Fixed Rate or Not?

Hoof_Hearted

I know that nobody can say which is the right thing to do, but would appreciate your views.

Son & partner are buying a house for £230,000 with £50,000 deposit.

The best offers received so far are:

2 year tracker at base rate plus 2.49% then SV rate. No fees.

5-year fixed at 4.79% with a fee of £600 and more stringent conditions (e.g. over payments).

Now they are pushing themselves financially and are in a dilemma about choosing the fixed at £950 a month with some future protection or the tracker at £750 a month.

I am sure interest rates will rise but I am not convinced they will rise very much. Anyone any views on this?

shortchanged_2

Hoof_Hearted wrote: »

I know that nobody can say which is the right thing to do, but would appreciate your views.

Son & partner are buying a house for £230,000 with £50,000 deposit.

The best offers received so far are:

2 year tracker at base rate plus 2.49% then SV rate. No fees.

5-year fixed at 4.79% with a fee of £600 and more stringent conditions (e.g. over payments).

Now they are pushing themselves financially and are in a dilemma about choosing the fixed at £950 a month with some future protection or the tracker at £750 a month.

I am sure interest rates will rise but I am not convinced they will rise very much. Anyone any views on this?

Why are they pushing themselves financially in these difficult times?

By what you are saying they would already be struggling to pay such a large mortgage. What about future changes as well, such as children etc putting even more burden on the finances?

Do they really need to spend so much on a house at this stage in their lives?

Hoof_Hearted

They can afford the £950 a month and have sensibly looked at all the other options. They may be struggling at £1200 a month, but have some margin for price rises. Both are in good jobs with prospects.

In the south, this is a cheap house and the repayments are similar to their current rental, so it's a no-brainer to my mind.

bryanb

shortchanged wrote: »

Do they really need to spend so much on a house at this stage in their lives?

Depends where they live, that will buy a 3 bed terrace round here.

shortchanged_2

Hoof_Hearted wrote: »

They can afford the £950 a month and have sensibly looked at all the other options. They may be struggling at £1200 a month, but have some margin for price rises. Both are in good jobs with prospects.

In the south, this is a cheap house and the repayments are similar to their current rental, so it's a no-brainer to my mind.

Well there's your answer.

Hoof_Hearted

shortchanged wrote: »

Well there's your answer.

I don't think so. It's not a question of affordability but whether fixing for five years is a good idea. Could rates go up by 3 or 4% in this period? Opinions are all I'm asking for.

dimbo61

I am at the end of a 5 year fix which I have been very happy with !
It was 4.74% offset with YBS and we have managed by overpaying and building up savings in the offset account been able to reduce our LTV well below 50%
Now taking a long term view and overpaying what ever they can afford gives them a good chance of having a LTV below 60% next time they need to remortgage.
A mortgage over 25 years? is more a marathon than a sprint so please think long term.
Rates have never been this low and alot can happen in 5 years.
Use "whatsthecost" to see how much they would owe after 5 years

shortchanged_2

Hoof_Hearted wrote: »

I don't think so. It's not a question of affordability but whether fixing for five years is a good idea. Could rates go up by 3 or 4% in this period? Opinions are all I'm asking for.

Unfortunately no one has a crystal ball and if we all had the answers you are looking for then there would be no point in asking the question.

To answer your question, yes rates COULD go up by 3 or 4% but they might not. Nobody truly knows the answer we are all speculating.

And to answer your other question, it is actually all about affordability. Your son and his partner need to make sure they can pay this debt now and in the future so it is all about what they can afford now and in the future.

dimbo61

They need to consider if they plan on staying in the property at least five years and any long term plans IE kids,work, job security ETC .
The housing market is fragile but the banks want to increase the interest rate as too many are losing money at current rates so its anyones guess what rates will be in 2/3/4 years.