2yr vs 5yr fix at current rates?

Newbie_John

You could ask the same question about current government, if the rates are high and in a year of time more people would be affected - would they'd like to do something to get some votes? I personally don't trust any 6+ months forecasts, in the last year they all failed, it's just probably better to scare people with idea of 7% rates so we can all prepare for the worst and then be nicely surprised they're not

michaels

I was just thinking what a carp shoot it is and I am sure more luck than judgement.

5 years ago I went 5 years rather than 2 paying probably 0.5% more a year for certainty and have recently gone for 2 years as when I made the choice it still looked like rates might have fallen in 2 years time.

Total interest paid over the 7 year period - 5 years x 2% plus 2 years c 4.5% = 19%

Suppose I had gone 2 years then 5 years, total interest would have been 1.5% x 2 plus perhaps 1.5% x 5 = 10.5%

Getting lucky with guess on future rates would have saved me 25.5k

Surely there is a better way to run the economy where random guesses have such a massive impact on the individual?  Other people I know took 10 year 5-6% fixes just before the GFC and this cost them 10s of thousands so just fixing long is not necessarily the answer.

PixelPound

michaels said:

I was just thinking what a carp shoot it is and I am sure more luck than judgement.

5 years ago I went 5 years rather than 2 paying probably 0.5% more a year for certainty and have recently gone for 2 years as when I made the choice it still looked like rates might have fallen in 2 years time.

Total interest paid over the 7 year period - 5 years x 2% plus 2 years c 4.5% = 19%

Suppose I had gone 2 years then 5 years, total interest would have been 1.5% x 2 plus perhaps 1.5% x 5 = 10.5%

Getting lucky with guess on future rates would have saved me 25.5k

Surely there is a better way to run the economy where random guesses have such a massive impact on the individual?  Other people I know took 10 year 5-6% fixes just before the GFC and this cost them 10s of thousands so just fixing long is not necessarily the answer.

Not 19% it's 19/7 or 2.71 crude (as not accounting for compounding.

If you were preferring the cheaper 2 year, more likely you would have gone 2 + 2 + 2 and had to renew last year in the spike, rather than 2+5.

We were told rates would increase slowly, so many took shorter fixes knowing at worst the rate might be 0.5 or 1% more. It made sense to gamble the increase might be 0.5 or less. 

So if in 2 years rates are higher, will you be saying "if I had fixed for 5 years again"? 

michaels

nic_c said:

michaels said:

I was just thinking what a carp shoot it is and I am sure more luck than judgement.

5 years ago I went 5 years rather than 2 paying probably 0.5% more a year for certainty and have recently gone for 2 years as when I made the choice it still looked like rates might have fallen in 2 years time.

Total interest paid over the 7 year period - 5 years x 2% plus 2 years c 4.5% = 19%

Suppose I had gone 2 years then 5 years, total interest would have been 1.5% x 2 plus perhaps 1.5% x 5 = 10.5%

Getting lucky with guess on future rates would have saved me 25.5k

Surely there is a better way to run the economy where random guesses have such a massive impact on the individual?  Other people I know took 10 year 5-6% fixes just before the GFC and this cost them 10s of thousands so just fixing long is not necessarily the answer.

Not 19% it's 19/7 or 2.71 crude (as not accounting for compounding.

If you were preferring the cheaper 2 year, more likely you would have gone 2 + 2 + 2 and had to renew last year in the spike, rather than 2+5.

We were told rates would increase slowly, so many took shorter fixes knowing at worst the rate might be 0.5 or 1% more. It made sense to gamble the increase might be 0.5 or less. 

So if in 2 years rates are higher, will you be saying "if I had fixed for 5 years again"? 

I wasn't talking about the average rate, I was talking about total interest paid over the 7 years period (it is IO which makes the maths easy)

2 year fix then 5 years fix £ 31,500. 

5 year fix followed by 2 year fix £57,000

At that point 5 years ago there really wan't much between the 2 year and 5 year, the 5 year was a bit more but seemed lower risk.  Roll forward 2 years and 5 year fixes were really cheap, 1.5% or less and would have been a no brainier rather than another 2 year fix.  So if 5 years ago I had gambled on the slightly cheaper 2 year fix I would have been £27k better off than I am now.

The point being that a seemingly pretty much knife edge decision on mortgage fix duration can have life changing consequences.

wheldcj

It is so difficult to predict the future.  We remortgaged at 3.49% in March on a 7 year fixed which I thought was risky because in the spring there was talk about it return down to low levels within 12-18 months.   But now it seems like we have hit the jackpot.

In 12 months time we could have the mother of all recessions though and the BoE could start to completely revisit their current rhetoric of higher for longer.  It is such an unpredictable time.

PixelPound

wheldcj said:

It is so difficult to predict the future.  We remortgaged at 3.49% in March on a 7 year fixed which I thought was risky because in the spring there was talk about it return down to low levels within 12-18 months.   But now it seems like we have hit the jackpot.

In 12 months time we could have the mother of all recessions though and the BoE could start to completely revisit their current rhetoric of higher for longer.  It is such an unpredictable time.

Recession probably a bit later than that. Inflation is sticky and traditionally takes a few years to overcome, so whilst the PM wants you to think it'll turn by the end of the year, it will take longer so we'll still have high BoE rates next year. 

Then there is
https://forums.moneysavingexpert.com/discussion/4534201/mse-news-house-prices-due-for-modest-increase-in-2013-halifax-says
https://www.thisismoney.co.uk/money/mortgageshome/article-9601221/The-18-year-property-cycle-tips-house-price-boom-crash-2026.html

Though many do think it's coming at some point.

weddingringman

Picking a mortgage product is like playing a single hand of poker. There is no luck or misfortune, you simply make an informed decision based on your circumstances at that moment in time.

I went for a 5 year fix last year because rates were rising and inflation was stubbornly high. I’ve also not borrowed a high multiple of my income so I’m confident I could port my existing deal to a bigger home if I moved.

Burtbot

We had to remortgage last September, right when the mini budget was kicking off. Rates were rising like crazy on a daily basis - we ended up getting a 3.6% deal. But, as we had also just borrowed more money, this seemed like such a huge difference in our previous payments, we went for a 2 year. Which is up in October 2024. When they eventually approved our application, they increased our payment term by 6 years, to make it affordable. If I'd known that option was on the cards, I would have gone for a 5 year! 

Anyway, so now I just have to hope rates are closer to 4% end of next year. 

littleteapot

As others have said, the market is too unstable and unpredictable to make any sensible predictions now. So take whatever length fix you can afford and meets your cost/risk balance. For example if rates are 2% higher in five years time will you afford the repayments? If the answer is no, then better go for the 10 year fix. Conversely if you expect your income to increase significantly over the next 2 years then take a chance on a 2 year fix in case rates do come down.

In my case, in 2019 I was paying 1.85% on a tracker. I was planning to start a family and my existing lender had a 10 year fix at 2.6%. I switched to that for the certainty of not having any large increase in payments which I knew I wouldn't be able to afford. Some people at the time said I was mad, but things have gone exactly the way I suspected and so am protected against that. We will need an extra bedroom in the next 8 years or so, but that is just going to go on hold as I overpay a little on the current mortgage each year and get the capital as low as possible ready to move to a bigger house when this 'low rate fix' ends in 2029.

michaels

littleteapot said:

As others have said, the market is too unstable and unpredictable to make any sensible predictions now. So take whatever length fix you can afford and meets your cost/risk balance. For example if rates are 2% higher in five years time will you afford the repayments? If the answer is no, then better go for the 10 year fix. Conversely if you expect your income to increase significantly over the next 2 years then take a chance on a 2 year fix in case rates do come down.

In my case, in 2019 I was paying 1.85% on a tracker. I was planning to start a family and my existing lender had a 10 year fix at 2.6%. I switched to that for the certainty of not having any large increase in payments which I knew I wouldn't be able to afford. Some people at the time said I was mad, but things have gone exactly the way I suspected and so am protected against that. We will need an extra bedroom in the next 8 years or so, but that is just going to go on hold as I overpay a little on the current mortgage each year and get the capital as low as possible ready to move to a bigger house when this 'low rate fix' ends in 2029.

Wouldn't you be better of saving the overpayments as this gives you more flexibility of an accessible 'line of credit' plus currently you can earn much more interest on the money (6%+) than you will save off mortgage interest at 2.6%.