Is it worth taking a 5 year fix now?

Pezza4u

I've got 4.46% locked in and have until tomorrow to accept it. I was all set to take it but am now having a wobble! Currently on a tracker at 0.34% until September 2025. LTV is well under 50%.

With it looking like the base rate will start dropping from as early as next month I'm just after opinions on what you would do. But I know it's my decision at the end of the day as all circumstances are different. Taking the 5 year fix drops the repayments by £100 a month.

If the base rate does drop to say 3% by next year are tracker rates likely to increase, is there data to show what the average has been over the years? Plus I'd need to pay a product fee too, the 4.46% I have locked in now has no fee.

zenshi

I’ve provisionally booked  a 5 year fix at 4.3%, have till mid June to decide. I too was wondering the what ifs but at the end of the day, I know it’s affordable and luckily by the end of term, my mortgage will be paid off. 

I took a 5 year when I first got divorced, 2 years in the rate halved. I had to suck it up but at the start it provided me security knowing it was affordable

Newbie_John

Yes.

In 2 years time the rates can be:
a) higher - so 5 year fix wins
b) lower, but not low enough to cover the difference you would have saved with 5 year fix
c) lower - so 2 year fix wins

I think that betting on expected rate in years time doesn't make much sense, your mortgage is 20-30 years and it's really like flipping coin, one time you'll win, one time you'll lose. 

You should more focus on overpayments, or simply consider chances of moving in 2-5 years to decide what's better for you.

ReadySteadyPop

Pezza4u said:

I've got 4.46% locked in and have until tomorrow to accept it. I was all set to take it but am now having a wobble! Currently on a tracker at 0.34% until September 2025. LTV is well under 50%.

With it looking like the base rate will start dropping from as early as next month I'm just after opinions on what you would do. But I know it's my decision at the end of the day as all circumstances are different. Taking the 5 year fix drops the repayments by £100 a month.

If the base rate does drop to say 3% by next year are tracker rates likely to increase, is there data to show what the average has been over the years? Plus I'd need to pay a product fee too, the 4.46% I have locked in now has no fee.

 Media and people on forums have been saying that every month for many months, ME situation is getting worse, there is room for a lot of inflation to turn up IMO, don`t try to game the bond market at these historically low rates, fix it now for peace of mind, if rates do go down just look at it as an insurance cost against the worse outcome of being caught out by rates going up. What happens in bond/credit markets is far more important for your mortgage costs than what the BOE do (or say they (maybe) will do)

Hoenir

Pezza4u said:

If the base rate does drop to say 3% by next year 

Unless there's an extremely steep recession I'd say that scenario is extremely unlikely.  

Taking a different perspective as matters stand. Currently your mortgage is at a rate of 5.59%. That's a full % point above the fixed product you've been offered. Which would required the BOE to make four 0.25% cuts to come close and five for you to be better off. 

If you take the fixed product on offer. Then if base rate does fall and so do fixed mortgage rates (which is not guaranteed). Before you complete the switch. Then you opt for a different product entirely. 

Whatever the outcome maintain your monthly repayments at the current level from October. Then you'll be repaying the capital back quicker and incurring less interest. Win win all round. 

Better to focus on events you can control. Than read too much into media speculation that far to often lacks the insight into what is a far more complex topic than it appears on the surface. 

Pezza4u

Thanks all. Still on the fence about it so need to make a decision today.

We were looking at moving last year (150 miles away) but with everything uncertain at the moment, not many houses we like being on the market and I had a promotion at work, we decided to put it off. We do need a bigger house though and by moving away we should get that and reduce the mortgage alot, if not clear it.

If I stay on a tracker we would probably look to move in a couple of years. If I take the 5 year fix then in 3-4 years once the ERC has stepped down enough. Things will hopefully be more stable by then.

I'm ready to accept the 5 year fix and concentrate on overpaying but I've got this what if thought about how I would feel if the base rate did drop to 4-4.25% by the end of 2024, especially if it carried on decreasing in 2025. At least we wouldn't be tied to an ERC like on the fixed rate, which was the reason I went on a tracker in the first place.

BarelySentientAI

Pezza4u said:

Thanks all. Still on the fence about it so need to make a decision today.

We were looking at moving last year (150 miles away) but with everything uncertain at the moment, not many houses we like being on the market and I had a promotion at work, we decided to put it off. We do need a bigger house though and by moving away we should get that and reduce the mortgage alot, if not clear it.

If I stay on a tracker we would probably look to move in a couple of years. If I take the 5 year fix then in 3-4 years once the ERC has stepped down enough. Things will hopefully be more stable by then.

I'm ready to accept the 5 year fix and concentrate on overpaying but I've got this what if thought about how I would feel if the base rate did drop to 4-4.25% by the end of 2024, especially if it carried on decreasing in 2025. At least we wouldn't be tied to an ERC like on the fixed rate, which was the reason I went on a tracker in the first place.

It's not going to do that.

Don't try to time interest rate changes.

fergie_

Newbie_John said:

Yes.

In 2 years time the rates can be:
a) higher - so 5 year fix wins
b) lower, but not low enough to cover the difference you would have saved with 5 year fix
c) lower - so 2 year fix wins

I agree with this - as your capital outstanding is more, you ideally want to pay off as much as you can at the lowest rate. So potentially 5y at 4.x beats paying 5.x for 1y followed by (still) 4.x or even 3.x.

As you are talking about moving, make sure any product is portable and that avoids the ERC.

The other factor is that BoE rate is almost irrelevant - its what the markets think is going to happen (reflected in swaps). While interest rates have been 5.25%, we have seen mortgage rates vary between 3.x and 6.x. Inflation is a factor, but so is employment rate, GDP and how much money is (or isn't) being printed.

ReadySteadyPop

fergie_ said:

Newbie_John said:

Yes.

In 2 years time the rates can be:
a) higher - so 5 year fix wins
b) lower, but not low enough to cover the difference you would have saved with 5 year fix
c) lower - so 2 year fix wins

I agree with this - as your capital outstanding is more, you ideally want to pay off as much as you can at the lowest rate. So potentially 5y at 4.x beats paying 5.x for 1y followed by (still) 4.x or even 3.x.

As you are talking about moving, make sure any product is portable and that avoids the ERC.

The other factor is that BoE rate is almost irrelevant - its what the markets think is going to happen (reflected in swaps). While interest rates have been 5.25%, we have seen mortgage rates vary between 3.x and 6.x. Inflation is a factor, but so is employment rate, GDP and how much money is (or isn't) being printed.

Good points.

Pezza4u

Thanks @fergie_ some good points. One thing I did consider was if I stay on the tracker until next year I'll also have a product fee to pay when I switch to a new rate if i stick with a tracker. All trackers seem to have product fees but not all fixed rates do.

There is nothing in the mortgage offer about porting but looking on Santander's website all fixed rates can be transferred to a new property. So if I transfer the full amount there is no ERC, providing I meet the terms, and if it's less I only pay on what I give back.

https://www.santander.co.uk/personal/mortgages/existing-customers/moving-home

If I was to move in year one of the fix the ERC would be up to £5k. I know we won't move until year 3 at least and the maximum then would be £3k. If we can move and clear the mortgage it's probably still worth paying the ERC than carry on paying a mortgage with lots of interest.

BarelySentientAI

Pezza4u said:

One thing I did consider was if I stay on the tracker until next year I'll also have a product fee to pay when I switch to a new rate if i stick with a tracker. All trackers seem to have product fees but not all fixed rates do.

Almost all fixes 'sort of' have a product fee, because the fee-free ones are a bit higher interest than the equivalent fee-paying one.