2 or 5 year?

snowqueen555

I'm applying for a mortgage next week, I'm getting around 5% for 2 years and 4.5% for 5 years. I had decided on the 5 year but with all the predictions for 2024 I may go for the 2 year. I am also wondering whether the potential lower rates after two years would be enough to offset that higher rate for the 2 years, in which case just going for the 5 year ad having certainty.

Either way my plan would be the pay the minimum for a year while I build up my savings and then start overpaying around £2-300 a month.

Thanks

cymruchris

Nobody knows for sure what could happen in the world. You'd hope there'd be a period of stability - but some big event somewhere could easily turn things upside down.

5 year gives you more certainty over a longer period - but if rates come down, you'll have ended up paying more.

If after 6-12 months the BOE rate begins to fall - and everything stays calm, you might be better off going for the 2 year.

Either way - you could win - you could lose. If you go in one direction and you lose - C'est la vie! If you go in the other direction and win - then it'll be drinks all round.

I'd personally go for the 2 year - but that's me. If you do - and it all goes wrong - don't come back and complain

tacpot12

cymruchris is correct, but you need to think about what happens if you lose. Can you afford it, or will you end up losing your home?  

Hoenir

A rate of 4.5% is well below current BOE base rate. May well the case that in the future mortgage rates don't materially track changes in base rate. As longer term the expectation would be for the cost of borrowing to be higher than at which the BOE lends to banks overnight. A current indication of how much QE liquidity is still washing about in the financial system and the challenges in returning inflation back towards 2%. .