2 Years vs 5 Years & 'Standard Mortgage Rate'

mcc86

Hello,

I'm in the process of purchasing a property - first time buyer so apologies if this is a rather stupid question.

When selecting a mortgage, I decided to proceed with a fixed 2 year deal on the basis that I don't expect interest rates to rise within that period (for a variety of reasons, including Brexit) and that I should be in a position to overpay by approx. 10% for both years - therefore when at the end of the 2 years I can get a lower interest rate because the LTV will be far lower.

However.... my more conservative side has been telling me to go for the fixed 5 year for that added security, for which I would be paying an additional £50 p/m for.

I was relatively comfortable with my decision until the mortgage offer came through that states after 'Step 1' the rate that will apply is a variable rate, Standard Mortgage Rate currently at 3.99%.

I understand from my mortgage advisor that I don't have to go onto this rate after the 2 year fixed and I can get another fixed deal, however having looked at the variable rate market it seems to be closer to 1.25%. Any idea why my offer letter is so much higher than what the market is offering at the moment? Could I not simply go onto a variable rate for 2 years (at 1.25% if that was the offer at the time)... and then jump ship again and never go to the much higher 'standard mortgage rate'?

Also, any thoughts on whether 2 years or 5 years is the way to go (appreciate it is subjective) then that is much welcomed.

getmore4less

don't confuse

tracker/discount/term based variable rates with "standard Variable Rates" or follow on rates.

your 5y rates will be higher but your LTV improves in 2 years.

say over 4 years even with a rate rise 2+2 could still be better than 4 years on a 5y.

crunch the numbers you can work out what rate rise in 2 years will make you worse off in 4 years.

it is not will rate go up but will rates go up by more than X%

you can work out X%.

dimbo61

3.99% is one of the lower SVR rates out there.
Many lenders have a higher rate than that 4.75/5%
If you really can overpay by 10% each year then taking the 2 year deal might be a good option.
Can you afford to knock 10% off your mortgage ?