With a 10% deposit in a 'hot' market, it is wiser to go for a 2 or 5 year fix right now?

silvermountains

Hello! At a 90% LTV in the current market, would you go for a 5 year (3.49%) or 2 year (2.99%) fix right now? 

Considerations include: 

1. That we are probably buying at the top of the 'pandemic bubble' market right now, so concerned that the house value might not automatically go up over the next two years.  
2. If the house value stayed exactly the same, we would just scrape into the 85% band after two years.
3. We are hoping to have children quite soon and so in two years I would either be on maternity leave or would be just about to incur £££ nursery fees.
4. We generally have a low approach to risk.
5. Salaries won't increase much in the next two years but should do after four years.

Would appreciate any and all opinions, thank you

getmore4less

90% LTV over 27years

  
(£100k as a purchase price each £100k is a £90k mortgage)

Taking the 2y at 2.99%(£405/£100k)  but paying  the 5y 3.49%(£429.28/£100k) gets you to 85% LTV  before overpayments or HPI(up) 


Pick a lender with a history of good retention rates
Take the longest term you can(overpay)  so you have the option to have a lower payment in the future

again per £100k purchase just scale to you price.
eg. that £429 could be £371 over 35 years pay the 429 for 2 years and you could have a £362pm on 3.49%

keep the payment at £429 and you are into 80% LTV at Y4 if rates don't move much

silvermountains

Thank you, we would be looking to overpay where we can although over two years this wouldn't make much of a dent in the capital.

We are old FTBers(!) so a 25 year term would be the maximum we can go to.

dimbo61

So with a 25 year term and kids wanted soon maybe the security of a 5 year term would be a good idea !
You might be at 75%LTV in 5 years time and can overpay if you can afford too.

RelievedSheff

I think in your situation I would go for the 5 year fix.

silvermountains

Thank you Dimbo and Sheff.  We are going to make a decision next week as apparently some new deals are coming onto the market on Monday.

I think we are leaning towards 5% but our broker has made it clear she does not agree with us, but oh well?!

K_S

silvermountains said:

Thank you Dimbo and Sheff.  We are going to make a decision next week as apparently some new deals are coming onto the market on Monday.

I think we are leaning towards 5% but our broker has made it clear she does not agree with us, but oh well?!

@silvermountains It's the client's call ultimately and as a broker the short vs long fix question often boils down to the client's attitude more than anything else and what they are more comfortable with so I'm (to a large extent) guided by that. Good luck!

getmore4less

Check follow on rates.

Some lenders they are lower than the 95% and 90% rates you start at.

Shorter term  can get you on a lower rate sooner.