Fix for 2 or 5 years?

Blue_Monkey

Just about to buy our first home - £285k with a 25% deposit - and can't decide whether to fix for 2 years or 5 years.

2 year deal is 3.59% with monthly payments of £975
5 year deal is 4.29% with monthly payments of £1061

We can afford both and was budgeting to make overpayments to take us to £1100 total pm. We plan to stay in this house for 10ish years. We will be thinking about a second baby in the next year or so. My salary is higher than DH's who is self-employed, but obviously will dip if/when I go on maternity leave again.

So I was thinking that although higher, we'd be better to fix for 5 years so we know what we're committing to for all of that time, and if interest rates go high or the market crashes we won't have a problem remortgaging (as well as the cost to do so) in 2 years time. But our overpayments will obviously be smaller and there's always the poss that we'll find ourselves locked in to a 4+% which will suck if interest rates go down.

Basically - I'm looking for someone to predict the future and tell me a) what interest rates will do and b) what my local housing market will do :p;);):D:D

What would you do in our position?

Dave_Ham

You also need to sometimes consider what your personal factors are. Are you likely to relocate, jobs, children/schools, families etc. when choosing between 2 and 5 year fixed periods.

In terms of costs, you need to factor in the product fee of another mortgage in 2 years time as whilst this is variable you are likely to have to pay one.

Lastly, without knowing your circumstances it is impossible to tell if you would be elligble, but you should have also thought about starting a thread "Am I getting the best mortgage availavble product wise" as subject to circumstances with a 25% deposit the quick answer would be no.

Best of luck

Blue_Monkey

Thanks Dave. We are very happy to stay put in the house for 10+ years, good schools for kids, close to family, close to commuter station etc etc.

Our broker has recommended Halifax and the application is in... DH's income isn't being used - he's self-employed with only just 1 year of accounts, and I'm on maternity leave at the mo (ie SMP of £500pm) so our options were limited in terms of what mortgage we could get with it being based on my salary only.

Blue_Monkey

Oh and I forgot to ask - what are remortgaging costs like? And presumably, just staying with Halifax after the fixed period ends wouldn't cost us anything (providing the rate is as good or better than it currently is?

I guess it's all about "risk" eh?

Dave_Ham

I understand, in your situation I would consider the 5 year product I think.....

Sometimes fixing and tie ins are around personal situation and sometimes just personal preference.

Did your broker give advice on which term was more suitable?

Additionally, unlikely interest rates will go down in response to the first post...

All the best

kingstreet

I agree with DH on the last bit.

2 year fix should be in range of 2.59% to 3% for 75%.

Likewise, 5 year fix should be 3.04% upto 3.5%.

Ignore me - was typing when last few posts were made. I was replying to posts #1 and #2.

Blue_Monkey

Broker has said it's personal choice really but that if we're looking to stay in the house and are sure we won't move in 5 years, then fixing for that period could make sense.

I hear all your comments re the rate but with payslips showing £500pm at the mo is it really likely that any other mortgage provider would even look at us?!

kingstreet

Probably not. Hence my rapid volte-face. Thank God for the two-minute edit window.

Blue_Monkey

He he, thanks Kingstreet.

I guess it could be argued that we should wait until the new year when I'm back on full pay........................................................... (that's what my dad would say anyway).

Dave_Ham

I have backed down a bit, as whilst I believe there are other lenders that would take you on (on better rates) I do not have full disclosure and therefore you seem to trust broker and I will do the same and leave the lender alone.

Whilst the rates are not superb, Halifax are a flexible lender and also one of the quickest at the moment.

Halifax are likely to offer you another deal (potentially fee free) at the end of the 2 years, although no-one knows what the marketplace will look like then.

Hence given things are only going to get financially tighter by then (kids etc.) then the 5 years on the face of it is both affordable and potentially more suitable.

confused_kid

Blue monkey,

always some good views on here. We are currently in a situation somewhat similar to yours, the size of our deposit however is only 15%. House price is around 270k...we've gone with halifax too. Haven't completed yet as awaiting the legal stuff to go through but we decided on a 5 year fixed (our rates are naturally higher than the ones you stated) but on advice from our advisor, and also the fact that we see this as our long-term (20years) house, coupled with the fact that I would like to know what our outgoings for the next 5 years. Also with Halifax.

Still have my fingers crossed for everything to come back fine from the solicitor, good luck with your purchase, hope it all goes smoothly.