Fix for 2 or 5 years

AnotherJoe

Cardinal-Red wrote: »

It's an interesting gamble and nobody really knows what's going to happen. I am in the same boat roughly, where a 2 year fix at 1.94% compared to a 5 year fix at 2.99%. I calculated for the same monthly payment on each, our capital balance would be £7,000 lower at the end of year 2.

Then on the other side, are factors like unknown interest rates - seeing the news today about consumer spending, how long until this feeds into inflation and therefore interest rate decisions. If my fixed rate options in 2 years are 1% higher, then all the good work is undone, and by the end of the notional 5 year period it will cost more to be at the same point.

And with all the talk of lower house prices etc (whatever you believe, it must be a risk), what if when you come to remortgage, your LTV has gone up, not down, therefore removing the better rates from your grasp.

So in essence, who knows!

That is incredibly unlikely. As in, simply not going to happen. For numerous reasons mostly Brexit related where the absolute last thing anyone wants is higher interest rates because a low pound is at this moment very favorable to the UK as is higher inflation which a low pound helps with. You would be gambling £7,000 on a tiny tiny chance.

Just take out a bet on it to hedge if you are that bothered, i would suspect for say £140 you can bet the BoE rate in 2 years will be 2% or higher at 50:1. So, if it is 2% you get £7k, if not you lose £140 but gain £7000 on your reduced interest.

Cardinal-Red

AnotherJoe wrote: »

That is incredibly unlikely. As in, simply not going to happen. For numerous reasons mostly Brexit related where the absolute last thing anyone wants is higher interest rates because a low pound is at this moment very favorable to the UK as is higher inflation which a low pound helps with. You would be gambling £7,000 on a tiny tiny chance.

Just take out a bet on it to hedge if you are that bothered, i would suspect for say £140 you can bet the BoE rate in 2 years will be 2% or higher at 50:1. So, if it is 2% you get £7k, if not you lose £140 but gain £7000 on your reduced interest.

I'm not an economist, but I would challenge the idea that it is incredibly unlikely. 2 years ago there were people on the MPC wanting to raise rates and it was a question of when not if they went up. Who could have predicted then that the next move would be down again.

We saw them fall from 5% to 0.5% in what, 6 months? Don't think anybody was predicting that either.

And even if there is no change, there's nothing to say bank rates will reflect BoE rate - even if in 2 years base rate is still 0.25%, there could well be future increases priced into offerings pushing the rates for longer fixes up, or indeed just profit margins etc.

I'm not saying that I think rates will go up, and as I said I'm not an economist, but I do think that it needs to be a factor in thinking.

The decision should really be a factor of attitude to risk rather than presenting anything as fact, because literally who knows.

I think your idea of hedging against it though but as I said before there's a risk that BoE rate doesn't correlate with fixed rate offerings.

fewcloudy

Cardinal-Red wrote: »

We saw them fall from 5% to 0.5% in what, 6 months? Don't think anybody was predicting that either.

No, it took more like about a year, (but there was a beautiful moment when it dropped 1.5% in a single month, wibble!)

Since it plummeted, there have been soooo many times in the last 8 years that we have been warned/advised that they won't stay low forever (genius), and that this, that, or the other will cause them to rise.

Most recently post-Brexit financial Armageddon would spell interest rate doom (they promptly fell even lower). Not just warnings from my bank manager or on TV or newspapers, but on this very forum too. People advising me to buy into a 2, 3, 5,or even 10 year fix in 2008/9 at around 3 or 4% when the BOE rate was on its way down quicker than you can say peas. They've been relentless with their incorrect predictions for 8 years now.

So I also think incredibly unlikely to rise, and also think the day they do it will be incredibly slowly and in small increments. Too much debt to do it any other way.

fc

AmyMills46

Hi


I'm not sure if this is helpful to your situation, but just read this on a blog...


What are the best mortgage deals currently available?

"The referendum result caused people to pause and consider their position, but over the past month we have been meeting with clients who are now wanting to press ahead with their property purchase, as they are recognising that the mortgage market is in a very competitive space with lenders reducing their product rates to attract as much business as possible. This month’s decision by the Monetary Policy Committee to reduce the Bank of England Base Rate has resulted in lenders reducing rates further. This means interest rates are now at historically low levels, so a mortgage which may have previously been unaffordable is now within reach." Alanzo Seville, Mortgage & Insurance Adviser, Capricorn.
Worked example...
"As an example: if a couple are looking to purchase a new residential property for £450,000 with a 15% deposit (so £67,500) there is a 2 year tracker rate available at 1.54% with monthly payments of £1,546 over a term of 25 years, on a capital repayment basis. If they prefer a fixed rate product, there is a 1.65% 2 year fixed rate available with monthly payments of £1,565.
If the same couple are looking to purchase a buy to let property for £450,000 with a 25% deposit (so £112,500) there is a 2 year tracker rate available at 2.20% with monthly payments of £634 over a term of 25 years on an interest only basis. If they prefer a fixed rate product, there is a 2.34% 2 year fixed rate available with monthly payments of £668.
The mortgage products mentioned above are just a couple of examples of what can be achieved. The exact rate available will depend on your individual circumstances."


Good luck in your search!

getmore4less

Cardinal-Red wrote: »

It's an interesting gamble and nobody really knows what's going to happen. I am in the same boat roughly, where a 2 year fix at 1.94% compared to a 5 year fix at 2.99%. I calculated for the same monthly payment on each, our capital balance would be £7,000 lower at the end of year 2.

Then on the other side, are factors like unknown interest rates - seeing the news today about consumer spending, how long until this feeds into inflation and therefore interest rate decisions. If my fixed rate options in 2 years are 1% higher, then all the good work is undone, and by the end of the notional 5 year period it will cost more to be at the same point.

And with all the talk of lower house prices etc (whatever you believe, it must be a risk), what if when you come to remortgage, your LTV has gone up, not down, therefore removing the better rates from your grasp.

So in essence, who knows!

With a £7k smaller mortgage the rates will need to be more than 1% higher before you lose out, do the numbers you might be surprised at how much protection that £7k gives you.

If they only went up 1% you would be ahead by more than 7k after 5 y

getmore4less

AmyMills46 wrote: »

Hi


I'm not sure if this is helpful to your situation, but just read this on a blog...


What are the best mortgage deals currently available?

"The referendum result caused people to pause and consider their position, but over the past month we have been meeting with clients who are now wanting to press ahead with their property purchase, as they are recognising that the mortgage market is in a very competitive space with lenders reducing their product rates to attract as much business as possible. This month’s decision by the Monetary Policy Committee to reduce the Bank of England Base Rate has resulted in lenders reducing rates further. This means interest rates are now at historically low levels, so a mortgage which may have previously been unaffordable is now within reach." Alanzo Seville, Mortgage & Insurance Adviser, Capricorn.
Worked example...
"As an example: if a couple are looking to purchase a new residential property for £450,000 with a 15% deposit (so £67,500) there is a 2 year tracker rate available at 1.54% with monthly payments of £1,546 over a term of 25 years, on a capital repayment basis. If they prefer a fixed rate product, there is a 1.65% 2 year fixed rate available with monthly payments of £1,565.
If the same couple are looking to purchase a buy to let property for £450,000 with a 25% deposit (so £112,500) there is a 2 year tracker rate available at 2.20% with monthly payments of £634 over a term of 25 years on an interest only basis. If they prefer a fixed rate product, there is a 2.34% 2 year fixed rate available with monthly payments of £668.
The mortgage products mentioned above are just a couple of examples of what can be achieved. The exact rate available will depend on your individual circumstances."


Good luck in your search!

Bigger deposit higher rate I don't think so.

AnotherJoe

Cardinal-Red wrote: »

I'm not an economist, but I would challenge the idea that it is incredibly unlikely. 2 years ago there were people on the MPC wanting to raise rates and it was a question of when not if they went up. Who could have predicted then that the next move would be down again.

The people who missed Brexit maybe? Or the Euro heading towards the toilet?

Anyway, Brexit changes everything re interest rates. There is no forseeable scenario whereby its in the UK's benefit to raise rates prior to Brexit and for a few years after. The whole point is to be an exporting country, a strong pound will damage that. It will also forestall any hostile import tariffs against the UK and increase inflation, which again is a good thing at the moment for many reasons.

Plus, factor in you said 1% in 2 years time? If rates do go up it will be incrementally in 0.25% chunks and very slowly and be Telegraphed (probably literally thinking of the newspaper) months ahead. Chances of rates going up 1 % in the next 2 years, are pretty much zero. I wouldnt even see a 0.25% increase, but 1% in a year which was what was theorised (since they wont be going up for a year only just having come down, so they only have one year to rise that much)? Not a chance, that would nuke the UK economy. House prices really would crash, consumer confidence would disappear, tourism drop.

Not. Gonna. Happen. Bet on life on Mars being discovered instead.

Kynthia

As well as all the debate about what will happen with interest rates you need to consider property prices and tge potential impact on your LTV ratio and how attractive you'll be to a lender in 2 years.

Anyone who only just got a deal based on their current LTV ratio needs to consider whether any short term dips in property value will decrease their LTV ratio making them less likely to get a similar mortgage deal. This won't affect everyone but is worth considering.

Then there's the other larger consideration of are you likely to have a change in circumstances that will affect your ability to remortgage in 2 years. Are you planning to go self employed, as you won't have enough years of accounts for the lender? Are you planning a child and therefore may be at the point of lowest income and highest childcare costs whereas in 5 years they'd be almost starting school. Is your employer likely to make you redundant in the next couple of years (I know many won't know and you can't live in fear of these rumours but you may know of a big contract about to end or you may be aware of funding coming to an end or a potential takeover bid)?

Therefore if you know you may have something in the next couple of years fixing for longer could give you certainty.

getmore4less

Most of those issues don't apply to retention deals.

Kynthia

getmore4less wrote: »

Most of those issues don't apply to retention deals.

True but retention deals often aren't as good as the best deals out there so it's a consideration.