Sorry for ANOTHER ERC question but ... (8 months, £1.6k ERC)

CSL0183

ElwoodBlues said:

Numbers wise, I'm in a broadly similar position here. I've ran it all through a huge spreadsheet. Currently on 2.4% and Natwest are offering me a 5yr fix at 4% today. By my calculations, if mortgage rates this time next year are 4.5% then I'm about break even with bailing out now. If rates are at 5% next autumn then I'm about £1300 worse off (over the next 5 yrs). If mortgage rates go up to 6% (and stay there), then I'll be about £3800 worse off over the next 5 years. 7% and it's £7600 worse, 8% and it's £11000

So the benefit is rather sensitive around the 5-6% mark - beyond that it's increasing fairly linearly, but the numbers are getting large!

So what it comes down to is taking a chance on what rates are going to do around that critical 5-6%. The headlines keep talking about 6% next year, but is that base rate, mortgage rate, or rate of fixes on offer? Is it scaremongering by the main stream media?

And what are the chances of mortgage rates going above 6%? For me that's just about affordable, but many, many other people have much larger mortgages and the costs are going to cripple them. There will be repossessions, people selling up, and house prices crashing. Would the govt/BoE really let interest rates get that high?

Checking a 2/3/5 year fix as a new customer with Nationwide this morning at
90% LTV is 5.99 / 5.99 / 5.59
80% LTV is 5.94 / 5.94/ 5.39
70% LTV is 5.89 / 5.89 / 5.39
60% LTV is 5.89 / 5.89 / 5.39

This is with BOE BR @ 2.25

They are predicting BOE BR @ 6% peak. 

B0bbyEwing

@ElwoodBlues, sorry to ask a dim question but when you say about rates going up and up and you being worse off - you're talking about it you DON'T pay your ERC (& stay as you are) right?

As I would've thought the higher the rates go, the more it would justify paying ERC & locking in now? 

Again, realise its a dim Q. I'm just wanting to make sure I'm on the right page. 

TheAble

CSL0183 said:

ElwoodBlues said:

Numbers wise, I'm in a broadly similar position here. I've ran it all through a huge spreadsheet. Currently on 2.4% and Natwest are offering me a 5yr fix at 4% today. By my calculations, if mortgage rates this time next year are 4.5% then I'm about break even with bailing out now. If rates are at 5% next autumn then I'm about £1300 worse off (over the next 5 yrs). If mortgage rates go up to 6% (and stay there), then I'll be about £3800 worse off over the next 5 years. 7% and it's £7600 worse, 8% and it's £11000

So the benefit is rather sensitive around the 5-6% mark - beyond that it's increasing fairly linearly, but the numbers are getting large!

So what it comes down to is taking a chance on what rates are going to do around that critical 5-6%. The headlines keep talking about 6% next year, but is that base rate, mortgage rate, or rate of fixes on offer? Is it scaremongering by the main stream media?

And what are the chances of mortgage rates going above 6%? For me that's just about affordable, but many, many other people have much larger mortgages and the costs are going to cripple them. There will be repossessions, people selling up, and house prices crashing. Would the govt/BoE really let interest rates get that high?

Checking a 2/3/5 year fix as a new customer with Nationwide this morning at
90% LTV is 5.99 / 5.99 / 5.59
80% LTV is 5.94 / 5.94/ 5.39
70% LTV is 5.89 / 5.89 / 5.39
60% LTV is 5.89 / 5.89 / 5.39

This is with BOE BR @ 2.25

They are predicting BOE BR @ 6% peak. 

Just to mention though that this doesn't necessarily imply that 6% BR will throw out fixes @ 10%. The current diff more likely banks getting ahead of the curve.

fleetingmind

IMO of course and crystal ball etc etc  - rates have been historically low for many many years and had to increase at one point (just not this quickly). 
My thinking has been - Are mortgage rates going to drop down to 1.5%-3% again in the foreseeable future - I don't think so. 
My thinking was if I could get a rate for 4% or lower currently and can lock it in for 3-5 years it's not a bad shout esp as I like the certainty of what I'll pay. I've got the offer until Feb so can hold off, stay on current low rate and the ERC will be cheaper then.

Time will tell if I was right. 

B0bbyEwing

Was throwing numbers in to Nationwide's calculator last night

The 5 year and 10 year fixes were the exact same for monthly repayment figures. 

21 years remaining. 

What'd you opt for? 

As has been said, covid & the fallout, yada yada yada, they're going to have to get their money from somewhere. Maybe I'm unrealistic, maybe I worry too much (in fact I know I do, just maybe not in this instance) but I wouldn't have thought rates would drop low again in 5 years time. Maybe stay the same, maybe higher. 

But then 5 years ago I didn't think they'd be looking as high as what they're going to be next year which is why I locked in for 5 back then. 

Still, 10 years for the same monthly as 5 years. Makes me wonder. 

ElwoodBlues

B0bbyEwing said:

@ElwoodBlues, sorry to ask a dim question but when you say about rates going up and up and you being worse off - you're talking about it you DON'T pay your ERC (& stay as you are) right?

As I would've thought the higher the rates go, the more it would justify paying ERC & locking in now? 

Again, realise its a dim Q. I'm just wanting to make sure I'm on the right page. 

Quote, yes that's how much better off (in 5 years time) I'd be after paying the ERC to lock a current rate now. Looking again, I'd miscalculated somewhat - it's actually just over £2000 saving by fixing now, against rates at 6% next year. At at 5% next year, I'd actually be better off sticking with my current fix and then going on to 5%.

Yours will be a bit different though because Natwest are still offering me a 5yr fix at 4%, Nationwide has already jumped and increased well above that. You also need to factor in the saving of being on the current lower interest rate for another year too.

Bit more of a gamble going for 10 years. It's likely (but not inevitable) that rates will have to drop back a bit from whatever they peak at over the next couple of years. Hard to say if in 5 years time they'll be lower. You just might be able to get a slightly better deal in 5 years time, but it's unlikely to be much better. And at least a 10 year fix gives you certainty. Also, if there are arrangement fees, factor in the possibility of paying another one of those in 5 years, vs once for 10.

ElwoodBlues

I just ran the numbers with the 5.4% 5yr fix that Nationwide are offering, and that makes thing very different. Mortgage rates would have to go above 7.5% next year to make fixing at 5.4 now advantageous.