Any advice on Tracker, 2 yr fixed, 3 yr fixed, 5 year fixed?

icicat

Hello,

Need to make a decision today which product I need to go with. Given the current steep interest rates, would a tracker be too risky right now? It has the cheapest rate 5.29% (BoE +0.29% for 2 yrs)

Otherwise the other options are:

Two year fixed at 6.24%
Three year fixed at 6.04%
Five year fixed at 5.89%

I can just about afford the two year fixed. Though are rates likely to get to ridiculous levels past two years? so say over 7% or higher? I could go with the five year and manage (though still just about), though are we likely to see that much of a drop in interest rates within 5 years? so below 5.89%?

I know it's impossible to predict. Though any insight on what the best option would be will be very helpful. I still can't decide.

pramsay13

If you can't afford steep rises you can really only go with the longest fixed rate you can afford. 
We went with a 2 year tracker as I think the rates will come down although there is always a risk that they keep increasing so it is a gamble. 

grumbler

Banks build their BOE rate forecasts into their fixed rates. Any opinion here will be based on some different forecast. Can you trust it?
Your decision has to be based on your personal circumstance in the first place and your attitude to risk. Tracker is cheaper ATM, but more risky.

fiish

When you say you can just about afford the 2 year fixed, is that with an affordability stress test? 

fergie_

When does your current deal end? If it's now, you may have already answered your own question.

If its in 6 months time, might be worth booking the 5y fix as a fall back and then watch what happens between now and then.

Unfortunately no one knows for sure, but being marooned on a rate you can afford is better than finding yourself on one you can't.

icicat

Thanks all for your answers. Yeah tracker is the risky one, as I am on a tracker for two years now as I thought I was moving sooner (doh!) and didn't want to face penalties for backing out. It has been creeping up and never drops.
I think 5 years would feel too trapped in, incase the rates go down. Maybe three years would be a good enough gamble.
fergie_ that's a really good point, the only issue would be if we dropped that deal, re-applying could jeopardise the moving in date of the house we are selling and the one we are buying and could risk losing our buyers sellers if we took more time.

george4064

I'd go for the 3 year fix.

BikingBud

icicat said:

Thanks all for your answers. Yeah tracker is the risky one, as I am on a tracker for two years now as I thought I was moving sooner (doh!) and didn't want to face penalties for backing out. It has been creeping up and never drops.
I think 5 years would feel too trapped in, incase the rates go down. Maybe three years would be a good enough gamble.
fergie_ that's a really good point, the only issue would be if we dropped that deal, re-applying could jeopardise the moving in date of the house we are selling and the one we are buying and could risk losing our buyers sellers if we took more time.

I trust that you have enquired to ensure the deals can be ported.

If so and without any additional cost then I would be considering the 5 year but have worked out what the break point was for any ERC v lower/better rate do you own due diligence to understand the cost of each, not just the monthly payment, only then can you make an effective risk based decision.

fergie_

BikingBud said:

I trust that you have enquired to ensure the deals can be ported.

If so and without any additional cost then I would be considering the 5 year but have worked out what the break point was for any ERC v lower/better rate do you own due diligence to understand the cost of each, not just the monthly payment, only then can you make an effective risk based decision.

Sage advice here. Also keep in mind you pay more interest at the start and when the capital amount is higher. Is there a chance you could make overpayments now, or in the near future?

When I ran my own sums, the short term 'saving' of a lower rate (longer fix) outweighed the chances of rates dropping - I worked out they had to drop sooner and by a bigger amount than I expected to be worth having a higher initial (or even rising rate).

However, if a 2y fix was cheapest, the sums reverse - hence the inverse yields experts are now talking about.

Jimeji

Who knows where rates will be in a year, but I can't see them coming down sharply any time soon. Personally I'd go with the 5 year fixed, for certainty and protect from any potential future increases.

london21

If you want certainty will go for 3 years fix.

If you want some certainty and take a bit risk then 2 years Fix. 

Personally was going to go for 3 years fix but now decided once current fix ends in February will likely opt for 2 years tracker with virgin money they also allow a switch to fix rate without ERC but that will be 2 product fees.