How long to fix? First time buyer

ConfusedofYorkshire

I am a first time buyer and feeling completely overwhelmed by all the options and the ongoing discussion and speculation over interest rates. i don't know what to do for the best and wondered if anyone can give me some advise.

We are looking at a house that is on the market for 245K. We are planning on offering 10% less and negotiating if necessary.

We have a total of 80K in the bank. So we can get a 75%LTV mortgage, or stretch ourselves more thinly and get the better rates of a 70%LTV (depending on the cost of the house).

We will almost certainly go for a fixed rate but I have no idea what term to go for. I'm even considering a 10year one from the Yorkshire building society, as even though its expensive, at least we'll know we won't pay more than 3.89% for 10 years.

However, we have a 1 year old son and so we are cautious about commiting for long as we don't want to have to take him out of school if we decide to move. So it may be more sensible for us to look at a 3 year mortgage so that it is easy for us to move if necessary. I am finding it hard to get my head around "porting" a mortgage". but on a 3 year are we just risking coming out of the fix just as rates go up?

I could witter on for ages but i realise people will just get bored. any thoughts?

ACG

It really depends on your plans. If your unsure then i would suggest against fixing for 10 years.

Porting means if you wanted to move house, you can apply to take your deal with you. The positives of that is that you will get to keep the deal, the negatives are that if you do not meet the lenders criteria at the time of the port then you would have to pay an early repayment charge to be able to use a different lender. Early repayment charges typically are 1% of the balance in the last year, 2% in the second to last year etc although there is usually a cap at 5% (although that is more of a guide, it can vary).

Nobody can really tell you what to go for as it will come down to your circumstances which nobody on here knows enough about.

If you are purchasing what would be your final home then a 10 year fix might not be a bad idea. If you intend to move or may move then it might be better to fix for a shorter period but the choice as Cilla used to say is yours.

ethank

Most of the people I know who have children are always concerned about the secondary education that there children will receive. I'm not a parent, but I think 10 years is a long time and you might find yourself stuck! The choice is yours, but if I was facing those decisions I would not fix for ten years.

Sparx

Maybe go for a 5 year fix as a happy median?

ConfusedofYorkshire

Thank you for your replies.
I think anything over 3 years and we''re risking having to port. We are moving to a new area so we don't know if it's somewhere we'd want to live for the foreseeable future. But 3 years just feels like we're asking to come out just when rates rise.

On the other hand, porting would cost us a lot of money if we got rejected so maybe we should go longer term and accept that we might have to take the little one out of school if we really don't want to settle there.

If the decision was purely financial, what fixed term would you go for in the current climate?

ACG

Purely financial it would depend on what the rates available were.
I would be inclined to look at a longer term fix.

If the rate was marginally higher then i would look at 5-10 years. If its a good 1% plus higher then you have to weigh up whether its worth paying more now and less later on.

You could in theory be overpaying by the difference between a shorter term fix and a longer term fix meaning your paying interest on a smaller balance.

Its difficult as nobody knows when and by how much rates will go up by.

ConfusedofYorkshire

I've mainly looked at nationwide as I bank with them. So with a 70%ltv it's:

499 fees
1.99% 2 year
2.29% 3 year
2.59% 4 year-plus 250 towards legal fees and free valuation
2.99% 5 year

With ybs it's:
3.89% 10 year no fee

milanos

I'm in the same boat as you, although remortgaging rather than a FTB. I think I've talked myself into a 5 year fix with the Yorkshire at 2.84%. I have given serious consideration to the 10 year fix though, it's a great deal.

I intend to put the difference straight back into it in overpayments for the 5 years though and take my chances on the rates come 2019! Either way it's a good position for you to be in with pretty low LTV, so good luck!

fewcloudy

Hi

You've mentioned twice that you think that in about 3 years the interest rates will rise. That's as good a guess as any of course, but by no means likely to happen. I've seen folks on here, and in the media generally, tell me that the interest rates will rise soon, can only go one way, will be 'back to normal' in a few years etc etc, and some of them have been saying that since 2009! They are still at 0.5%...

As I'm sure you know, there's now a potential link to the unemployed levels dropping to a certain level and interest rates potentially rising. We'll see. But it's still just a guessing game.

ConfusedofYorkshire

fewcloudy wrote: »

Hi

You've mentioned twice that you think that in about 3 years the interest rates will rise. That's as good a guess as any of course, but by no means likely to happen. I've seen folks on here, and in the media generally, tell me that the interest rates will rise soon, can only go one way, will be 'back to normal' in a few years etc etc, and some of them have been saying that since 2009! They are still at 0.5%...

As I'm sure you know, there's now a potential link to the unemployed levels dropping to a certain level and interest rates potentially rising. We'll see. But it's still just a guessing game.

That is a fair point. there is always speculation and I guess I am asking people to give me answers where there are none. Although some people's guesses are probably more educated than mine.

I met some people the other day who fixed for 5 years in 2007, when interest rates were high- because that was the advice at the time. it just goes to show how wrong it can be.

so- would you take a punt at a 2 year then as that is the lowest interest option?

drdpj

You can drive yourself nuts trying to work it out, but no one can predict what interest rates will do (apart from go up an indeterminate amount at some point in the future).

Fix for as long as you want to know what your outgoings will be and then stop paying attention to the rates, safe in the knowledge you don't have to worry about your outgoings changing for that period