Halifax 2yr or 5yr Mortgage - Crystal Ball Question

ckxion

My rich son is buying a house valued £88,700 (in Northern Ireland), deposit = £22,100 (25% deposit)

Silly me never thought to put him on electoral register. He has no credit history, buys everything cash (ink £10K cars)

Halifax has approved mortgage (with only 4 months new employer history) and we have had survey done.

So basically he will be going with Halifax, no matter what better rates are out there.

Mortgage adviser is keen to go with 2yr, he will get another fee in 2 years for a new mortgage.

Son may go self employed soon, so considering a 5 year mortgage vs 2 year as negotiating when self employed for <2 years will probably not be easy.

I am good with spreadsheets but not with the crystal ball looking at interest rates and property price increases. (Will be interesting to look at this thread in 2 to 5 years).

Halifax and others quote variable 3.99% interest in 2 to 5 years, their crystal ball may be better than mine, but who knows.

Some figures

2yr = 2.34% then 3.99% = £11092 interest only over 5 years
5yr = 3.49% = £11607 interest only over 5 years

Consider variable rate increases to 4.99 in 2 years

2yr = 2.34% then 4.99% = £13063 interest only over 5 years
5yr = 3.49% = £11067 interest only over 5 years

Above figures edited (not as good at a spreadsheet as I thought :-) - savings are double my original figures if interest rates rise by 1% in 2 years.

Spreadsheets are great, but 1 error, can be multiplied across all results.

Note - Not going for an interest only mortgage - only doing maths on interest.

My crystal ball thinks variable interest rate with all lenders will be 4.99 or more in around 2 years.

In addition, if he goes self employed this year it will be difficult to move to another lender in 2 years and will have to take whatever Halifax offer.

I realise that house value will increase over 2 years and he will have paid capital, but do not think his equity will increase enough to get a much better rate in 2 years to compensate for potential higher variable rates.

Do people agree with my thinking that the 5 year deal is best for my son.

Feel free to ask questions on anything I have missed.

jozxyqk

For what it's worth, I would take the 5 yr fix. 3.5% is not a bad rate imho (please note, I am in no way an expert). It removes a lot of uncertainty.

Be aware that house prices are not guaranteed to rise...as a 2007 ftb I know this too well.

acs_2

jozxyqk wrote: »

For what it's worth, I would take the 5 yr fix. 3.5% is not a bad rate imho (please note, I am in no way an expert). It removes a lot of uncertainty.

Be aware that house prices are not guaranteed to rise...as a 2007 ftb I know this too well.

exactly This.


Hope that helps

Kynthia

I'm currently going for a 5 year fix and can't see any advantage to me getting a 2 year instead. My income is going to go down for the next few years so the certainty is worth more than the chance of saving a little extra for the next 2 years and hoping that interest rates don't rise. Also the fact that rates are so low means they can only stay the same before increasing at some point, it's not like they are going to go down.

For your son, even if rates stay the same his situation is going to change. So in 2 years he would struggle to remortgage and is unlikely to get the best rates going and would possibly pay whatever the SVR is at that time. Therefore it seems very likely that in his case a 5 year fix will be best for him no matter what.

AndyGuil

2 year can be good to get the interest rate down and if you move into a new LTV bracket at the end of it or with a little over payment you can save more on the next fix. Going self employed might make 5 years a safer option.

Yorkie1

Your figures are based on interest only; has the lender definitely agreed to this type of mortgage for your son?

ckxion

@yorkie - only using interest only for the calculations (which I did incorrectly), I fixed calcs and added a note referring to interest only.