Variable

PeterJames123

Hi,

My wife and I are about to buy our first flat after saving for the past 10 years.
The flat is 130k and we have managed to save 30k, we are really afraid of making
the wrong choice in terms of what mortage to take and the best thing to do.

We have been told that we should get a 3 year variable mortgage as the
interest rates set by the bank of England are around 2% and this will not rise
to 5% in 3 years.

Does this sound like something that most people are doing now as the fixed mortgages are around 5.2% and we don't want to be paying over the odds.

House_owner

The bank of England base rate is 0.5% - this is very likely to go up. If you get a fixed rate, then it is easier to budget, because your payments will not change during the fixed period, then again, if you find a cheap variable mortgage, this is less likely to have a tie in period ( ie you won't have to pay any fees, if you come out of it early), then if the rates look like they are going to go up, you can quickly put yourself into a fixed rate.
Personally I would go for a fixed rate for peace of mind, intrest rates can't go any lower, the only way they can go is up. We got a fixed rate, when we brought our current house, even though we were recomended to get a cheaper variable rate. Interest rates increased about 3% during the time of our fix, so it worked out cheaper in the end.

Well done, for saving so much for your deposit, hope things work out for you, and you enjoy your new home!

Hugbubble

House_owner wrote: »

then again, if you find a cheap variable mortgage, this is less likely to have a tie in period ( ie you won't have to pay any fees, if you come out of it early), then if the rates look like they are going to go up, you can quickly put yourself into a fixed rate.

Many tracker rates do have a tie in period so this should be borne in mind also

Cannon_Fodder

The Base Rate fell like this;



Down from 5% to 0.5% in 6 months.

There is no guarantee that it will not revert to the long-term average around 5% within 1 year, let alone 3 years.

phlash

Obviously there are a lot of caveats, but I believe BoE interest rates cannot suddenly reappear back at 5%, it will take a considerable amount of time. Indeed, Roger Bootle who is a leading economist argues BoE interest rates could remain at 1% or lower for the next 5 years. His arguments are compelling.

Raising rates to 1% isn't just a 1/2 percent increase, it is a 100% increase on the current rate. These small increases are therefore seemingly large compared to current rates which are needed in order to support the current economic activity.

PeterJames123

Hi,

Thank you for the information.

If I was to get a Variable mortgage would the rate be 0.5% or do banks have a minimum percentage they take. For example if the Bank Of Englands interset rate is 0.5% the banks will say dispite of this you still need to pay a minimum of 2%.

Our idea is we go for the Variable with a get out clause, so if we do see the interest rising we can quickly move to a Fixed Rate.

phlash

There are thousands of mortgages. You need to read the terms. No one can answer your above question as it is too generic.

House_owner

"If I was to get a Variable mortgage would the rate be 0.5% or do banks have a minimum percentage they take. For example if the Bank Of Englands interset rate is 0.5% the banks will say dispite of this you still need to pay a minimum of 2%."

You would be very unlikely to get a mortgage for as low as 0.5% -if you do find one let us all know!

VIGILANT22

PeterJames123 wrote: »

Hi,

Thank you for the information.

If I was to get a Variable mortgage would the rate be 0.5% or do banks have a minimum percentage they take. For example if the Bank Of Englands interset rate is 0.5% the banks will say dispite of this you still need to pay a minimum of 2%.

Our idea is we go for the Variable with a get out clause, so if we do see the interest rising we can quickly move to a Fixed Rate.

the boe base rate is not a mortgage rate