Advice needed! Shall I go for a 5 or 3 year fixed Mortgages!

Sam3007

Hi all
I have been accepted with Halifax for a 5 year fixed mortgage at 2.69% with a product fee of £999. (deposit is 15%) but recently I have been considering switching to Halifax 3 year fixed mortgage at 2.57% with a product fee of £999.
My reasoning is that, I anticipate that after 3 years I will be able to hit the 80 or 75 LTV (equity, overpayments and increase in house price value) and I will be able to get a much better rate of %2.07 (80 LTV) or even better the %1.48 (75 LTC). This will see my monthly payments 150 to 200 less.
The house is a new build and I am buying in the Northwest where prices are going up by the year. I am pretty confident that the house price will increase 5 to 10 percent after 3 years. 

I would appreciate your thoughts on this. 

ACG

New builds generally lose value in the first few years. 

A lot of posts like this come down to personal preference as it is ultimately a gamble, what happens if there is a recession, what happens if rates rise etc etc. That being said when you are at the higher LTVs it does not take much going in your favour to get the LTV down and in turn the rates should start to drop by some margin. 

IAMIAM

I have always done 2 year fixes for that reason, I went from 90% to 80% to 75% and now I am round 65% due to value increases.

Sam3007

ACG said:

A lot of posts like this come down to personal preference as it is ultimately a gamble, what happens if there is a recession, what happens if rates rise etc etc

Thanks for your reply.
what makes you think that rates will rise? 

Correct me if I am mistaken, but from what I have read the interest rates will not rise for the foreseeable future because of the pandemic.
  

Getting_greyer

Sam3007 said:

ACG said:

A lot of posts like this come down to personal preference as it is ultimately a gamble, what happens if there is a recession, what happens if rates rise etc etc

Thanks for your reply.
what makes you think that rates will rise? 

Correct me if I am mistaken, but from what I have read the interest rates will not rise for the foreseeable future because of the pandemic.
  

My personal opinion is that the base rate won't increase in any substantial amount for a few years.   But... very simply,  the real rate of interest is determined by nominal rate - inflation rate.  So as inflation increases it can lower the returns for lenders. Very simple explanation but it's actually far more detailed as a lot depends on wage growth, unemployment levels, output in the economy, as to what actually is gonna happen eg bit of guess work or as ACG says it's a bit of a gamble.

MovingForwards

Sam3007 said:

ACG said:

A lot of posts like this come down to personal preference as it is ultimately a gamble, what happens if there is a recession, what happens if rates rise etc etc

Thanks for your reply.
what makes you think that rates will rise? 

Correct me if I am mistaken, but from what I have read the interest rates will not rise for the foreseeable future because of the pandemic.
  

He hasn't said they will, it read to me he's trying to get you to think about is how different scenarios would impact your financial situation.

I personally went for the longest fix possible, provides stability so I know how much my mortgage would be for 5 years. I'm in the camp where I didn't care what APR it was, provided I got my home; FTB property and no plans to move. I also calculated different APRs, doubled mine (sub-prime lender) and could still afford it. If rates did drastically rise over a few years, mine could end up cheaper than what most are currently paying.
Since moving in I've made overpayments, I'm saving the ERCs and expect a couple of payrises over the next few years. All in preparation for remortgaging or running the full 5 years then change lender.

You need to weigh up the what ifs as its personal preference with fixes, not always the lowest APR but circumstances and future projections.

RelievedSheff

ACG said:

New builds generally lose value in the first few years. 

A lot of posts like this come down to personal preference as it is ultimately a gamble, what happens if there is a recession, what happens if rates rise etc etc. That being said when you are at the higher LTVs it does not take much going in your favour to get the LTV down and in turn the rates should start to drop by some margin. 

That is the general consensus with new builds that they drop in value. We have been in ours 2 years and have just remortgaged. The bank valued it 15% higher than we paid for it which dropped us into a lower LTV bracket than we expected. 

We have opted for a five year fix this time.

dimbo61

So your putting down a 15% deposit and if you take a 5 year fix and overpay you could be at 60% LTV in 5 years time even with the " Brand New " premium your paying now.
Rates have Never been this low so for me I would take the 5 year deal and overpay to get rid of the mortgage ASAP.
You might ! Save money by going for a 2 year deal BUT rates may well have risen in 2 years time.
It's a marathon not a sprint paying off a mortgage.

BikingBud

dimbo61 said:

So your putting down a 15% deposit and if you take a 5 year fix and overpay you could be at 60% LTV in 5 years time even with the " Brand New " premium your paying now.
Rates have Never been this low so for me I would take the 5 year deal and overpay to get rid of the mortgage ASAP.
You might ! Save money by going for a 2 year deal BUT rates may well have risen in 2 years time.
It's a marathon not a sprint paying off a mortgage.

Check out the overpayment penalties as well as the ERCs you can usually take out lumps every year without penalty. 

getmore4less

dimbo61 said:

So your putting down a 15% deposit and if you take a 5 year fix and overpay you could be at 60% LTV in 5 years time even with the " Brand New " premium your paying now.
Rates have Never been this low so for me I would take the 5 year deal and overpay to get rid of the mortgage ASAP.
You might ! Save money by going for a 2 year deal BUT rates may well have risen in 2 years time.
It's a marathon not a sprint paying off a mortgage.

lets  crunch some numbers. using the Halifax  the OP is looking at  fee no fee new build
(halifax don't have good reputation for follow on deals)

85% 5y 2.69% £999 2.8%
OP in other post says £250k house. 15% down
Mortgage £212.500   to get to 60% before HPI needs to get to  £150k in the 5 years.

if they took it over 30y 

amount	rate	payment	owing
£212,500.00	2.69%	£860.77	£187,841.26

would need significant overpayments equivalent of just under 14y 10m full term(£1449pm

amount	rate	payment	owing
£212,500.00	2.69%	£1,450.71	£149,999.61

with that payment end of year
2 £188,503 75.4%

3 £176,012 70.4%

4 £163,180 65.3%

5 £150,000 60.0%

OP will know how realistic keeping that payment going would be.
on the other hand if they took the 3y at 2.57% with the same payment
at year 3 they would be 

amount	rate	payment	owing
£212,500.00	2.57%	£1,450.71	£175,281.68

70.1 LTV a bit of headroom for new build premium still hanging in there
To get to £150k in 2 years  like the 5y  adding another £999 fee

amount	rate	payment	owing
£176,281.00	2.61%	£1,450.71	£150,014.79

OP says 75% LTV currently 1.48%

amount	rate	payment	owing
£176,281.00	1.48%	£1,450.71	£146,258.24

potential ~£3.7k saving over the last 2 years and a safety net  over 1% on rate rises in the first 3 years. 

If the OP says what their max OP might be can look at that because trying for 60% LTV in 5years with no HPI looks  unrealistic.