2 year fix a waste of time ?

whatyadoinsucka

currently on a mortgage at base plus 1.99%, LTV aprox 75%, mortgage £105k, Interest is about £230 a month, but paying £1k a month (as we are allowed unlimited overpayments, and can still afford to live comfortably).

Now here is my questions is it worth looking at a fix. I'm concerned that on a two year fix we will be overpaying on the mortgage interest for a little security but when we come out of a two year fix in 2013 rates are likely to be much higher by then anyway..

so we'll be in a worse place then, than say if we were to hold off another 12-16 months and then look at taking a fix.



best i can get is 2 Yr Fix 3.49% (£500 fee) or
5 Yr 4.79% (£550 fee)

Decisions decisions ....

Yorkie1

You're asking the crystal ball question!

I think you're on a pretty good rate, plus the ability to overpay significantly.

whatyadoinsucka

thats what i thought, i must admit when i saw the rate last march i thought i'll have some of that and had to borrow off a family member to ensure my mortgage LTV was at the 80% required. We've now repaid this, so can start hacking off the outstanding balance

i think for the 1% we save this year assuming base rate doesn't move, will offset the downside risk, as well as the fact our mortgage LTV should move into the premium lending tier, so a better rate, but i don't know

Gorgeous_George

I think a two year fix is a waste of time - and money.

Why even consider paying an arrangement fee to secure a higher rate? Your mortgage would rise by £100 per month and you'd need to pay a £500 arrangement fee - almost £3k over two years. If it is a new lender, you might have legal fees and a survey to pay for as well - only to go around the buoy again in just two years time. I doubt interest rates will move much in two years. If you think that they will then you must have even less faith in the ConDems than me.

If prices fall by 10% (or if you estimate of house value is incorrect) your LTV will be 83%. I think a fall in house prices of greater than 10% is more likely than a rise in base rates of 1% over the next year or two (that's my conservative estimate - a 20% fall is more likely IMHO and that would raise your LTV to 94%).

Fixing for 5 years seems more reasonable but I'd take the risk with your current deal. However, only you know what the security of a fixed rate is worth. The other important factor is the reversionary rate at the end of the fixed terms.

GG

whatyadoinsucka

Thanks GG i had a feeling it would be stupid, i want to know why the daily mail / mirror is so adamant the base rate will rise, Even if it rose to 2% i'd still only be paying 4.5%.

I got my house revalued from buying in oct2009 it actually went up a grand in the 5 months when we got this new rate.

We've spent alot of money doing up the house so from 'Average' Interior to 'Good/V Good' plus we are about to have new doors / glazing put in. hopefully we can avoid a major valuation slump

CloudCuckooLand

Anything under 5% is a decent rate. To get that over 5 years, is pretty good. I can see if might be painful to go from 2.49% to nearly double, but summer's Fixed products might not be so attractive if reports like below are reliable;

BOE FOCUS-Higher rates loom as BoE's credibility questioned
https://forums.moneysavingexpert.com/discussion/2974684

inspector_monkfish wrote: »

14:33 11Jan11 - BOE FOCUS-Higher rates loom as BoE's credibility questioned

* British inflation highest in G7
* Investors demand premium for future inflation risks
* Markets move to price in two UK rate hikes this year


LONDON, Jan 11 - Concern the Bank of England has lost its grip on inflation has risen to such a level that markets are increasingly pricing in an interest rate rise by the summer to prevent a full-blown credibility crisis.

British inflation has surged to a six-month high of 3.3 percent -- well above that of any other G7 country -- and looks set to hit 4 percent early this year, double the target.

The consumer price inflation measure has exceeded the 2.0 percent target for most of the last three years and the broader retail price inflation measure is even higher at 4.7 percent.

Industry groups fear that louder mutterings about the central bank's credibility could drive it to tighten policy before a fragile economic recovery warrants it, particularly with harsh government spending cuts about to bite.

"If you tell a central bank it has lost credibility, you almost invite it to overreact," said David Kern, chief economist at the British Chambers of Commerce.

Pressure is mounting, however, in financial markets where investors are losing faith in the BoE's assessment that prices are being driven up simply by temporary factors.

...continued...

whatyadoinsucka

"CloudCuckooLand"



a very one sided view, type 'UK base rates' in the news section of google, we all have an interest some savers,some debtors.

far more articles underly the reasons for holding rates



I'm repaying a minimum £12k a year against an interest of £230 x12 = £2.76k

If base rates and personal circumstances don't change the mortgage is gone in 8-10 years



I see the interest payment as a 'rental' sum, thus I'm still well below current local monthly rentals £450-£600

CloudCuckooLand

"* Markets move to price in two UK rate hikes this year"
"markets are increasingly pricing in an interest rate rise by the summer"

These statements are not a "view". They are statements of fact. Maybe next week the markets will reverse their actions, if something happens to give them cause to do so. Maybe not. The markets are volatile.

I agree there are two sides and an awful lot of debate going on. This article is the first I have seen so far of real action being taken in preparation for rate increases, instead of talk/opinion. It could be premature, or it could be the precursor to rate increases. Only time will tell.

You said yourself, "but when we come out of a two year fix in 2013 rates are likely to be much higher by then anyway..", so you acknowledge it will happen. Getting the timing right is next to impossible.

Toss a coin..?

whatyadoinsucka

too true, but the market (LSE) will have factored in a rate rise well before it happens, there will be indicators out there !!

I'll be keeping a close eye, If i had a big mortgage and was severely stretched i'd fix, but being risk averse will never make you rich or mortgage free.

CloudCuckooLand

whatyadoinsucka wrote: »

but being risk averse will never make you rich or mortgage free.

A bit of a generalisation. I lean towards risk averse and am mortgage free...

ViolaLass

whatyadoinsucka wrote: »

being risk averse will never make you rich or mortgage free.

The former is arguably true but the latter is a nonsensical generalisation. It's perfectly possible to be mortgage free without taking risks (you could fix for the long term, for example).