Should I accept a mortgage for 5 years @ 3.81%? 13 December 2022 at 12:43PM in Mortgages & endowments 7 replies 717 views

paolope

Bought my first home in January this year and got a tracker mortgage 0.99% + BoE rate (no exit fees / ERC). Woke up too late during the mini-budget mayhem and applied for a bunch of deals, the one that stuck was a fixed for 5 years at 3.81% which seemed worth gold at the time.

However, it will still require me to rebudget as it'll be £2000 / month going from £1500 / month which is what I started with in January. Currently I'm actually paying more so I'd better act quickly.

As the rate panic seems to have calmed, would I be better off trying to get a tracker right now (e.g. 2 yrs HSBC @ 0.54% + BoE rate), and shop my way around in 2 years time? I am afraid taking the fix will be like shooting myself in the foot and discovering that in 3 years time if - as the market seems to want - rates will go down quickly. So I'd rather bite the bullet now and pay £300 more for 6/7 months with a tracker than paying £200/month more in years 3, 4 and 5 with the fix.

But I will also have to consider the possible drop in house value, which might cause LTV issues (fixed deal is at 75% and is likely not getting better in the future)...

Unfortunately no advisor want to tell me what chances there are. Maybe because they don't know and nobody really does? I already made a bad choice with a tracker for the first mortgage, cost me thousands of pounds, would like to avoid making a mistake again... so any advice (even on where/how to get advice) would be useful!

paolope

To clarify, I do have a mortgage offer for the fix, which is going to be valid until May, but I haven't yet accepted it.

renegade1

I see most 5 year fixes are just below 5% so I think 3.81% is a fantastic deal!

TBagpuss

No one can tell you what inerest rates will be over the next5 years.

Fixing gives you certianty, you know for sure what your payments will be. IF inerest rates were to fall significantly then you could look at whether it was worth remortgaging early and paying the ERC , based on the figures at that time. And of course if they continue to rise then you can start to budget for the higher rate (and even start to make overpayments) so that the new amount isn't too much of a shock when your fix ends.

Bearing in mind that we have had interes rates which were historically incredibly low, and that most pundits seem to be predicting a long-ish recessin, if it were me I think I'd take the fx if it is still on offer, but it is up to you.

simon_or

The broker can't tell you, as their guess is no better than yours or mine.

Unless you want the certainty of a long fix, in your place I would just get the cheapest 2yr erc-free tracker.

JMA74

Professionally..... No idea
Personally.... I'd snap it up for the certainty

zAndy1

Given I'm currently paying 7.14% interest on my mortgage I'd bite their hand off to get a deal like that

tripled

Perhaps wait until tomorrow and see what the Bank of England does? However, rates are currently 3%, so you're talking 3.54% on the tracker, just a quarter point rise tomorrow will make them even, a half point rise will make the tracker more expensive.

Current market predictions are that rates will peak around 4.5%, which if that materialises would be 5% on your tracker for a while, so you'd be gambling on jam tomorrow. Then there's also the hassle and cost of remortgaging and conveyancing.

Only with hindsight will you know what the best decision would have been. Assuming payments at 5% are affordable, personally I'd still take the fix and would overpay the mortgage, but everyone has their own circumstances and attitude to risk.