Remortgage now or wait? Significant ERC

LoomThought

I have about £300k left on my mortgage, it has two parts but we can say that the fixed period ends in November 2024. ERC is 3%.

A 5-year fixed deal now increases the payments by about £150/month with ERC and arrangement fees added on top.

Mainstream economists expect the base rate to rise to 3% next year this time. It is unlikely to reduce from that point fast until I renew, 2.5% is a reasonable estimate.

Assuming a 2.5% base rate when I renew in November 2024, my calculations indicate that my overall payments will be similar until the end of 5 year period i.e. 2027.

I value piece-of-mind but I wanted to hear other opinions as well.

Thank you.

Seraphi

There are too many variables to make a judgement that will give you "peace of mind" IMO.

You will only know if you made the right choice post hoc when it comes to fixing with mortgages, and you can only work with the information you have at the time. The approach here is making a judgement that means you sleep well at night - knowing that you made the best decision with the information you had at the time.

You've made a big assumption about interest rates. There is actually significant disagreement among macroeconomists as to how high UK interest rates will rise next year: Economists warn on stagflation but conflicted on future rates rises. The economist predicting interest rates to stick around where they are now actually has a very good track record on predicting the UK economy. 

There is also the prospect of a recession in the next 18 months - interest rates tend to fall during a recession.

You have to decide how you'd feel if you paid the ERC now, interest rates stick around this level, or even fall following a recession and you are stuck on a rate well above the BoE rate in 2/3 years time.

Personally my gut feeling is that the time to fix was in the last 6 months. In the last month, the rate I wanted with a lender has risen from 2.32% to 3.58%. Rates have risen rapidly and the deals available now were much better a month ago let alone 3 months ago. For that reason if I were in your shoes, I'd sit on my hands and see what happens over the next two years. You can always reassess next year and consider paying your ERC with better information than you have available today.

LoomThought

All valid points of course, thank you. The time to fix at a reasonable level has passed now unfortunately, it is history.

But I understand your point that the talk of stagflation (both recession and inflation) reduces the chances of a very high interest rate.