Should I fix for 2 or 5 years?

JFergy

Hi, just a bit of background, im buying a newbuild at 90% LTV and found 2 mortgages with Natwest (borrowing 135k over 35 years)

2 Year at 6.39% with £799 arrangement fee following onto 4% which im guessing is 3% above BOE rate.

5 Year at 6.49% with £299 arrangement fee following onto 4%

I know the basic pros and cons of each

5 Year
You know what your paying each month for 5 years.
Lower arrangement fee
At the end of 5 years house prices should have stabalised and (hopefully) started to increase, meaning i would have a higher LTV to negotiate a good mortgage deal

2 Year

At 6.49% the mortgage payments will be around £825 a month
At the end of 2 years if the BOE rate is..
1% i will be paying £605 a month
2% i will be paying £690 a month
3% i will be paying £780 a month
4% i will be paying £873 a month

So savings can be seen, but the risk i suppose is in the sustainability of a low BOE rate. Can anybody shed any further light? thanks in advance

Ian_Griffiths_Halifax

Bear in mind that Newbuilds generally lose some value as soon as you move in anyway and despite the rate looking high, the 5 year Fixed is the one to consideer.

beecher

Are you sure that Nationwide offer 90% mortgages for new builds? I didn't think any lender was offering such deals and thought you had to have a larger deposit due to the fact that immediately lose value.

JFergy

True. I know as a rule people see new builds loosing money like cars going out of a showroom.

I tried to compensate for this when negotiating the price with the builder and I believe its level, if not slightly less than an equal spec second hand house.

so thats one vote for 5 year....

JFergy

beecher wrote: »

Are you sure that Nationwide offer 90% mortgages for new builds? I didn't think any lender was offering such deals and thought you had to have a larger deposit due to the fact that immediately lose value.

Its Natwest. And apparently they are still doing it for the for-seable future!

beecher

JFergy wrote: »

Its Natwest. And apparently they are still doing it for the for-seable future!

Sorry, did read Natwest, don't know why I typed Nationwide!

I would definitely go for the 5 year deal, and would recommend overpaying like mad too. If you get used to paying more than you have to, you'll be in a better position to cope with interest rate rises in the future, and will also have paid more of the capital too.

JFergy

Sorry stupid question here, but you dont mean that at a higher interest rate i will be paying off more capital do you?

the 6.49% is only just comfortable at the moment, but as we are both at the bottom of ladders with quite a way to climb, we could be over-paying in 1.5 years.

So, no votes for 2 years?

beecher

No, I mean that your overpayments would be come off the capital.

I don't think 2 years is long enough, especially if you feel you can't overpay in the meantime. I think your chances of being above 90% LTV by that time are high so the safer option is the 5 year deal.

getmore4less

JFergy wrote: »

Sorry stupid question here, but you dont mean that at a higher interest rate i will be paying off more capital do you?

the 6.49% is only just comfortable at the moment, but as we are both at the bottom of ladders with quite a way to climb, we could be over-paying in 1.5 years.

So, no votes for 2 years?

How much are you putting into your emergency fund on you projected budget?

New build usualy cost money to get right.

If you are bordeline affording this (stretched and 35y term) then you need the longer fix, even then it is risky, pay rises and job security both need to be certain.

Fixing for 2 you might as well try and get a better deal on a tracker(lower than base+3%) and overpay.

5 years is optimistic for price stablization it took that long last time to bottom out.

JFergy

Yeh i thought so, just thought i had missed a trick, lol. I thought at the end of the 2 year fix LTV doesn't get taken into consideration,and you are automatically put onto a tracker? (in this case a +3% BOE)

Thanks for your time with this bud. Its good to get a second opinion on things

beecher

JFergy wrote: »

Yeh i thought so, just thought i had missed a trick, lol. I thought at the end of the 2 year fix LTV doesn't get taken into consideration,and you are automatically put onto a tracker? (in this case a +3% BOE)

Thanks for your time with this bud. Its good to get a second opinion on things

Usually not put on a tracker at the end of a deal - it is usually the SVR. 'Normally' the SVR is higher than available deals and presumably you'd want to get on another fix at the end of the 2/5 years. If your LTV is high, you won't have any other option than the SVR which could be an expensive option. That's why overpaying is so important - if you pick the 5 year deal you could throw your pay increases at it.