Choosing between 2/3 year fixed rates

MortgageMamma

Its not possible for a broker to tell you what he/she thinks the fixed rates will be in two years time as it is pure speculation and runs the risk of a mis-sale. No broker worth their salt will even try and do this, otherwise we would be accused of selling with a fear factor. We dont have crystal balls, or we wouldnt be working!

FTB_Newbie_2

AndrewSmith wrote:

Yes, if only life were as simple

The reason that I, and any other good broker will not make a prediction of what rates are likely to do is that, put simply, we don't know for sure. No one really does.

Of course. I wasn't trying to be so presumptuous as to ask to be told what interest rates as going to do in the future (and now, as I'm in a hurry, don't you know ! ).

I was just concerned that some of the brokers I have spoken to push two year fixes "because the rates are better/it costs less over two years" when that's not really the whole story...

AndrewSmith wrote:

It also depends on what your intentions with the property are as well, and how you see your life/situation changing over the next 2-3 years. Again, things that no-one knows for sure but only you can truly answer.

So it's nice to know that there are some brokers out there that have rather more insight than that!

FTB_Newbie_2

OK, so to rephrase my original question: What questions should I be asking myself to help decide how long a fix I should go for?

MortgageMamma

its simple really all you have to do is examine your own attitude to risk, how badly do you need a fixed rate mortgage? Why do you want one Do you have a high level of disposable income? are you on a tight budget? what are your plans in the next few years, will you be moving or staying put? whats most important to you, low fixed monthly payments for x years or seeing the capital balance of your mortgage drop quicker?

And finally, if you fixed now for say five years at 5.09% would you be willing to risk the fact you could be paying a little over the odds at some point if rates drop? If rates rose substantially, perhaps by 2-3% would you be able to afford your mortgage payments at the end of this fixed rate? these are all questions to ask before you fix. personally I feel that three year fixed rates are better value, especially if you have the ability to overpay a bit, as the capital balance of your mortgage has the chance to reduce a little before you switch again.

applesrace

Finding myself in a very similar situation I'm reading this thread with interest. All advice so far has been excellent and the point that no broker will make a prediction on interst rates for fear of mis-selling makes sense.

However, on this forum any opinions given are that of the individual and given at face value with no liability.

Sooooo ..... do the readers of this forum believe that a 3%+ rise is likely. I've not lived through a period of high rates before and rates have been low since i've been a home owner. Up till now I've had tracker mortgages and been happy/confident in them. Given the state of some new buyers on the market it wouldn't take much of a rise for them to be in BIG trouble. Could the government really let this happen. Or am i being naive ??

Cantona_2

FTB_Newbie wrote:

Very true. Apparently the Nationwide are upping their fixed rates on Wednesday.

do you know what they are upping them to?

lowis

i reserved my mortgage with Nationwide last week - you do this by paying the arrangement fee - or if this is added to the loan the valuation fee. the mortgage is reserved for 3 months at the reserved rate.

tonyivb

We have gone with a 5 year fixed rate @ 5.08% with the Nationwide... the application was lodged this morning as our broker informed us of the impending rise yesterday (up to 5.18% I believe).

This was the cheapest 5Y rate for our preferred LTV

We believe that interest rates are unlikely to fall and are much more likely to increase in the short to medium term, so a fix 0.58% above the base rate seemed good value for us.

One thing that I haven't seem mentioned is the timing of the next general election. It is probably going to occur during 2009, so if you are fixing for 3 years you may find your fixed period may end just before/after the election in a period of economic uncertainty.

cloud_dog

Just for reference for the OP, we (I) jumped at the chance of fixing our mortgage with Nationwide for 5 years @ 4.69% - when? Started April 1st - just shows how much inflationary pressure there appears to be comming down the road if they are now increasing it to 5.18%. Your only problem is second guessing where the rate rise cycle will end.

If you use the US as a reference they have been raising their rate steadily for a little while now (accepting that it was at an abnormally low level to start with) and 'people' seem to think that there is likely one/two more 0.25% rises left (no one knows for sure).

I am no expert but I beleive there is also pressure for Japan to continue to raise rates (at some point - they need to continue to nurse their economy out of recession) and the EU will also come under pressure to raise rates.............. ergo.......... I think the UK will raise rates. Again, your problem is trying to figure out how much of this rise is factored into the existing (recently) increased fixed rates. Unfortunately no one can gelp you on that.

Another thing you may want to consider is what percentage of your take home pay is your mortgage payment, and how comfortable do you feel with that exposure.

As a final comment, people have forgotten that we have been in a period of very low, relatively, steady interest rates for a long while. It might be that rates may continue to increase and may not come back doen to this level, we may find another level slightly higher up, i.e. 6% (who knows - not me), although I cannot see us returning to the good 'ole days of 15% interest rates - oh what joy of joys that was :eek:

cloud_dog

Burnley_Lad

FTB_Newbie wrote:

Very true. Apparently the Nationwide are upping their fixed rates on Wednesday.

You were right. luckily, I fixed mine at 4.98% for 3yrs, and the rate is now 5.13%