Please Help! 5 Year Fixed or Discounted Variable

RDW1989

We've had a 185 offer accepted. We have 2 main mortgage options we're deciding between, but I'm finding it extremely stressful and confusing We have to move quickly and decide by tomorrow.

Both 10% deposit.

Mortgage 1 - Variable
2 years @ 2.55 (£602)
3 years @ 4.69 (£801)
Then 5.69% (£896)

Mortgage 2 - 5 year fixed
5 years fixed @ 3.99 (£736)
then variable rate, currently 3.99 (£736)

I'd like the security of fixed, but my boyfriend, his dad and the mortgage advisor say we'd be stupid to pay 130 more a month for fixed when rates aren't likely to go up...

They suggest 2 year variable and then switch... but wont the rates be worse by then?

Any advice?

(FYI we're 25, our salaries are reasonable but not great. I'm on 31k but an academic on a 3 year probation (potentially unstable) and boyfriend gets an hourly rate, approx 13k a year. I currently rent alone at 700/month and get by without scrimping but without extra to spare)

marathonic

The follow-on rate worries me on the shorter-term fixes. With a 10% deposit, it doesn't take much of a fall in property prices to leave you stuck on 5.69% in 2-3 years time.

Likewise, if property prices don't fall but you find:

• yourself on maternity leave;
• either of you out of work;
• accidently missing payments on credit cards, loans, etc.
• having 'stupidly' applied for payday loans in the leadup to the end of your fixed term;
• etc.

You may be unable to remortgage and be stuck on a high rate.

Of course, as the 3.99% SVR on the 5-year fix is variable, it could be just as high as option 1 in a couple of years time - but we can only use a banks current rate and historical levels of it's SVR to try and make an educated guess as to what they'll be in 2/3/5 years time.

marathonic

Also, rates ARE likely to go up - but I can see the point in trying to go for a short-term fix in an attempt to secure a lower LTV and, therefore, lower rate, product in 2-3 years time.

The question is, can you afford £896 if things don't pan out as expected?