Remortgage Dilemma

randomtom

Hello, our current mortgage deal ends March 31st and we're looking at quite a big rate increase - 1.99% to 4.08%. That's sticking with our current lender via a 5 year fix product transfer. At the moment, it's working out an extra £450 per month. I'm hopeful that our lender may reduce their rates again slightly in March, but either way it's going to be a big adjustment. 

I have deep concerns about fixing for 5 years at 4% and the impact this will have on our personal finances. Should we be considering a tracker? There is speculation that interest rates may drop to 3.5% next year, although I understand that nobody has a crystal ball. It's just so hard to know what to do.

mi-key

4.08 is a pretty good rate. None of us know what is going to happen, but I don't think lending rates are going to drop much more than that for at least a couple of years.

You can always get a 5 year fix with no ERC, then you aren't tied to it if rates do drop a lot and you want to change

IAMIAM

I feel rates will be around 3-4% in 18 months time and the base rate similar, so tracker for me at the moment is what I would say...

housebuyer143

I agree. I see rates on a downward trajectory in the long term. I wouldn't commit to 5yrs right now or ever tbh. 2 years or tracker.

randomtom

I think the 2 year fix is currently 4.53%... It's so difficult to know what will be more cost effective in the long run. I had the chance to fix for 5 years when we bought the house for 2.4% and don't want to make the wrong decision again! Just a totally impossible situation. 

housebuyer143

randomtom said:

I think the 2 year fix is currently 4.53%... It's so difficult to know what will be more cost effective in the long run. I had the chance to fix for 5 years when we bought the house for 2.4% and don't want to make the wrong decision again! Just a totally impossible situation. 

In years gone by every time I fixed for 5yrs the rates went down and I overpaid for years. I don't fix that long anymore. I personally think fixing for 5 at this uncertain time won't pay off. Look at the 10yr predictions and they are lower than that of the 5yr. Obviously anything can happen in that time, but it wouldn't surprise me if this time next year rates are lower than now. 

IAMIAM

housebuyer143 said:

randomtom said:

I think the 2 year fix is currently 4.53%... It's so difficult to know what will be more cost effective in the long run. I had the chance to fix for 5 years when we bought the house for 2.4% and don't want to make the wrong decision again! Just a totally impossible situation. 

In years gone by every time I fixed for 5yrs the rates went down and I overpaid for years. I don't fix that long anymore. I personally think fixing for 5 at this uncertain time won't pay off. Look at the 10yr predictions and they are lower than that of the 5yr. Obviously anything can happen in that time, but it wouldn't surprise me if this time next year rates are lower than now. 

Agree. I have fixed 3 times over the years on various fixed products and 6 months down the line with EVERY product, there has been much a cheaper fix by 0.5-0.75% at least. 

dimbo61

And yet some of us old people can remember rates of 13/14% back in the late  80,s 
4% is a good rate for a 5 year fix but you have been used to BOE base rate of 0.5% for the last 10+ years 

GoonerByron

I was in a similar situation. I had a fix of 3.3% secured with the bank but did not want to commit to this for as long as 5 years. I decided to take the risk and go with a discounted variable for 2 years..

No guarantees but hoping rates start to drop a bit by 2025.. 

aoleks

dimbo61 said:

And yet some of us old people can remember rates of 13/14% back in the late  80,s 
4% is a good rate for a 5 year fix but you have been used to BOE base rate of 0.5% for the last 10+ years 

completely irrelevant in today's day and age. the interest rate is not that relevant, the price of the property is. while rates were high back in the 80s, houses were dirt cheap.

the problem with the UK is that its economy is sick. if there's a recession, rates will have to go down, back to the "unusual" 0.5%, as you mentioned. if they don't, something must stand opposite it and at the moment, there's nothing. salaries are stagnant, productivity is in a ditch, growth is not firing on all cylinders.

let's put it this way, you can't go back to interest rates as in the 80s under current circumstances, the country would literally go bankrupt and civil unrest is likely to happen.

housebuyer143

dimbo61 said:

And yet some of us old people can remember rates of 13/14% back in the late  80,s 
4% is a good rate for a 5 year fix but you have been used to BOE base rate of 0.5% for the last 10+ years 

14% on a loan of £40k is completely different to a 14% loan on £400k. Even if salaries are higher now it's still going to be significantly more as a percentage of earnings, so you can't compare like for like. 
4% is good based on the 80s but terrible based on the last decade so not sure that "it's good compared to 30 years ago" is a reason for someone to fix on it today.