First Time Buyer: 3 vs 5 Year Fixed

stu_iow

Hello there,

I am a first time buyer, what do you MoneySavers think will be best for me:

1. 3 year fixed @ 5.84% or
2. 5 year fixed @ 5.69%.

I think that two years will be too short as we don't want to be coming out of our fixed rate into a recession with the house being the same price that as what we paid for it. 5 years will give the property market time to recover and increase (hopefully!), also we would have started to pay off capital by then. This will mean that when re-mortgaging (again hopefully!) our loan to value (LTV) would have decreased, maybe to 75-80%, giving us more scope to get the better deals. Also through these 5 years interest rates will have to increase, giving us the benefit of the lower fixed rate.

The converse is that hopefully within 3 years this mortgage mess would have been sorted, banks would be lending to each other again at sensible rates, and the perceived risk of 85% LTV would have reduce giving us the ability to get the lower rates of 4-5% that are available to people with massive deposits now.

I have my opinion, but wondered what you guys thought.

Cheers.

Robert_Sterling_3

I will tell you my choice after you reveal the arrangement fees for each of the two mortgages.
As I do not know them yet I will go for the five year plan but I might change my mind when the arrangement fees are revealed.

I thought you stated you own view very clearly and well.

dimbo61

i would take the 5 year deal for all the reasons you have listed and overpay as well because it will save you 5,69% tax free and reduce your debt plus increase the equity you have in your home
good luck

System

Do you want to live in this place for 5 years? If you have a baby or need extra space for some reason would it suffice? 5.69% isn't a bad rate, I was on 5.34% when I bought in April 2007 when lenders were begging people to take money from them.

stu_iow

Cheers guys.

Set up fees are £995 (with £250 cash back and free valuation) for the 3 year, and £299 plus £275 valuation fee for the 5 year. So probably about the same when considering overall set up fees.

Just to let you know 3 year fixed was with Abbey and 5 year with Nat West.

Thanks.

Robert_Sterling_3

OK. Thanks for the additional information.

Even more enthusiasm now for the 5 year fix. That is the one for me.