Fixed rate lengths

ravengreg

Hello all,

Long time lurker but possibly only my first post on these boards.

My partner and I are in the process of buying a property for £240k, which we are looking at mortgages based on an 85% ltv ratio.

Our personal thoughts would tend to lean towards a 5 year fix, being the cautious types and everyone predicting rates have to go up at some point!

Our mortgage broker has made a compelling case for a 2 year fix - namely the lower rate now (allowing us to over pay but also giving a bit of flexibility with lower monthly payments), with the intention that after 2 years we will be looking at perhaps a 70% ltv and hence access to much better rates at that stage. (Also less penalty fees if we need to sell up before the end of the 5yr).

All this rather than fixing for the higher rate a 5yr fix would entail and missing out on the ultra low rate available now.

I just wondered if anyone on here would echo any of the above ideas.

I guess the trick would be to utilise the crystal ball but no one is that lucky!

Many thanks in advance for any input anyone can give on this.

Greg

marathonic

Be careful with follow-on rates. Property prices could fall and you could see yourself on a 90%+ LTV in 2 years time. This would leave you stuck on your current lenders follow on rate - usually the SVR.

A lenders SVR can change at any time but current rates are the only thing we can use as guidance as to what they 'may' be in 2 years time.

Senior_Paper_Monitor

Your broker is doing and excellent job in making you think through the alternatives. Also what are the chances of you
1) changing jobs
2) breeding
3) splitting up
- and therefore needing to change the mortgage over the longer period ?


There is no right answer (unless you are just taking your CeMAP - in which case its 5 yr fixed), just a right answer 'for you'.

amnblog

Which rate term do you feel more comfortable with now? Before you get any input here.

ravengreg

Marathonic, very good point. Had naturally assume house prices would stay the same or increase slightly (obviously not at the rate they have been but maybe 1 or 2% increase).

Senior Paper Monitor, would have to no to all the possible changes mentioned. Very happy as things stand and hope it stays that way!

Amnblog, we can happily afford the monthly payments on either rates. We would just like to maximise where our money is going...

Many thanks for the quick responses!

Thrugelmir

What products have you been offered?

amnblog

Raven.

If you can afford the higher interest but want to maximise your payments you would go for the two year option where you have a greater chance of paying less interest whilst knowing you can handle higher interest rates if it does not work out.

dimbo61

" with the intention that after 2 years we will be looking at perhaps a 70% ltv "
Wishful thinking to go from 85% LTV to 70% in 2 years !!!!
Come on maybe 5 years with overpayments as well.
Not buying in a London hot spot ?

gameforalaugh

We have just gone for a five year fixed. I wanted to have a 3 year (to take us past possible childcare costs being considered against our affordability) but they were few and far between. We ended up with a good 5 yr rate from Natwest as when I geekily put the payments into an excel sheet for years 1-5 I did a worse case scenario of being stuck and going onto the SVR from year 3-5 (for the 2 year deal that we were considering) and it was a lot more than the five year when I compared it. So for us, we pay more year 1&2 but hopefully, will pay less year 3-5 than all of the SVR's that the mortgages available to us, reverted to. Hopefully that makes sense. To be fair, our 5 year was at a rate we were very happy with and I figured I would potentially save another £1000 arrangement fee within that time period, possibly 2x£1000. I know its all crystal ball scenario but I thought worse case scenario (as that's my luck) so that helped me decide.

Thrugelmir

gameforalaugh wrote: »

I know its all crystal ball scenario but I thought worse case scenario (as that's my luck) so that helped me decide.

Extremely sensible in my view. The one thing you cannot plan for is the unexpected.

ravengreg

Thrugelmir - Our adviser has been looking at and providing info based on the Coventry Building Society 2 year fix at 2.35% or the 5 year fix at 3.49%.

Amnblog - Yes that is the current thinking, but as you know it sometimes does not work out that way as explained below.

Dimbo61 - Yes very true, I was being a little optimistic. The initial capital owed is £200,600, which after 2 years will have reduced to £189,000 (before any overpayments). We hope to overpay so this is approx. £185,000, which coupled with a modest increase in the value of the property up to £250,000 would leave us with a LTV of 75% in 2 years time.

Gameforalaugh - I tend to think the worst case scenario is the best to follow! However, for us, what makes the decision harder is that comparing 2 years vs 5 years, we will have paid off more capital after 5 years on the 2 year rate followed by the SVR for 3 years, than if we were to go on the 5 year fix (according to the print out our mortgage advise provided).


Once again, thank you all for your responses!