% or less to give their more favourable rates. You can check this out with your favourite lender.

[supersport]

You need to calculate the overall cost, which obviously is harder. Given you don’t the interest rate in 18 months.

It have a stab and see if it’s going to cost more to pay the penalty and a higher rate now for 18 months vs waiting and just paying a higher rate.

If you fix for 5 years and the rates tank again.....

[Sarnie]

£7.5k to move to a higher rate, when you can secure a new rate in 12 months?

[mnaylor]

Hi Sarnie, the thinking is interest rates are going to be much worse by then so will paying 7.5k now save us money in the long run?

[Rob_125]

Fag packet maths.

7.5k/5 (year term) = 1.5k/Yr.

On a 370k balance, that's around 0.4% Apr. Your new deal will also therefore cost ~1.5k/year more. And that's not including the setup fees, let's say that costs 1k.

I would personally over pay by 7.5k now, let the mortgage run its term/lock in your new mortgage as early as possible (6 months?) Before your term finishes.

But it's not a clear cut call!

Edited by Rob_125 on Saturday 18th June 07:29

[CrgT16]

Tricky one due to the rates…

I think the 0.25% increases have been on the overly cautious side. Particularly now with fed being agressive with 0.75% increase.

I think our increase will very much be tied to the Fed increase I. The sense we will want to keep the exchange rate to the dollar in a better place as it affects massively the costs of imported goods.

Next increase will be soon and I suspect a minimum of 0.5 if not 0.75%

So paying for some rate fixing for a good few years will give you time to save money in case the rates really go up.

Ours is fixed up to 2026 I. The next few years I will be saving as much as possible just in case the base rate goes crazy.

[ATM]

CrgT16 said:

I think the 0.25% increases have been on the overly cautious side. Particularly now with fed being agressive with 0.75% increase.

I think our increase will very much be tied to the Fed increase I. The sense we will want to keep the exchange rate to the dollar in a better place as it affects massively the costs of imported goods.

Next increase will be soon and I suspect a minimum of 0.5 if not 0.75%

This

If you don't understand why we need to keep our interest rate in line with the FED let me explain

If our rate is way behind [lower than] the FED then this makes the GBP worth less than the USD and therefore the conversion rate from GBP / USD will go down and down and down

A lower value GBP is good for exporters and tourists travelling to the UK BUT bad for importing, us buying from abroad or travelling abroad

So a weaker GBP will make all the stuff we import from China get more expensive, and all the Oil and Gas and food and fertiliser and cars and everything else we import too and that's on top of all the inflation we have right now

So more than likely we will follow the USA rates

FED will probably raise another 0.75 next too so we will be over 1% ish behind them where we are today and therefore we need to expect much more hikes and bigger and quicker too

I'll bring up valuations again

If rates start going up like this do you think people might start selling, do you think the economy will slow down, do you think people will start losing jobs, do you really believe house prices will stay high or we will see prices coming down

The only chance rates turn around and atart going low again - which is also a possibility - is if the central banks all give up on fighting inflation because our economies suffer too much. Then they will lower to boost economies back up again. But that will leave us with inflation to stay on top of the higher prices we already have.

So even if rates go low again the economy would need to be hurt badly from some rate increases already AND we would still have inflation or higher prices.

I can't understand how anyone can digest those outcomes and assume house prices won't go down. They are already going down in USA.