1st time buyer

wicker_girl

Hi

Looking to buy my first home with 5% down. Having spoke to my bank i have decided on fixed rate rather than tracker but i'm now totally confused is whether to go 2 year fixed or 5 year fixed.

What are thoughts in regard to how interest rates will be with trump and brexit. Unfortunately bank cant give an opinion on what should do, any advice would be grateful.

Thank you in advance.

AnotherJoe

https://forums.moneysavingexpert.com/discussion/comment/71743679#Comment_71743679

Thrugelmir

I'd focus on your personal situation than outside events over which you have no control. Which is better for you. Would a 5 year fix enable you to budget better for example. Knowing what your outgoings were for the foreseeable future.

Brexit and Trump are only 2 factors of many which may influence the future direction of interest rates.

Strummer22

Completely independently of what interest rates will do, you should also consider what house prices might do.

At the outset, you're only going to own 5% of your house. Now, we all know house prices can go down, which would be bad, but I think consensus is they're likely to keep rising. Let's assume 4% increase each year (is that a bit optimistic??).

Using a mortgage calculator, I can see that as an example if you had a 95k mortgage over 25 years at 3.3% interest, after 2 years you'll have paid off £5060 of the capital (as well as the interest).

Original house value 100k. Original loan 95k.
After 2 yrs house value £108,160. Outstanding loan £89,940

Your LTV when you remortgage in 2 years: 83%. So you should be able to get a good new deal in 2 years because you have more equity in your home. At the moment you can only get a deal based on 5% equity, and if you lock that in for 5 years you will miss out* on the better deals available as you pay off your loan and your house (likely, not definitely) increases in value.

*Well you can change deal but probably have to pay an early exit fee from your long fix, which may not be worth it.

wicker_girl

Hi

Thanks for replies i appreciate it.
Where i live not much movement in house prices, too small and quiet an area.
House im looking at i have had offer accepted for 59,000 with £3000 deposit
Bank has agreed me to pay £300 per month with 2 year fix at 3.74 and 5 year at 4.54%

Difference she told me over phone is that there would be 4 year difference in when house would be paid off but obviously that would be subject to what rates are every time remortgage.
I'm thinking 2 years as would get more paid off the equity than i would over 2 years on the 5 year plan?
Think i'm confusing myself over it all and really doesn't help that i don't have that good a budget and am doing it alone, should have done it years ago

TheShape

Some things to consider.

With a mortgage you usually set the term rather than the payments. I expect that you have come to a decision as to an affordable payment each month and that is why there would be a difference in the term. The bank are adjusting to term to meet what you want to pay per month.

When your fix ends, it's more likely that your 'minimum' expected payment will change rather than the term. If interest rates rise, you'll pay more rather than paying the same for longer.

What term are you looking to borrow for?

As you are buying on your own, have you considered how you'll pay the mortgage if you lost your job/earned less? Do you have an emergency fund/savings?

chopper78

Barclays have a 3 year fix, 95% LTV, at 2.79% with no arrangement fee. Repayments would be £260 a month based on a 25 year term.

£40 a month extra gets it paid off 4 years earlier.

3 years seems a good compromise if 2 years seems long enough or 5 years is too long.

One thing is for certain though, and that is interest rates aren't going to be going down.