2 year or 5 year fixed mortgage

putopao

Hi,
With the slashed in the interest today with the bank of England, I am thinking of going to 2 year fixed rate for our mortgage in 2 weeks time. is that a best idea? or just go 5 yr fixed as with the brexit thing and virus and all.

isplumm

putopao said:

Hi,
With the slashed in the interest today with the bank of England, I am thinking of going to 2 year fixed rate for our mortgage in 2 weeks time. is that a best idea? or just go 5 yr fixed as with the brexit thing and virus and all.

Well we fixed 18 months ago for 5 years - but I like to know what my payments are ... so it really depends what your preference is ... remember in 5 years, we might be going through another election cycle - which I suppose might result in uncertainty?

Mark

diggingdude

Don't really see how rates can drop further so i would do a 5 year (I have just completed year 1 of 5), but then who knows in 3 years time we may be living in a walking dead environment

greatcrested

but wait for mortgage fix rates to respond to todays interest rate cut....

putopao

Our mortgage advisor said that even with the cut, some lenders rate went up e.g HSBC, he was also rushing us to file the application this week, does that sound odd? I am thinking that he wants us to have a higher rate for his commission ? seemed like he does not want to wait til the cut takes into effect already? 

steampowered

Is there a chance you might want to sell within 5 years?

If so, you should definitely take the 2 year fix to avoid a hefty early repayment charge.

If not, it makes sense to lock in record low interest rates.

princeofpounds

Fixed rate mortgages are, very crudely, priced off the market's best guess of future interest rates at the current time, so without a crystal ball it's hard to offer a definitive opinion beyond that.

On average they tend to be just a little bit more expensive than that because you are not taking on the interest rate risk, and someone in the financial system needs paying to take that uncertainty, but it's minimal.

The recent cut in short term interest rates has also been reflected in longer-term interest rates, so all else equal fixed mortgages should get cheaper than they are today over the next couple of months. However, the current economic situation means that banks are getting more cautious, so they will be asking for higher 'spreads' over those market interest rates, which will offset this to some degree. How much is entirely uncertain, but my educated guess is that mortgage costs will still go down, but not by as much as the interest rate cut. The basic non-technical rationale for that is if banks 'kept' the whole of the interest rate cut it would imply an unusually dramatic upswing in profitability (and before people start bank-bashing, most of them don't actually make much money given the size of their capital bases and haven't for years).

So my suggestion is - don't worry too much about 2yr or 5yr in terms of rates. It's more important it matches your personal situation - would you like the long-term certainty? Is there a chance you may need to move before 5 years? But you may find that rates are a bit cheaper in a couple of months' time.

princeofpounds

putopao said:

Our mortgage advisor said that even with the cut, some lenders rate went up e.g HSBC, he was also rushing us to file the application this week, does that sound odd? I am thinking that he wants us to have a higher rate for his commission ? seemed like he does not want to wait til the cut takes into effect already? 

It does not sound odd - the banks can control their spreads quickly and are aware of the economic degradation. Perhaps HSBC just wanted to compete less aggressively separate to this virus issue. If it is the virus impact they are concerned about, it's easier for them to be cautious first and then try to compete with the cheap funding later when their risks are more calculable. 

It almost certainly does not affect the commission of the broker. However, he is likely to be paid on volume essentially, so he will generally just want you to get on and apply for a mortgage. But he may also be more concerned than e.g. I am about how banks will price their spreads on mortgages going forwards. I wouldn't assume bad intent in his advice - your mortgage is simply not that important to him. But his natural reflex is always going to be 'get your mortgage' because that's what he brokes.

Mr_P_

I've been watching the rates for the last week and there's been no change for HSBC, I think your MA is pulling a fast one.