Fix for 2 or 5 years?

boiali

Dear all,
I know no one has a crystal ball but just want to hear people's thoughts.
We just had an offer accepted on a house for £360 000. We plan to put down £190 000 deposit.
We want to take a fixed mortgage but wonder if to fix for 2 years or 5 years? we can afford both. We want to take mortgage over 10 years because we dont like debts.

I will be interested in hearing people's views.

thanking you in advance

James_B.

a 2y GBP swap is currently at 1.09%, and a 5y is at 1.74%, which you can use as a starting point to work out of the deal you are being offered is "better" value 2 or 5 years.

For most people, though, the decision is not about a few basis points charged or saved, but about how you personally value certainty over the longer term. Do you want to guarantee your rates for two years, or longer?

whitewing

Two years will fly by. I fix for 5 years so I don't have to go through the hassle too soon. Our income fluctuates quite a lot as well for various reasons so it's good to know what we'll be paying.

marathonic

With a 10-year term, your capital will be being paid down fast enough to ensure that the impact of rate rises after the first few years is reduced.

I'd go for a 2-year fix to ensure that I pay the lowest interest rate possible when capital outstanding is at its highest.

If all you could afford was a 25-30 year term, my answer may well be different

jacobtheamish

Are your salaries consistent? No bonuses? Do you intend to overpay your mortgage? How long do you plan to remain in the property?
However long you fix the mortgage for will usually mean you have erc's for the same period.
Interest rates will rise, I've given up on trying to guess when.
Inflation results next month and in February '15 will be interesting.
Most of my vanilla clients (steady income etc) I would advise fixing for 5 years. If you want to take advantage of the lower 2 year rates then you may want to take advantage of the lower payments and overpay where possible to hedge against future rises.
Speak to your broker, who should have a better idea on what suits your situation.

JimmyTheWig

Generally people take a fixed rate because they couldn't afford it if rates went up significantly.
Is that your thinking on taking a fixed rate?
if so, and you go for a two year fix, what will you do in two years if rates have gone up? Presumably your income won't have risen significantly in two years so you might end up in trouble.
In 5 years time you will have paid off the best part of half of your mortgage and inflation should mean that you are earning more. So a rate rise would be manageable.
So if you're doing it because you can't afford rates to go up, I'd say go for a 5 year fix.

If you're doing it because they're good value then that's another question. It mainly boils down to what sort of rate you think you could get in 2 years time.

boiali

Thank you all for such interesting comments. I wanted to fix as I believe rates will go up, and therefore wanted to guarantee a good rate. Like I said, we want to pay off the mortgage fast, so plan is to overpay-so far rates we see allow up to 10% overpayments. I want to be mortgage free in less than 10 years but dont want to commit to high repayments. Realistically we want to pay say £2K/month and we should still live comfortably. Our salaries are "safe" and actually hubby's will be going up in 2 months.

We hope to remain in the property for the foreseable future unless something happens unexpectedly.
When I looked at the 2 yr vs 5yr monthly repayments, the difference was about £60 which I thought wasnt much.

Thrugelmir

boiali wrote: »

When I looked at the 2 yr vs 5yr monthly repayments, the difference was about £60 which I thought wasnt much.

Look at the follow on rates as well once the fixed term has ended.

JimmyTheWig

boiali wrote: »

Thank you all for such interesting comments. I wanted to fix as I believe rates will go up, and therefore wanted to guarantee a good rate. Like I said, we want to pay off the mortgage fast, so plan is to overpay-so far rates we see allow up to 10% overpayments. I want to be mortgage free in less than 10 years but dont want to commit to high repayments. Realistically we want to pay say £2K/month and we should still live comfortably. Our salaries are "safe" and actually hubby's will be going up in 2 months.

We hope to remain in the property for the foreseable future unless something happens unexpectedly.

This suggests to me that you are perfectly able to pay a higher rate if rates go up, so no reason not to (as you are doing) look at 2 year fixes to see if they are good value.
I would say it is worth looking at variable rates as well, though.

When I looked at the 2 yr vs 5yr monthly repayments, the difference was about £60 which I thought wasnt much.

This, to me, suggests a difference in interest rate of about 0.6%. Is that right?
When I was working stuff out for myself recently I worked on the basis of interest rates being 1% in two years time than they are now. If you get the 2 year fix now and the equivalent 2 year fix in 2 years time (which, by my reckoning, will be 1% higher than this one) you'll be 0.6% better off for two years then 0.4% worse off for two years. Which balances out in your favour - depending on what happens in the fifth year, of course.

Something that is vitally important is the fees associated with the rate. Post all the details of what you've been offered here if you want someone to take a look.


The other thing to consider is the reducing balance of your mortgage.
With a 10 year term plus overpayments in two years time your balance should be reduced by more than 20%.
That means that any increase in mortgage rates will be less significant.

gazfocus

I too have been looking at whether to fix for 2 years or longer. We already live in our house but our fixed term ends next summer so I am looking at my options to see what's available. Our current interest rate is 2.69% and if we fix for another 2 years (at current rates) it would go up slightly to 2.89%. If we fix for 4 years (at current rates) it would go up to 3.84% which is a massive jump.

It would definitely be worth looking at the figures and working out whether you could overpay enough so clear the mortgage within a fixed term.

boiali

Thanks for replies,
This is what I have been offered:

2 year fixed:
1. Nationwide: 1.84% +£499 in fees
2. HSBC: 1.49% + £1999 fees
3. Abbey: 2.09%

5 yr fixed: Woolwich 2.85% + £999 fees.

But I was told the first two are expensive if you include fees. So I was advised either Abbey or Woolwich, which is why I thought there isn't much difference.

Is my broker any good?