Mortgage term ends in November...shall I get 2 or 5 year term?

Kass8282

Hi everyone,

My fixed rate mortgage term is due to end on 30th November. I know I should have been on top of it and got a new one agreed earlier at a better rate, and I'm kicking myself for it, but hey ho! I'm currently comparing fixed rate mortgages and I'm really unsure whether to get a 2 or a 5 year fixed rate.

With the interest rates being high at the moment, ideally I don't want to be paying more than I have to for longer than I have to, but will the interest rates have reduced within 2 years? Any advice is appreciated.

Many thanks.

ItsMeScubaSteve

Hi @Kass8282 - I've been looking at this very question this morning for myself because our current deal is due to expire in December. It's not clear. In fact the BoE analysts have refused to give a 5-year prediction because the variables are too unknown. This is a statement of summary I have read this morning. Based on this I think I'm going to stick with a 2 year rate. Please let me know if you read anything to the contrary.

How high will UK interest rates go?

The Bank of England forecast that its key rate could peak at 3% by the third quarter 2023. TradingCandles.com's analyst Fawad Razaqzada forecast that UK interest rates could go as high as 2.5% by the end of 2022, while ABN-Amro forecast the rate to peak at 3% by end of 2022. Note that analysts’ predictions can be wrong.

What will UK interest rates be in 5 years?

The BoE and analysts did not provide projected interest rates in 5 years in the UK due to complexity and uncertainty of giving long-term predictions. The BoE forecast that it could raise the key interest rate to 3% in the third quarter of 2023, from 1.6% in 2022. The bank expected to ease its monetary policy by cutting the rate to 2.5% in the third quarter of 2024 and 2.2% in the third quarter 2025.

I would post the full article but my newbie status means I can't post links yet.

Edi81

Crystal ball time. 

5 year fixes are, at present typically less than 5 year. It depends on how much risk you want to take - factors such as any planned house moves, absolute £ value of difference all come to play. 

Remember, last year rates were not forecast to be where they are now. 

saucer

Kass8282 said:

With the interest rates being high at the moment, ideally I don't want to be paying more than I have to for longer than I have to….

I just wanted to point out that, in historical terms, interest rates are still very low. There is every chance they could go higher. 

Edi81

Considering 2!year swap rates are now over 4% I’d be fixing for as long as possible!

Zerforax

No one has a crystal ball for the future so you should think more about your own personal circumstances.

- what is the difference in rate between 2 years and 5 years?

- is your mortgage small or large and also relative to your income

- are you just making ends meet or are you looking to overpay on your mortgage

- do you have bigger expenses on the horizon (new kid or wedding or other event) so need to budget more

- are jobs stable or would another mortgage deal in 2 years cause issues?

anxiousnow

If you can afford the mortgage at the 5 year rate, I would be inclined to fix for the longer period. When I bought my first house in 2005, I fixed at just under 5 per cent, which at that time was very reasonable. Friends who bought in 2007 or 2008 were fixing at 6 or 7 per cent, which again seemed like a good deal at that particular time!

Rates could fluctuate (either way, because a fix doesn't guarantee you the best rate, it just protects you potentially much higher rates than now). With a fixed rate at least you know you can afford your repayments.

housebuyer143

I personally don't like 5 years and so I'll see where things are then and reassess. 
There is every chance rates go down as well as up, especially if the recession they predicted gets bad 🤷‍♀️ 

I actually think based on today's rates I would stay with my tracker as base will need to go up to 3.65% to match the fixes around at present. Yes they might go that high, but they could very well also not. 

ariarnia

we fixed recently for 5 years at 3.5 ish percent on a 60ish percent mortgage. the offer for 2 years wasn't much lower. literally something like 0.1% in it. i hate uncertainty though OH is more risk accepting so with everything going on with cost of living then it made sense for us to have this fixed given everything else is so unfixed at the moment. plus even with a long fix you can overpay so this lets us budget the cost of the payments and how much we want to over pay for a long time and that should help us stick to it. first time around we went for a broker deal but this time we just went with a rate swap with our existing lender. 

london21

5 years for certainty.

3 more increases expected in 2022.

Next increase due 22/09

clueless_but_curious

I tend to look at the spread between prevailing mortgage rates and base rate.  Volatility is clearly priced in to rates being offered today, compared to base rate.  Conversely, we saw the spread closing throughout 2019 as markets were looking more and more settled, until you know what happened.

Others have highlighted the negative trend and the banks are well aware of this.  My only observation is that the government appear to be trying to take out volatility.