FTBs, fixed or variable mortgages?

Percy1983

I wil say this is a general question but I do need advice here on which would be better plan?

As it is I may be getting a mortgage sooner than my signature may say to which I do have the classic choice of mortgages.

Right now I can find a 5 year fix at 4.99% which seems great and would give real peace of mind but there is the potential to save by going shorter term fixs but then could get end up in a worse position.

So I guess the real question is, when do you think the BOE will raise the interest rates?

Mallotum_X

If you can get up to a 25% deposit then YBS offer a 5 year fix at 3.39%

I doubt rates will move any time soon, and even then quite slowly. Summer 2012 at the earliest I would have thought now, and thats probably too soon. Its not totally unrealistic for rates to be like this for a couple of years or more.

When I bought my first place I fixed, I wanted that security, even though it probably wasnt the cheapest option in town it was the right thing for me at the time. I got 5.25 I think it was back in 2002, which really highlights how much the banks rates have diverged from the BoE rate.

the_flying_pig

Variable's probably better.

But there's a risk it won't be.

A decent rule of thumb might be:

1 - If you're really stretching yourself [e.g. borrowing at a very high income multiple] go with a fix;
2 - Otherwise variable.

Percy1983

In short I am going in at 10%, life is too short.

I guess it depnds on the margins of how much rates would need to rise to make it more expensive which in most cases I see it not much of a rise.

Percy1983

I don't think we will be stretched and will be on a multi of less than 2.5 or a couple.

Graham_Devon

As you seem to be asking for input, and you are not sure yourself, then I would suggest fixing for 5 years may be the best option.

In my mind, it's less of a gamble. I.e. you stand to lose out over a short term fix, so you will end up paying more...

The other side is the gamble that you take the short term fix. But if rates DO go up, you you could find yourself paying out far more than you would have in gamble 1...plus you don't know how much more, whereas with gamble 1, you can roughly estimate how much more its going to cost you if everything stays the same over the 5 year duration.

So for me? I'd go for the 5 year fix if you can comfortably afford it. Libor rate is the key player here though, not so much interest rates, and they are going up. Your 5 year fix at that rate may not be available soon.

Good luck.

HAMISH_MCTAVISH

Percy1983 wrote: »

how much rates would need to rise to make it more expensive which in most cases I see it not much of a rise.

Very difficult to say. Some commentators expect them to still be below 1% in 5 years. I suppose that could be the case, but I'd like to think we'll have seen a bit of a recovery by then.

Even so, I'd be surprised if base rates were much above 2.5% by 2016.

Percy1983

The more I think about it the fix does make a lot of sense it will be nice to know exactly where we stand for 5 years, with that we will be spending quite a lot on deroating/furniture in the first few years so it will help with budgetting for that.

I will look into exactly how much I could potentially save, of course its also what I could get approved for, we both have spotless credit files and we fit the critera for the fix mentioned in my first post, but of course it would be wrong to assume I have got it.

Thrugelmir

I would be more focussed on achieving a higher deposit or having the funds to overpay your mortgage than what might happen to interest rates in the medium term. As your LTV on the property will determine the rate you can obtain. In the early years of a mortgage, little capital is repaid. So even a slight downturn in property prices in the short term would result in a negative effect.

Libor has been creeping upwards recently.

10 November: 1.00%
24 October: 0.98%
17 October: 0.97%
10 October: 0.96%
3 October: 0.95%
26 September: 0.94%
19 September: 0.92%
12 September: 0.91%
6 September: 0.90%

HAMISH_MCTAVISH

Thrugelmir wrote: »

Libor has been creeping upwards recently.

10 November: 1.00%

Percy1983 wrote: »

I can find a 5 year fix at 4.99%

With margins like that, do remember to address your bank manager as Mr Turpin, and avoid the temptation to just call him "!!!!!!".

Percy1983

By all means there is certainly a nice buffer in the budget which will go to overpaying, amazing when you see how much interest can be saved by overpaying.

I will say our main focus is getting a house asap, we just want to get on with life and we have a potential chance so we are going to give it a go, yes we could save money by saving longer and prices are still dropping but we just want a home.