10 Yr Fixed vs 2/3 Yr Tracker

jlb122

I am currently in the process of buying my first home in the South East of England for £210,000 with a deposit of £60,000.
I am debating whether to apply for HSBC's 10 Year 2.99% Fixed Mortage, which works out about £8,600 per anum with set up fees - but has early repayment fees. Or to apply for a 2/3 year tracker with an interest rate of 1.74% and paying £7100 per anum.
I can afford either, as after all of the monthly bills I will still have around £700 monthly income.
It seems that the fixed is at a great price at the moment, as I see it going up in the next couple of years - but would like some other opinions.

Edit - I am 22 years old, obviously in the next 10 years I do not see myself making any repayments to be honest - this will be in later life.

AnotherJoe

seems that the fixed is at a great price at the moment, as I see it going up in the next couple of years - but would like some other opinions

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Most people's opinions are there is no way that mortgage rates are going up in the next 3-5 years let alone the next 2 ! Multiple reasons but Brexit is the main one, it's in the UKs interest to have a low Pound relative to other currencies as that helps exports, negates any tariffs set against a UK out of EU, and also increases inflation, which is currently too low. Maybe if Brexit is a storming success which certainly won't be visible for 5+ years since we won't even Brexit for nearly 3 years, then talk will begin of rates rising but that will be in small increments gradually.

So I would say you should take the lowest rate you can find (balanced with the cost of fees) and then overpay as much as you can, taking advantage of the lower rates. In your example for instance, take the difference between the two, and overpay by that £1,500 a year you are otherwise putting into the lenders pockets.

Should rates start to rise or look like they will, let's say in 5 years time, you can always fix at that point, in the meantime you've had the first five years at a much lower rate than had you gone for a fix and will still overall come out better.

Also, at age 22, locking yourself into what will likely be a hefty Early Repayment Charge for 10 years seems reckless, (which is at odds with what you no doubt think of as a low risk option of a ten year fix). There are so many life changes likely to affect you in the next ten years that even if I thought rates would rise I'd say be very cautious of a ten year lock in, at your stage of life.

getmore4less

If you think rates are going up you have answered your own question.

Do some proper analysis on how much you will owe in the future not what it costs per year, the amount owed can make a massive difference.

jlb122

Over a 10 year period, there is around a difference of £15k assuming the interest rates stay the same. Obviously Brexit will keep the interest rates low for the short term (up to 5 years maybe) and the truth is that no one knows what will happen in the next couple of years - it depends on the negotiations. Like you said, even if BoE raised to 1% the interest rate won't be too much different , so I can afford the difference.

I agree, it probably seems best to make use of the low interest rates and make the early repayments while lowering my LTV. If the interest rates start to change, I am flexible and am able to change to fixed if I want that stability. Being tied down to a 10 year fixed at 22 does seem a bit of negative.