Considering bailing on a 10yr fixed. How accurate are these 'experts'?

ACG

Im no expert, I read the same things you do. 
We were told at the beginning of the year rates would drop in about 2 years time. 
9 months on and we are still being told rates will drop in 2 years time. 

I do think they will drop, they have to - or pay rises needed to kick in but with redundancies on the cards I think that is unlikely. 

A 10 year fix seems extreme, you are securing a 10 year deal at the peak of the market - that does not sound great. I have only done one 10 year fix, it comes to an end next year. They secured at 3.99% so have literally missed out on the last decade of good rates. I suppose it could have gone the other way where rates went up and they did well, it was always a gamble but one that did not pay off. 

B0bbyEwing

[Deleted User] said:

You've previously chosen short term fixes when rates were low, why lock in to a long term fix now when rates are that much higher?
Or look at it another way, when rates were 2% they were highly likely to double at some point, yet you chose not to take a ten year fix.
Now rates are at 5% it seems unlikely that they will double again but you do want to fix for ten years.
Are you sure that's the right decision for you?

Unless the ten year deal has favourable early redemption costs, I would be wary of such a long fix - but that's just my opinion...

Is 5 years considered a "short term fix"? Maybe it is. I just didn't think it was. 2-3yrs yes. 

Also, if memory serves, 10yrs wasn't available last time round else I'm sure we would've gone for it. Again, maybe it was available and we never noticed it or it wasn't presented to us by our IFA at the time (this is the first time I handling it all myself without an IFA). 

Am I sure that's (or even alternative) the right decision for me -
Well the fact this thread is here should answer that one. 

bluelad1927

housebuyer143 said:

Honestly, I have always regretted a long fix because I have never timed it right and I ended up paying over the odds always.
I only do 2 now and take what may come.

It just shows there's no way of telling. I fixed for 10yrs on a smaller mortgage around 2015 and lost out a bit but at the beginning of 2022 fixed a much larger mortgage at less than 2% for 10yrs. There's no way I  could have taken the risk and it's proved very lucky

[Deleted User]

Personally will be going for 2/3 years, 5 years for more long term but not 10 years.

The rates might drop easily within the next 5 years then will be stuck with the high rate. 

B0bbyEwing

A thought came to me which I actually mentioned in a post recently - 

When interest rates were poor, I locked in on what seemed like decent rate (for what was available at the time). Secure Trust was the provider & it was for a touch over 12 months.
Anyway, not all that long after I locked in, the interest rates which had been poor for a good while started to increase & before I knew it the decent interest rate I locked in on looked pretty awful. 

I'm not totally sold on a 10yr fixed - hence why I'm asking.

I've ran the numbers & without any overpayment at this stage, if I opted for a 2yr fix & to assess the situation down the line then after 2 years my 2yr fix would cost me an extra £1,002.96 vs the first 2 years of a 10yr fix. 
That's 5.94% vs 4.99% and £556.12 vs £514.33.


Out of interest here - why can't rates keep going up & up? I hear it all the time now ... "the rates can't keep going up". Well why not?
Now I guess they can but I think these people when they say this probably mean "surely they're not going to even though it's possible they can".
Weren't the rates ridiculously high in the 80s/90s? So why is it unlikely the rates will keep shooting up when they've been higher than this in the past?

Martico

Also, remember that anyone can set up a website, write what they like and present themselves as an expert. Truth is, no-one can be certain. You'll get differences of opinion from writers and economists trusted by the FT, The Economist and Investors' Chronicle, so God knows what to make of any old yahoo with a website of their own.
Second thing is that as the capital amount that you owe falls, the lower the effect of interest charges on your finances.
In your position I'd maybe consider a five-year fix (for a good level of security) and overpay when possible. Then, if interest rates in five years time do end up a percentage point or two higher, it will have less impact on your monthly outgoings than otherwise

Bigphil1474

The difference between now and the 80's and 90s is that the Bank of England now determine the interest rates  based on the general overview of the UK economy (supposedly), rather than the Chancellor back then who would be more swayed by political considerations. The BoE predominantly changes interest rates to control inflation - on the simple basis that higher interest rates make saving more attractive and reduces demand in the market, and lower interest rates make spending (or investing) more attractive thus increasing demand in the market. The 2% inflation target is basically the steady eddy level for inflation.

On that basis, the current interest rates are seen as high as they have been raised fairly rapidly to bring inflation down. Inflation is coming down (whether that's due to interest rate rises or other factors is debatable), so there would be no reason to keep the rates high longer than is necessary. Bear in mind the government is fixated on economic growth, and higher interests rates aren't usually good for growth. 

The general consensus I have read is that interests rates will be cut as soon as the BoE sees it as being financially prudent to do so. Although they are independent, there is a general election due next year, which would seem an ideal time for interest rates to be cut so the current incumbent could say that they have solved the economic woes of the country caused by whatever they see as being the cause.

Personally, I will be looking at a 2 year fix when we get a new mortgage later this year.

Bigphil1474

Op, just one other point - you could fix for 2 years and over pay as much as you can. When you come to renew, you may get better offers as your LTV will be much smaller. I've always overpaid what I could on my mortgage which is why we paid ours off a couple of years ago, 5 years early. We are now looking to move on up, so will be getting a small mortgage again.

There's a risk that rates will be higher in 2 years - some unforeseen international calamity maybe - but if you overpay in the next 2 years, the risk is reduced in your circumstances IMO.

B0bbyEwing

Bigphil1474 said:

The difference between now and the 80's and 90s is that the Bank of England now determine the interest rates  based on the general overview of the UK economy (supposedly), rather than the Chancellor back then who would be more swayed by political considerations. The BoE predominantly changes interest rates to control inflation - on the simple basis that higher interest rates make saving more attractive and reduces demand in the market, and lower interest rates make spending (or investing) more attractive thus increasing demand in the market. The 2% inflation target is basically the steady eddy level for inflation.

On that basis, the current interest rates are seen as high as they have been raised fairly rapidly to bring inflation down. Inflation is coming down (whether that's due to interest rate rises or other factors is debatable), so there would be no reason to keep the rates high longer than is necessary. Bear in mind the government is fixated on economic growth, and higher interests rates aren't usually good for growth. 

The general consensus I have read is that interests rates will be cut as soon as the BoE sees it as being financially prudent to do so. Although they are independent, there is a general election due next year, which would seem an ideal time for interest rates to be cut so the current incumbent could say that they have solved the economic woes of the country caused by whatever they see as being the cause.

Personally, I will be looking at a 2 year fix when we get a new mortgage later this year.

Thanks for the response there Phil. 
I don't pretend to know much (anything) about politics so it's good when someone translates it all into a language I can understand. 

Regards LTV, I think ours is in the 31-34% area (I'd have to go back on the website & check to be double sure but it's 30 something for sure. I don't know at what LTV point where you get as good a deal as you're going to get. 

Speaking with the wife last night who generally leaves money matters to me. She said she wasn't overly comfortable with the 10yr fix. I wish she'd said that when after discussing it previous I said I was going to go ahead with it. At least there's time to cancel it though.

clueless_but_curious

I've gone for a 5 year offset tracker at +0.74%.  The thing with volatility in interest rates is, it creates volatility in house prices.  As such, I want the flexibility to either use debt or clear debt as the opportunities or risks arise