YBS 10 Year FIX 4.69% - IS THIS AS GOOD AS IT GETS?

ghaffa11

Hi,

I am a FTB - looking to take this product as I like the certainty of a long term fix and the fact that you pay one arrangement fee over 10 years.

Is this as good as 10 year fixes have ever been?

Or is this to prudent? Would it be better value to take the 5 year fix at 3.5%?

MacMickster

The problem is that very few buyers remain in their first property for 10 years, even if they intend to when they first move in. Circumstances change (marriage, children, job etc).

A 10 year fixed rate mortgage is likely to have heavy redemption penalties if you decide to move in 5 or 6 years.

The mortgage may be described as portable, but this is always dependent upon permission from the lender, which may not be given.

While this looks an attractive long term fixed rate, as a first time buyer I would look at something with a shorter term.

GDB2222

The other way to look at it is that over the first 5 years you will pay 1.24% a year more on the 10 year fix than on the 5 year deal. If you saved this up, you could use this for the second five years. So, you would break even if the second five year fix was at 5.93%. It could easily be either higher or lower than that, and I don't really see how you can tell which.

So, it may just come down to the very good point MacMickster made and your attitude to risk. For example, could you afford to it if your mortgage interest rate were say 10% for the second 5 years?

ghaffa11

Thanks for the advice. Overall, I think we will go for the 10 year. If rates went above 8% we would not be able to pay our mortgage! Although this seems unlikely now, we are quite risk averse. I believe rates will significantly rise given the govt is effectively printing money through quantative easing, but who knows!

hazyjo

Personally, I'd never go for a 10 year fixed anything. The couple of times I've gone for 5-ish years fixed, something major's happened like I've split up with someone and it's all gone a bit t!ts up.

Did just want to comment though that YBS in my experience are absolutely fantastic. And that's from someone rather cynical who's chopped and changed many times over the years. I'd hate to leave them now. The two contacts I've had in the branch we deal with are fantastic and we went tens of miles out of our way to go back to the branch I first dealt with years ago. Very honest, upfront, open and not pushy.

It's unlike me not to change, but I wanted to stay with them when we moved this year. To put my mind at rest, I did a few online checks and they still came out number 1, 2 and 3!

We might do a longer term fix later, but have taken a bit of a gamble on a 2 year very low fixed at 2.something. We moved in April. Everyone kept saying they'd go up loads in the next few months, but I still thought it was worth the risk. Now they're saying they're likely to go down again! I checked their deals last week and know they're all higher than what we're paying still.

It's hard, innit. We were in two minds about what to do and will have the same dilemma in under 2 years.

Good luck.

Jx

mark55man

I 10 year fixed at 4.99% 2 years ago. I predicted that inflation would follow QE. I didn't predict that the BoE wouldn't do anything about it.

4.69 is the lowest I ever seen and I went through everything. I did see a 5 year at 3.49 in the papers, so that would be tempting, but you have to think what the situation might be in 5 years

some say that 5% Base rate is the long term average hence on those terms you will be better off
some say that the not being in the euro means we don't have to force the interst rates to meet currency buy in (eg ERM / Gold Standard)
some say that we are now in a new paradigm of long term low interest rates
some say (and I believe them) things will bobble along for a bit and than ramp up sharply

Its always easy to look back and make a wiser decision - certainly I could have gone for a 2 year fix and remortgaged now and I would have been several thousands better off. For me - the argument that over the next 10 years interest rates are going to rocket as soon as the economy is strong enough for the banks to start crstallising bas debts is compelling (and certainly I believe that in 5 years you will not be able to get the 5.69% for a follow on 5 year deal).

In your shoes I would bite their arm off - only subject to caveats other posters have mentioned
* be sure that the mortgage is portable,
* be sure you can deal with any relationship issues that may arise (life has a way of mucking up plans)

A final thought - with the fixed rate every pay rise you get will reduce the %age of salary you pay on housing costs - and as a FTB I presume you are younger rather than older so this is more likely. You can then choose to overpay or invest (or party) with the spare money. If you are stretching yourself with this mortgage (which I imagine you are everything being so expensive) remember that taking the lower rate for 5 to make it easier now could dump you into a higher rate in 5 years that would crucify you later, as the way these things work only a small part of your repayments will have repaid capital so your reepayments are highly sensitive to rates. For me after 8 more years I will have 5 years left, so I don't much care what the interest rates are at the end

HTH

ghaffa11

mark88man wrote: »

I 10 year fixed at 4.99% 2 years ago. I predicted that inflation would follow QE. I didn't predict that the BoE wouldn't do anything about it.

4.69 is the lowest I ever seen and I went through everything. I did see a 5 year at 3.49 in the papers, so that would be tempting, but you have to think what the situation might be in 5 years

some say that 5% Base rate is the long term average hence on those terms you will be better off
some say that the not being in the euro means we don't have to force the interst rates to meet currency buy in (eg ERM / Gold Standard)
some say that we are now in a new paradigm of long term low interest rates
some say (and I believe them) things will bobble along for a bit and than ramp up sharply

Its always easy to look back and make a wiser decision - certainly I could have gone for a 2 year fix and remortgaged now and I would have been several thousands better off. For me - the argument that over the next 10 years interest rates are going to rocket as soon as the economy is strong enough for the banks to start crstallising bas debts is compelling (and certainly I believe that in 5 years you will not be able to get the 5.69% for a follow on 5 year deal).

In your shoes I would bite their arm off - only subject to caveats other posters have mentioned
* be sure that the mortgage is portable,
* be sure you can deal with any relationship issues that may arise (life has a way of mucking up plans)

A final thought - with the fixed rate every pay rise you get will reduce the %age of salary you pay on housing costs - and as a FTB I presume you are younger rather than older so this is more likely. You can then choose to overpay or invest (or party) with the spare money. If you are stretching yourself with this mortgage (which I imagine you are everything being so expensive) remember that taking the lower rate for 5 to make it easier now could dump you into a higher rate in 5 years that would crucify you later, as the way these things work only a small part of your repayments will have repaid capital so your reepayments are highly sensitive to rates. For me after 8 more years I will have 5 years left, so I don't much care what the interest rates are at the end

HTH

Cheers for your thoughts. My plan is to try and overpay (if we hopefully get pay rises over the ten years) to reduce the impact of higher rates when the fixed rate ends. I have been torn between the 3.49 5 year and the 10 year. OVerall I think the 10 has to be better value.

I share your view that things will bobble along and then ramp up sharply, there is only so long that the BoE can ignore inflation. By not raising interest rates gradually, there is likely to come a point when they have no choice but ramp them up.

No one has a crystal ball and I could be wrong, either way the premium on a 10 year fix is worth it given at least you eliminate the risk.

Also, the fact that very few lenders are even offering 10 year fixes, suggests to me that they think rates will be far higher down the line. Hence why many trackers are at base + 2%.

mark55man

The other possible upside of inflation is that sooner or later wage inflation will have to match cost inflation, and thats when the benefits of fixed are fine (* although there is a risk this wont happen and we will stay squeezed)

eg a 0% pay rise (wage inflation) in 0% goods inflation may seem the same as 10% pay rise (wage inflation) in 10% goods inflation.

A fixed mortgage (say for example 1/3 of your net outgoings) would stay as 1/3 in the 0% example but reduce to 3/10 in the above example effectively given you a small (3%) extra discretionary spend.

PS - even when I was looking there were very few 10 years so don't draw too many conclusions from that

PPS - haven't done the detailed figures, but the difference between 2.5 and 4.5 is about £150 a month for 100K mortgage so the earlier poster is right in that you could put quite a lot aside for when/if rates get higher. (My opinion is they will and mortgage rates will rise significantly above 5.5% , but you need to consider the scenarios)

HAMISH_MCTAVISH

ghaffa11 wrote: »

If rates went above 8%

The chances of seeing 8% base rates again, at least in any of our lifetimes, are pretty much zero.

The chances of seeing 5% base rates in the next decade are pretty much zero.

The chances of seeing 3% base rates in the next 5 years are pretty much zero.

Just take a look at the yield curve for UK gilts for a pretty good indication of where the market expects base rates to be over the next couple of decades.

mark55man

Hamish

can you go back in time to the 80's starting about three and four years before rates hit 16% and show me what the UK yield curve was showing then?

that curve shows what the banks will charge you NOW for money out to the future, not what that yield curve will be at some point in the future

also even if we only get Base Rates at 2% in 2016 most commercial mortgage rates will stille be 4-5% so 4.69 won't be that unreasonable.

However - interesting graph so thanks

HAMISH_MCTAVISH

mark88man wrote: »

even if we only get Base Rates at 2% in 2016 most commercial mortgage rates will stille be 4-5% so 4.69 won't be that unreasonable.

No, I'd agree that for the second 5 years you may only be overpaying by a percent or so a year.

But for the first 5 years...... More like 2% a year.

And it does all add up. Over the life of a 10 year 4.69% fix from today versus the best tracker available today, I reckon you'll waste nearly 10% of the house purchase price at an absolute minimum.

However - interesting graph so thanks

Welcome.