Mortgage 150k over 20 years

Michela

My sister is looking to move. Offer made on her home and her offer agreed 

She has a deposit from her house sale of 800k

And needs to borrow 150k

She has spoken to brokers on the recommended list on this site.

Is it risky to go for a 5 year fixed vs 2 years?

The main broker recommended on MSE is really focused on 2 year fixed rates for some reason. But they don't seem as competitive compared to some I have seen online.

Thanks 

Veteransaver

No one knows where rates will be in 2 years time.
Personally I've never seen the point of 2 year fixes as compared to the length of most mortgages you aren't protected for very long anyway.
But it's all about choice and attitude to risk. She has presumably a low LTV and would assume Eg a doubling of rates in 2 years wouldn't be a catastrophe (unlike if she was a first time buyer for example) so can take a bigger risk on a 2 year.
5 years I think are currently cheaper though.

Mark_d

The only thing you know for certain is the current interest rates...and with a 5-year fix you'd be paying a lower rate than with a 2-year fix.  For this reason I would personally go for the 5-year fix.  However...

If you take the 5-year fix then after 2 years you might find that you would have been better off had you taken the 2-year fix.  But conversely you might find that you're in the best position.

Zoe02

I personally went for 2 years but if you want certainty then maybe 5 years but feel rates would drop in the short term. 

Michela

Mark_d said:

The only thing you know for certain is the current interest rates...and with a 5-year fix you'd be paying a lower rate than with a 2-year fix.  For this reason I would personally go for the 5-year fix.  However...

If you take the 5-year fix then after 2 years you might find that you would have been better off had you taken the 2-year fix.  But conversely you might find that you're in the best position.

Thank you. She was told there wasn't much difference with a 5 year vs 2 year but when I checked online with major lenders it was different such as £300 ! month less a month for a 5  year fixed.

The broker is L&C but saying that her local one didn't seem to coming back with anything that was hugely different.

I am personally skeptical about L&C due to reviews on here.

 

Hoenir

£300 a month difference doesn't sound right.  Did you take into account any upfront application fees. 

Michela

Hoenir said:

£300 a month difference doesn't sound right.  Did you take into account any upfront application fees. 

The fee was around £999 which would be paid upfront rather than rolled in.

So if I look at MSE best mortgage rates and put in her requirements.

I get results such as Barclayd 4.17% at 745.00 a month.

My sister is get quotes for £1100 or slightly more for a 2 year fixed rate.

That feels quite high to me. I'm no expert but I thought she could do better.  

amnblog

I am not a promotor of L&C (probably the opposite) but they are trained and regulated to advice your Sister correctly - as you say you are 'no expert'.

My counsel would be, stay out of it, you don't want the dirty look if rates are higher in two years as they are coming off of a rate you 'found' to help them.

dougson

Michela said:

Hoenir said:

£300 a month difference doesn't sound right.  Did you take into account any upfront application fees. 

The fee was around £999 which would be paid upfront rather than rolled in.

So if I look at MSE best mortgage rates and put in her requirements.

I get results such as Barclayd 4.17% at 745.00 a month.

My sister is get quotes for £1100 or slightly more for a 2 year fixed rate.

That feels quite high to me. I'm no expert but I thought she could do better.  

FWIW as a benchmark, when I renegotiated my mortgage it was for 26 years and 165k at 4.11, so reasonably comparable, I went for 5 year fixed and I'm paying 843 per month, so 1100 per month definitely sounds expensive. My 2 year fixed rates were higher than 843, but I think still under 900, certainly under 1000.

Altior

Is it risky to go for a 5 year fixed vs 2 years?

This is a slightly different question to the one predominately being answered I feel.

A 5 year fix is inherently less risky than a 2 year fix, all things being equal. As you know exactly what the costs will be for 5 years, whereas rates could be 10% in 2 years. Whether that's the best that could possibly be achieved over that time frame is a different question.

There are of course caveats such as ERC, so if another move is possible then that is a further consideration (as obviously ERCs are higher at the beginning of longer fixes).

I would definitely be comfortable telling someone who asked me this question that a 2 year fix is more of a gamble than a 5 year fix.