Should we move to a fixed rate mortgage?

dib-dab

At the moment we have a mortgage with Halifax - standard variable rate of 3.5% - our payments are £800 per month. However I am concerned that later in the year the interest rates will rise which will leave us with higher payments, I know that the increase in the near future is likely to be small but I have been thinking about pre-empting a huge rise by moving to a fixed rate mortgage.

We are unlikely to be able to move to a new mortgage lender at the moment as due to fall in house prices our mortgage is 96% of the value of our house. We live abroad and are thinking of renting out our house - Halifax have offered us a 5.49% interest fixed rate for 3 years with consent to lease. I cannot remember off the top of my head how much the payments would increase to but it was just under £1000 if I remember correctly.

We are paying both capital and interest.

So I am just wondering whether anyone who has been following financial news more closely than I have has an educated opinion regarding whether we should stick with our standard variable rate at the moment or whether we should move to the fixed rate. It would only take a 2% rise in interest rate for our variable rate to reach the fixed rate that we have been offered, by which time the fixed rates may have increased by much more than that.

Thanks so much in advance for any advice!

CloudCuckooLand

On the general "when will rates rise" question;

I was going to suggest you buy a Magic 8-ball, decision-making device. But as this is a money-saving site, why not toss a coin? If you don't fix rates will rise and you'll regret it. If you do fix, rate won't rise and you will regret it.

There does seem to be a bit more of weight behind the pressure to raise rates, at the moment, compared to a year ago. Those that say rates should still not rise because the economy is not secure yet, forget that the BoE have previously made rate changes that were bad for the economy in the long-run. They could make a mistake again.

Others don't think it would be a mistake to raise rates, but the BoE might choose to ignore them to show their independance from influence.

You pays your money, and you takes your choice...!


As for the specifics of your deal;

If the consent-to-let definitely lasts 3 years, I'd grab it, because if they made you go BTL, the fees and rate would be higher. And it is a very good rate for a 95% LTV, that is fixed for longer than 2 years.

Mallotum_X

How much do you value security?

If you fix then you know what you are paying, and can budget accordingly, if you fix then dont keep checking the rates you could have had!

Either way could cost you money compared to the alternative.

Lets face it rates are only going to go in one direction, but the timing is not yet known. A lot of the commentators seem to think that later this year will see the rises, but they dont really know any more than you or I.

If you fix then consider it an insurance policy. A 5.49% 94% mortgage seems a good deal to me, and may not be available to you later in the year, prices are likely to continue falling this year so your mortgage may end up as a higher percentage.

Ultimately there are a lot of factors at play and it really depends on how much you like the idea of security.

Joe_Bloggs

@CloudCuckooLand
What is the relationship between the Halifax SVR and the BOE base rate, if anything at all ? Surely this Halifax rate is now divorced from the BOE and now just reflects money market rates available to the Halifax.
J_B. (Simple is what stupid does!)

CloudCuckooLand

Joe_Bloggs wrote: »

@CloudCuckooLand
What is the relationship between the Halifax SVR and the BOE base rate, if anything at all ? Surely this Halifax rate is now divorced from the BOE and now just reflects money market rates available to the Halifax.
J_B. (Simple is what stupid does!)

I'd agree there is not much relationship today. 3% above BoE is a nice profit margin for them. This has happened widely since LIBOR became more divorced from BoE, post-crunch.

My comments were in relation to the future. The concern of the OP, if I have understood it correctly, is that the BoE may raise rates (for whatever reason, inflation, markets, weak pound) and the variable element of their SVR reflecting the increase...leading to higher mortgage payments.

It will happen, but it is a question of when and how quickly.

And I don't see Halifax being nice and choosing not to apply the increase...

alexlyne

I'm in the same boat as the OP, though about 85%ltv at the moment. similar monthly payments currently.
We have 65% of the mortgage on the SVR, and 35% fixed until 2014 (6.3% - ouch!).
We are hoping that we can hold out on the SVR (read: hope the SVR doesn't go up) until the summer when we can get a 3yr deal then the two parts will join up.

However, I read that swap rates are edging upwards (which affect fixed rates) and libor is also edging upwards (which affects trackers)... meaning that if halifax are like all the other banks and squeezing us to pay for their problems then the fixed rates will go up even if base rate remains unchanged.

So, in conclusion, I don't know what to do either. Procrastinating at the moment... until the next time halifax changes their rates.

Joe_Bloggs

The threat of Merv, and his MPC chums ,holding his hand above the interest rate rise button has an economic impact even if they end up doing nothing. Words are better than deeds in certain circumstances.
J_B.