Fixed or Variable

SieIso

Hi All,

My partner and I are hoping to buy a home later this year or early next, the market is currently a little bit crazy. We spoke to a Broker who advised getting a variable tracker due to rates being at record highs. I have always opted for fixed mortgages for security but they felt this was a mistake. Obviously there are no right or wrong answers and it's all based on predictions but I wondered what people on here recommend?

Thanks in advance.

jlfrs01

We're into crystal ball gazing with this one, clearly the Broker you spoke to feels rates aren't likely to go much higher probably because inflation is finally on it's way down.
This article is quite interesting, one of many I've read which predict high interest rates for the next couple of years:

https://www.theguardian.com/business/2023/aug/03/bank-of-england-raises-uk-interest-rate-to-fresh-15-year-high

I think a lot depends on your financial situation. If you are going to have to watch how you budget every month then if it were me I'd go for a fix, probably a 5 year one because they're cheaper. This Which? article is a good read:

https://www.which.co.uk/news/article/two-year-vs-five-year-mortgages-how-long-should-you-fix-for-aScmB9T8KNfI

johnhenstock

as an addition, take the Bank of England's forecast with a very large pinch of salt...

they're not the most incompetent and their forecasts so far have been as accurate as a drunk captain parking a tanker.

Newbie_John

If you look at predicitons for now back in March 2023, October 2022.. they were all wrong

What rates are you being offered for variable, 2 years, 5 years.. can you afford them easily? Your mortgage is likely to be 20-30 years so there will be a lot of moments like this.

kerchingbinnacle

I've applied for a 4.96% 2 year variable mortgage myself. My income for this year is projected to be 3-4x last year's and I'm wanting to pay off additional amounts on the mortgage without having to pay the ERCs which a variable rate mortgage allows for.

I can't see rates rising much more than what they are currently.. but I could also be very wrong. All of the fixed rate deals right now are horrendous and I honestly don't see variable rates being worse than some of the 2-5 year fixed rate options.

B0bbyEwing

What I recommend whatever it is that'll allow you to sleep easier at night.

For me, I locked in a 4.99% 10yr fixed a week or so ago. 

It's annoying because I'll be paying about £120 more/mo than I am right now while being 10 years in on where we started & having paid off about £25k but it is what it is. We can afford it which is the key thing for us.

Knowing my luck, in 24 months time the rates will drop 2% & I'll have been better of going on a 2yr variable & then locking in or something but as I've no crystal ball & I need to make a decision now, the 10yr fix is the decision I've made & while it may cost me a few £1000 extra by the end of it (vs if my crystal ball was working), I feel it's the best decision for us right now & so that's the way it is.

TheAble

Personally I would pick a tracker; I also don't see rates going much higher, the main reason when people start finishing their 1% and 2% fixes and roll onto 6%ers it's going to cause a world of pain. Ideally a tracker you can switch out of without penalty i.e. as and when rates do drop you have the option to move to a fix at any time. I'd also consider a discount variable rate. 

As others have said though, ultimately you have to factor in your own circumstances and risk tolerances quite heavily. If you'd struggle with further rate rises then a fix may be more suitable.

Maka344

TheAble said:

Personally I would pick a tracker; I also don't see rates going much higher, the main reason when people start finishing their 1% and 2% fixes and roll onto 6%ers it's going to cause a world of pain. Ideally a tracker you can switch out of without penalty i.e. as and when rates do drop you have the option to move to a fix at any time. I'd also consider a discount variable rate. 

As others have said though, ultimately you have to factor in your own circumstances and risk tolerances quite heavily. If you'd struggle with further rate rises then a fix may be more suitable.

Sorry to hijack, what's the benefit/differences of a tracker vs a discounted rate (other than the slightly cheaper rate)?

jbrassy

This is all prediction. However, economists are expecting another two rate rises this autumn. Rates are likely to peak around the 6% mark. If you take a tracker, factor in that your mortgage will likely increase before it starts decreasing. Interest rates are unlikely to start coming down until Summer 2024 as the Bank of England will only do so when it is confident the inflation rate is down to 2%. 

I remortgaged to a tracker in January and don't regret it. However, the decision depends on your tolerance for risk vs uncertainty. If you take a tracker, just factor in rate rises and expect them to remain elevated for at least a year. If you want a fixed rate, I would personally get a 2 year fix as I expect rates will start coming down by then. I appreciate 2 year fixes are currently more expensive than 10 year fixes, but I think those fixing for 10 years now will regret it in 2-3 years time when rates drop significantly. 

fewcloudy

I've done it before and I'd do it again, tracker all the way.

Fixes are usually a waste of money and turn out to be the wrong choice in terms of money saving, but they are often the default for FTB's with no equity, and of course the cautious. Peace of mind and all that.

However, if you're mortgaged to the hilt, and rate rises would mean you're in danger of losing the roof over your head, then you have no choice but to fix.

Lots of people have been spooked by the BOE's woeful handling of the economy, but similar to poster above, I think fixing now for 10 years will likely turn out to be a costly mistake, sooner rather than later.

CSI_Yorkshire

fewcloudy said:

Fixes are usually can sometimes be a waste of money and turn out in hindsight to be the wrong choice in terms of money saving. On the other hand, they can sometimes save a lot of money if you happen to time it right in a period of rising rates.
.

FTFY.