Fix for 2 years or Tracker?

Ms_Sophia

Hi,
we are FTB and now are looking at different type of mortgages, not sure which one to choose

The best fix for 2 yrs we've found is 2.89% at Barclays while the best tracker available to us is ING @ 2.04% (BBBR +1.54%) for 2 years too.

What are your thoughts on how soon the base rate might go up and by how much it might increase in the next 2 years?

Thrugelmir

Average mortgage interest rates over the next 25 years will be far higher.

So what you need to consider is how important it is for you to fix your outgoings. Fixing is an insurance against the unexpected. So the longer the better.

Alternatively if your budget isn't stretched take the lowest floating rate you can find and make overpayments. As reducing the capital debt will reduce the interest charges. Thereby building a cushion against rate rises.

Very much personal choice and financial circumstances.

Longer term average mortgage rates could easily reach 6% to 8%.

Procrastinator333

I personally think a 2 yr fix is pointless. You miss out on the best rates and you don't have any security over your rate after 2 years.

I think the choice is either 5 yr fix, or tracker. Imo, a fix is a form of insurance. If you are on fixed deals for the full 25 years, I think it is almost certain you will pay more than someone who tracked all the way.

But. And it is a big but. If rates do rise rapidly, could you cope? Imo, that should drive the choice. If you could take a rapid rise on the chin and keep paying, then I say take the tracker. If the fix is about your limit and any more than that would put you under, it must surely be the fix.

hillcats

Thing is, nobody knows your complete personal financial situation, up to what base rate do you think you could still afford to pay the mortgage and all your bills, it really should be somewhere between 6-8% obviously the higher the better.
We have worked our finances out, so that we could still afford our mortgage if rates neared to 10% mark, which seems extremely unlikely for quite some time, if ever - but you NEVER know.

Ms_Sophia

Thanks. Sure, I understand it all depends on one's circumstances.

My question is rather about how do you think the base rate is going to behave for the next 2 years? Of course, nobody knows... but do you have any thoughts (or maybe read smth)?

Gorgeous_George

I expect the base rate to be 0.5% for most, if not all, of the next two years.

I base my investments on my expectations - but have a Plan B just in case.

GG

Procrastinator333

Ms_Sophia wrote: »

My question is rather about how do you think the base rate is going to behave for the next 2 years? Of course, nobody knows... but do you have any thoughts (or maybe read smth)?

I think rates are going to stay lower and for longer than most expect. The BOE has already clearly shown it places not hurting growth as a greater priority than controlliong inflation. I think that is the right choice and I think it will continue with that choice.

My wager is no rate raise at all until next year. Maybe only back up to 1, 1.5% by the end of next year. Though I wouldn't be surprised if it was still 1% or less at the end of 2012.

EDIT: But I wouldn't gamble my house on it - If I couldn't afford to pay the mortgage at 7 or 8%, I would take the fix.

originalmiscellany

I'd fix at 5 years to give real protection at 3.99%... Failing that, I'd track for 2 years. Others have said my thoughts, e.g. it's pointless for just 2 years...

Pupnik

I agree with the others, a 2 year fixed mortgage does not seem like a good deal.

We are FTB too and we are going to use a tracker but as we are not borrowing much we are going to have an affordable mortgage which we can overpay, but which if interest rates do go up high we will still be able to afford it. If this isn't an option for you you could think about having a capped tracker so that it never goes above a certain amount and you can still make the most of low interest rates, but when I looked into caps I found that they all seemed to have a charge for making repayments so decided against them as it would not fit in with our 'pay it off ASAP' plan.

Thrugelmir

Ms_Sophia wrote: »

My question is rather about how do you think the base rate is going to behave for the next 2 years? Of course, nobody knows... but do you have any thoughts (or maybe read smth)?

When rates do start to move. Then there could well be small incremental steps on a regular basis.

The ING product you quoted comes with a £945 product fee and is restricted to under 60% LTV. So the choice of product does depend on the required amount to borrow as well.

Ms_Sophia

Thrugelmir wrote: »

When rates do start to move. Then there could well be small incremental steps on a regular basis.

The ING product you quoted comes with a £945 product fee and is restricted to under 60% LTV. So the choice of product does depend on the required amount to borrow as well.

That's right, there is a product fee. However as far as I can see a majority of products for FTB seem to be coming with a hefty product fee of £1000-£1500.