Confusion - 2 or 5 year mortgage

ukcitizan13

Hello All,

Please advise. New to forum, first post.

I am first-time buyer with 20% deposit. I am in process of a purchasing a property,survey has been requested with Halifax(first bank tried and received the mortgage offer) but still waiting from last 2 weeks for survey to be booked.

Meantime. I was looking for mortgage rates and finding it hard to make my mind that which one I should go for 2 year or 5 years.

1) Some people thinks interest will go up in 1 year time so the mortgage and some believe nothing will change till mid 2016. I understand no one know the future but based on the current market, media news etc... what we general buyer believe should be good at this this time ? - Halifax 2 year and 5 year has difference of £150 for me but there are other banks who are offering much lesser.

2) Is there any benefit of staying with big bank like Halifax(I am going directly with bank branch so no agent in between) or I see today some broker sites advertised much lower rate like Tesco bank offering 5 years @ 3.59 which is much lower than Halifax 4.39 ?? should I be stopping my survey via Halifax and try other banks or should I stick to Halifax.

Thanks in advance for any advise/suggestions.

Caladan

As a first time buyer I'd A) Recommend an advised application and Consider talking to a broker.

I'm somewhat biased in that I work for a bank that doesn't deal with brokers, but they do a good job.

A few questions - How much are you looking for? What's your annual salary (excluding bonuses/overtime).

As to the rate question - There isn't a huge difference between 2/3/5 year fixes at the moment, no one has a crystal ball in terms of rate rises so it really depends on how secure you want to feel with your payments.

ACG

I may come across as biased but im genuinely not, im on here to help not pick up business.
I would generally use a broker, especially as a first time buyer. Not only do you get someone doing the legwork for you, you get someone who can keep the estate agents from applying undue pressure (which as lovely as they seem at showing you around, they soon change once an offer has been accepted), they also help find you a good deal (which isnt always cheapest rate - it might be quickest to complete for instance).

On top of that they sometimes have connections with solicitors who they can lean on to speed things up if needed.

Aside from that, nobody really knows what will happen with rates. Personally i dont see them rising by a massive amount in the near future as the company is still pretty much on its knees - any rate rise will kick it while its down.

ukcitizan13

Thanks Caladan and ACG.

I can afford both the rates(2 or 5 years) for my mortgage so finances are not an issue.

The lady in bank is very helpful and guiding me to all steps.
I tried my EA mortgage agent in past for another property which did not workout for me later but I did not find any difference or offering any good deals.

The question in my mind is what should be the wise decision at this time ?

consider the current news market , when and how much we should expect interest to go up ? and do the mortgage will be directly proposional to interest increate....
if rates remain same then I should have same low interest to fix for next 5 or 7 years but if not then what's the bargain means increase expected?

Q2) is there really a benefit of staying with big bank like Halifax etc, like staying with same bank for long term benefit in repaying faster as interest component come down if we stay longer with same lender or its just the gyan/free lessons from agents ???

ACG

If interest rates went up by 1% could you still afford it? If you would find yourself struggling then might be best to fix for longer.
However on the flip side, can you see yourself in the property in 5 years? Any kids planned? If so then being tied in for 5 years might not be ideal.

The benefit of a lender is all about finding the best deal for you - as i said it might be cheapest rate, it might be quickest to complete, it may be less stringent criteria. The only way you will pay less interest is by going with the cheapest lender (taking into account fees and rate) and/or reducing the term.

ukcitizan13

Thanks ACG.

My kid is about to start the school so I am thinking of staying longer but also planning to move some extra cash(expecting to come but not very sure) to reduce the monthly payment but not sure it will work as I want it to be...

considering today's position I can afford but as we all know every penny counts and after moving from rent to own house , expenses will be high so thinking ....thinking ..... seems an gamble

socmwils23

We recently took a new deal with natwest and went for 5 years. The two year deal was only 0.4% better than the 5 year. For us the knowledge that the payments were fixed at an affordable rate for a long period was the key factor. Id gladly pay 0.4 % so that i need not worry about rate rises for the next 5 years.

ukcitizan13

Thanks socmwils23.

I am inclined towards your thought process but still I thinking making final decision as paying £100 extra every month where interest may won't change in next 2 years and after 2 years loan amount will also come down....

still not an easy decision for me...

Yorkie1

Don't forget that if you take the 2 year fix, at the end of the 2 years you will either stay on the follow-on rate, move to a new product with the same lender, or go to a different lender for a remortgage. The 2nd and 3rd options may well cost you another lot of application fees, and the 3rd option is likely to cost you several hundred pounds in survey / legal fees.

ukcitizan13

Agreed.

But I went directly to Halifax branch and did the application for 2 years and requested the survey but waiting from last 3 weeks for survey to be booked.

Meantime, I get introduced to this forum and thinking to go for 5 years now but 5 year rate with Halifax is not at all good

So thinking shall I put a fresh application with Santander or nationwide who has better deals for 5 years.

What effect this will have on my credit history and application ?
worried, will this be a good move....

Prothet_of_Doom

Do a risk assessment.

Ask yourself if you could cope at a higher rate of interest. Do a monthly cash flow budget, change the rate. What is your plan if the rate is higher than you can pay?

I personally was one of those people who bought at the peak in 1989, and watched the mortgage rate sail to 15.5% from 8.5% in 3 years.

Obviously I would fix it for as long as you can, knowing that if the mortgage rate went down, you'd be paying more, but if the rate went up you'd be laughing.