2 or 5 year fix?

getmore4less

dirty_magic wrote: »

Which do you think is a better option for a first time buyer with a 15% deposit? I'm not sure whether the rates are likely to go up enough to justify a 5 year fix in 2 years. Would it be better to fix for 2 years and try to remortgage after that? Is it even possible to mortgage after 2 years?

I've been looking for the best overall cost for comparison, but I'm not sure if this is the best thing to do either. If the base rate goes up 1%, would the SVR be likely to go up 1% too or is the lender likely to change to whatever they want meaning that the overall cost for comparison is useless?

Will probably go to a broker but I'd like some idea of what is a good deal beforehand.

Do you understand how this figure is obtained?

The key to comparisons is what it costs to reduce the debt.

If looking at a short term deal then that's the time period you do the comparison then factor in the risks of not being able to change at that time.

For 2 fixed deals of the same period this is easy and predictable as it is just the amount owing at the end once you add the fees and make the payment the same.

For different periods you start to introduce variables and multiple check points.

eg. comparing a 2 against a 5, you can predict the difference at 2 years, to do the next 3 years you can calculate the 5y fix then have to do some guesses for the other deal/alternative to change at that time.

It is also a good idea to understand the objectives. will the LTV change, will you want to move, how much can you afford if rates rise, risk factors that leave you unable to change lender.........

Remember a fix is a short term protection, you could look at long term low cost trackers, often when analysed they work out quite competitive and often mean no re mortgage till you get a better LTV or move home.

dirty_magic

I've been using Totally Money which allows you to compare the costs over 2/5/10 years. I understand this figure, the bit I'm not sure about is whether there is any point comparing SVRs because no one can predict the future! I don't think I'd feel comfortable with a tracker with the rates so low.

Hopefully we won't want to move, but realistically we probably won't be able to get the LTV down by much because depending on what we buy we'd probably be spending spare cash in the first couple of years on making it our own. I'm not too worried about not being able to afford the repayments because I wouldn't max us out to begin with, it's more about getting the best deal.

Like Dimbo said, I think it would be a lot of hassle to keep remortgaging.

Thrugelmir

dirty_magic wrote: »

the bit I'm not sure about is whether there is any point comparing SVRs because no one can predict the future!

Until Bank of England base rate normalises then there'll continue to be wide wide variations in quoted SVR's. You would expect SVR's of all the mainstream lenders to sit in a band around 2%-2.75% above base rate. So as base rate rises those at the bottom will rise while those at the top end (at least initially) will remain static.

suse*

Remeber things change and in 2 years you might not be able to remortage and be stuck with a company where that deal isn't so great any more, so 5 might help protect you. House prices can go down as well as up as I learnt to my cost, I am still no where near back to what I paid in 2007 and when I was in negative equitiy I had no ltv obviously, and with a northen rock mortage too I couldn't even refinance with them so was stuck at 6.5% for years while everone else was enjoying the prices falling.

Do you have a healthy emergency fund as well in case of job losses, dead boilers etc? If you know you have 5 years fixed payments you will have more options then to build up other savings and over pay too.

No one can predict when or how much rates will rise, apart from the fact at some point they will do. You don't know if you'll get sick, or loose your job, or have a kid or all sorts can happen in 5 years, and knowing what your obligations are really can help rather than worrying the rates might go up again or whatever.

dirty_magic

We wouldn't have much left over as we would be putting most of our cash into the deposit. I think I'd like the security of a 5 year fix because I'm not much of a risk taker. They're just much more expensive.

I do think that house prices may come down in the short term when rates start to rise so it could cause problems remortgaging after 2 years.

getmore4less

Don't just compare the current follow on rate look at the history....

A lender that has had a higher rate in the crowd will tend to always have a higher rate in the crowd.

What wee need is someone in the industry to post the table/graph for the last 10 years across the lenders.

Fixed are sold as mitigating/low risk but are they when they cost more to start with?

If you think rates will go up you need to have a plan for that step change at end of term.

If you start on a lower rate you can overpay and mitigate risk that way, potentially end up with a smaller debt, with a fix you know where you will be, but so the numbers.