5 or 2 year fixed rate?

Crashy_Time

Definitely a push at the moment to get people to "snap up" super low rates, but they will be massively overpaying for the property in many cases, is it worth it?

https://www.mortgagestrategy.co.uk/news/mortgage-prices-rising-ahead-of-potential-bank-rate-hike/

MsACam

Do we have a choice? People at start of pandemic and even last summer were saying prices were going to crash and have they? They’ve not even stopped increasing let alone started decreasing. 

RS2OOO

I believe (from a programme on telly) there's people in other countries who look at the popularity of 2 year fixes in the UK with bemusement. Apparently lifetime mortgage fixes are the norm in some Countries.

My first Mortgage rate was over 7% so I still find long 5 or 7 year fixes below 3% quite incredible, and am currently in a 5 year fix at 1.74% and moving house - Being able to port the mortgage penalty free was a factor in choosing that product and I'm glad I did.

The other factor of short term fixes is having to find the £1000 set up fee every 2 years, so you need to absorb that into the interest rate, e.g that's £3000 over 5 years making the higher 5 or 7 year fixes charging a single £1000 set up fee somewhat less unattractive.

Crashy_Time

lookstraightahead said:

gozaimasu said:

Thrugelmir said:

That was the reason that the generic desktop valuation was uprated. 

How ridiculous. The generic desktop valuation should have taken recently sold prices into account.

Problem is that recent sales aren't a very good indication at the moment.

SDH affected recent sales, as it was intended to do, wonder how many are regretting rushing in now?

MobileSaver

Crashy_Time said:

but they will be massively overpaying for the property in many cases

Official government forecasts predict house prices to rise every year for the next five years so what evidence do you have that people are "massively overpaying"?

Crashy_Time said:

is it worth it?

If the alternative for hundreds of thousands of FTBs is to live in a bedsit in Edinburgh and/or keep paying off their landlord's mortgage instead of their own then I'm sure most would say it is worth it!

Sistergold

RS2OOO said:

I believe (from a programme on telly) there's people in other countries who look at the popularity of 2 year fixes in the UK with bemusement. Apparently lifetime mortgage fixes are the norm in some Countries.

My first Mortgage rate was over 7% so I still find long 5 or 7 year fixes below 3% quite incredible, and am currently in a 5 year fix at 1.74% and moving house - Being able to port the mortgage penalty free was a factor in choosing that product and I'm glad I did.

The other factor of short term fixes is having to find the £1000 set up fee every 2 years, so you need to absorb that into the interest rate, e.g that's £3000 over 5 years making the higher 5 or 7 year fixes charging a single £1000 set up fee somewhat less unattractive.

Just to add at the end of mortgage product you can switch mortgage products within same bank at no extra cost and no affordability checks. 

Crashy_Time

https://www.express.co.uk/finance/personalfinance/1515417/mortgages-mortgage-rates-base-rates-Bank-of-England-interest-rates-inflation-property

Is it actually good advice to fix now though, because if prices drop due to rate rises people could be in negative equity?

Hedgepigs

Crashy_Time said:

https://www.express.co.uk/finance/personalfinance/1515417/mortgages-mortgage-rates-base-rates-Bank-of-England-interest-rates-inflation-property

Is it actually good advice to fix now though, because if prices drop due to rate rises people could be in negative equity?

And? If you think prices might drop surely you might as well be in negative equity paying it off at a lower interest rate? Surely less risk than a 2 year and being stuck paying a even higher variable rate if you can't then remortgage? And if prices did drop chances are you'd be out of negative equity again after 5 years anyway.

getmore4less

Crashy_Time said:

getmore4less said:

Crashy_Time said:

https://www.theguardian.com/money/2021/oct/29/homebuyers-cheap-mortgages-interest-rate-changes-rises

According to financial firm AJ Bell, if the predictions are correct, someone who borrowed £250,000 on a two-year fixed-rate mortgage at 2.06% earlier this year could see their annual payments jump by £600 when they go to remortgage in 2023. Someone with £450,000 of borrowing, on the same terms, would see their costs rise by £1,068 a year.

Tiny rise in cost for that level of borrowing

that £250k over 30y is close to £950pm and that extra £600 puts it up £1000

Good chance some could be offset by a better LTV.

Read another article talking about a price crash, that was qualified by maybe in the next decade.

So you think rates could remain this low for 30 years? Interesting. The headline is from The Express which used to have headlines like "House Prices Going to The Moon" etc. LOL, sentiment really is everything in markets..........

Never said that just pointing out that the article to pointed at does not support your impending crash model and that people will start struggling to pay their mortgage.
(some will most won't)

But none have ever since you started posting.

You have failed on every level rates, prices and sentiment.

The reality is any change tends to be slow and if driven by inflation wages keep up.

You have missed multiple "crashes" since you started,  no doubt you will miss the next one.

The people that need to worry are the renter's, rents have been suppressed for a long time by low interest rates

Pro landlords would not touch a place with yields less than 10% back in the day with low interest rates acceptable  yields have dropped keeping rents down.

getmore4less

Hedgepigs said:

Crashy_Time said:

https://www.express.co.uk/finance/personalfinance/1515417/mortgages-mortgage-rates-base-rates-Bank-of-England-interest-rates-inflation-property

Is it actually good advice to fix now though, because if prices drop due to rate rises people could be in negative equity?

And? If you think prices might drop surely you might as well be in negative equity paying it off at a lower interest rate? Surely less risk than a 2 year and being stuck paying a even higher variable rate if you can't then remortgage? And if prices did drop chances are you'd be out of negative equity again after 5 years anyway.

2y,5y both short term, if you look at the previous 5 years many(most?) were fixing into rates that had them paying more for years.

When you do the number crunch it is surprising how many might benefit from a switch now paying ERC as the rate rises need to be worse off are quite small

One  major benefit of a 5 year is the chance to plan ahead if rates start moving up and you are one of the few that have stretched.

If at the higher end of LTV picking a lender that has product switch options at even higher LTV avoids the SVR issue although some the SVR has been cheaper than the fix options at very high LTV.