Mortgage Fix Dilemma

Maka344

I have a dilemma. My current 1.49% fix ends in Jan 23 - right in the peak of when rates are expected to be at their highest level according to analysts. I do think rates have the potential to hit those levels and I do personally see the base rate hitting 2.5-3% (which would mean 4.5% for me) in an effort to curb inflation. My brokers view is that rates will continue to increase and peak at the end of next year, then fall to where they are today and remain there.

This means that average bank rates will be around 5.5% if the base rate hits 3%, my mortgage would increase by £1277 a month which is not great. even the BoE is suggesting that households can sustain 5% interest rates: https://www.bloomberg.com/news/arti...holds-can-withstand-rates-of-up-to-5-boe-says

So, I’m thinking of paying my ERC of £16k and fixing for 5 years at 2.49% - my broker can get me this rate with Barclays with my current LTV. On the 1st Feb 23, my ERC drops from 3% to 2% (-c£6k) - to hit that, I'd have to submit a full mortgage application before the MPC meeting on the 7th with a view to dragging (given mortgage offers are valid for 6 months) it out and setting the start date around 3rd Feb 23.

PK_London

The inflation monster is out and there is no way its going to go away any time soon. Between 1970 and 1980 - inflation in the UK was 10% a year, every year. The 'experts' are saying rates will rise to 3.5% peak next year and then then fall. I believe they will hit that figure as early as early 2023 and mortgage rates will be between 4.5-5.5%. I dont think there is a chance in hell inflation will be tamed by then. In theory, interest rates need to be 2% higher than inflation to bring it down. The problem is at the moment, inflation is very much attached to energy. 'Core' inflation is actually not that high, however, when associated prices go up and people start demanding pay rises , core inflation will go up and will take a long time to come down. I would say best case scenario we're looking at 5yrs to tame inflation.

In your scenario, the ERC would be an extra £266 per month over 5yrs. If you have a large debt its worth paying the ERC. Have you considered taking out a 10yr mortgage? £133 a month now might seem like a lot but by the end of your term £133 a month will be very little.