2yr vs 5yr fix at current rates?

ElwoodBlues

Crystal ball time for me - my current fixed rate expires at the end of Dec, lender now allowing me to pick a new fix to follow from it. I'm inclined to pick and lock something in asap as I suspect rates will be going higher over the next 6 months. But I'm trying to decide between a 2yr fix or a 5yr. What are the predictions for 2.5yrs from now?

Rates offered are 6.24% for 2 yrs vs 5.69% for 5 years. That works out to about £35/month extra on the 2yr fix. Natwest have changed their ERC's so they're no longer linear on the 5yr product - so even in the 3rd year of the mortgage the ERC is still 4%. Sneaky, but clever of them, because it deters borrowers from chopping out of their 5 yr fix in the middle of it. I'm fortunate that my mortgage balance is less than 100k, and I have savings available to make a lump sum overpayment before the new fixed rate hits, but even so, I'm looking at an extra £150 to £200 a month of interest. I can afford it, but the thought of the bank making an extra £60k out of me over the remainder of my mortgage is a bit sickening.

On the one hand I don't want to be locked in at 5.7% for 5 years if rates are lower than that in a couple of years. On the other, don't want to take the shorter fix and pay more now, only to find rates at the end of 2025 are just as high as current (or even higher - that, I think, is fairly unlikely).

Be interested to hear what other people's crystal balls are telling them?

Cs9ja17

I just locked in 2 years at 4.5%. Really hard to say but I'm hopeful in 2 years they'll be 2-3%.

ElwoodBlues

Cs9ja17 said:

I just locked in 2 years at 4.5%. Really hard to say but I'm hopeful in 2 years they'll be 2-3%.

I can't see anything like like 4.5% available currently? Best looks to be about 5.4% (not really worth me switching lender to try and save £20 a month). Mortgage rates have really shot up over the past couple of months. I've been watching frustrated as I couldn't choose a new rate until this week.

PixelPound

I took 5 years at just under 4% (locking in early). Not sure I would do more than 2 at current rates. It looks like rates will not come down as quick as previously thought, but do you think they'll be at current or higher in 18m-2y?

Newbie_John

If 2 year fix only adds £35 more a month, then 5 year fix would add something like £30. I'd go for 2 years, your mortgage is quite small so the increase will be small anyway.

I was in similar situation in May having a choice between 4.4% 2 years or 4.08% 5 years, either £300 increase or £240 a month. Went for 2 years as predictions were at that time that rates will start dropping at the end of the year/or early 2024 - now 2 months later I would probably have gone for 5 years.. so you see the predictions are quite useless at the moment

ElwoodBlues

Newbie_John said:

If 2 year fix only adds £35 more a month, then 5 year fix would add something like £30. I'd go for 2 years, your mortgage is quite small so the increase will be small anyway.

I was in similar situation in May having a choice between 4.4% 2 years or 4.08% 5 years, either £300 increase or £240 a month. Went for 2 years as predictions were at that time that rates will start dropping at the end of the year/or early 2024 - now 2 months later I would probably have gone for 5 years.. so you see the predictions are quite useless at the moment

I meant the difference between the 2yr fix and the 5yr fix being about £30. Compared to my current payment the 5yr fix would be an extra £150 a month, and the 2yr fix an extra £180!

If rates were still around the 4% that they were a couple of months ago, I'd have locked in for 5yrs no question. That's exactly what I was intending to do right up until Natwest hiked their rates again last week. That combined with the nonlinear ERC rates is making me reconsider. 

Cs9ja17

ElwoodBlues said:

Cs9ja17 said:

I just locked in 2 years at 4.5%. Really hard to say but I'm hopeful in 2 years they'll be 2-3%.

I can't see anything like like 4.5% available currently? Best looks to be about 5.4% (not really worth me switching lender to try and save £20 a month). Mortgage rates have really shot up over the past couple of months. I've been watching frustrated as I couldn't choose a new rate until this week.

Sorry I should have clarified I took the 4.5% offer a few months ago but only completed this week. I used a broker and asked them to suggest the best value mortgage.

Sarah1Mitty2

Cs9ja17 said:

I just locked in 2 years at 4.5%. Really hard to say but I'm hopeful in 2 years they'll be 2-3%.

Very hard to see that happening unless there was some serious economic upheaval and massive job losses, I don`t think they want them below 5% at all now.

Sarah1Mitty2

ElwoodBlues said:

Crystal ball time for me - my current fixed rate expires at the end of Dec, lender now allowing me to pick a new fix to follow from it. I'm inclined to pick and lock something in asap as I suspect rates will be going higher over the next 6 months. But I'm trying to decide between a 2yr fix or a 5yr. What are the predictions for 2.5yrs from now?

Rates offered are 6.24% for 2 yrs vs 5.69% for 5 years. That works out to about £35/month extra on the 2yr fix. Natwest have changed their ERC's so they're no longer linear on the 5yr product - so even in the 3rd year of the mortgage the ERC is still 4%. Sneaky, but clever of them, because it deters borrowers from chopping out of their 5 yr fix in the middle of it. I'm fortunate that my mortgage balance is less than 100k, and I have savings available to make a lump sum overpayment before the new fixed rate hits, but even so, I'm looking at an extra £150 to £200 a month of interest. I can afford it, but the thought of the bank making an extra £60k out of me over the remainder of my mortgage is a bit sickening.

On the one hand I don't want to be locked in at 5.7% for 5 years if rates are lower than that in a couple of years. On the other, don't want to take the shorter fix and pay more now, only to find rates at the end of 2025 are just as high as current (or even higher - that, I think, is fairly unlikely).

Be interested to hear what other people's crystal balls are telling them?

Fix for five and clear the debt, don`t try to predict rates, that is how so many people who bought a couple of years ago got caught out, but to be fair betting rates would go down from where they were was always going to be a far out call! I don`t think central banks will be cutting rates below 5% any time soon.

ElwoodBlues

Sarah1Mitty2 said:

ElwoodBlues said:

Crystal ball time for me - my current fixed rate expires at the end of Dec, lender now allowing me to pick a new fix to follow from it. I'm inclined to pick and lock something in asap as I suspect rates will be going higher over the next 6 months. But I'm trying to decide between a 2yr fix or a 5yr. What are the predictions for 2.5yrs from now?

Rates offered are 6.24% for 2 yrs vs 5.69% for 5 years. That works out to about £35/month extra on the 2yr fix. Natwest have changed their ERC's so they're no longer linear on the 5yr product - so even in the 3rd year of the mortgage the ERC is still 4%. Sneaky, but clever of them, because it deters borrowers from chopping out of their 5 yr fix in the middle of it. I'm fortunate that my mortgage balance is less than 100k, and I have savings available to make a lump sum overpayment before the new fixed rate hits, but even so, I'm looking at an extra £150 to £200 a month of interest. I can afford it, but the thought of the bank making an extra £60k out of me over the remainder of my mortgage is a bit sickening.

On the one hand I don't want to be locked in at 5.7% for 5 years if rates are lower than that in a couple of years. On the other, don't want to take the shorter fix and pay more now, only to find rates at the end of 2025 are just as high as current (or even higher - that, I think, is fairly unlikely).

Be interested to hear what other people's crystal balls are telling them?

Fix for five and clear the debt, don`t try to predict rates, that is how so many people who bought a couple of years ago got caught out, but to be fair betting rates would go down from where they were was always going to be a far out call! I don`t think central banks will be cutting rates below 5% any time soon.

That's exactly what I have been doing so far. 5 years ago I fixed at 2.5%, thinking they couldn't really go lower, but a couple of years later my lender was offering 0.8%.

I've no expectation that rates will drop back to recent historic levels, but there's clearly potential for them to reduce from current in 2 or 3 years from now? I don't think the current rates are sustainable long term?

Edi81

So many variables at the moment. 

Do you expect to stay in your house for more than 2 years?
market is pricing rates not coming down for 5 years but no one has a crystal ball. If we did then we’d all be financial traders making lots of money!