Mortgage Offer Question

DaffyDuck316

Hi everyone, my journey into buying a house is nearing an end, but I am concerned with one aspect of the mortgage offer.

It states:

The initial rate of interest will be 5.20% per annum fixed for 60 full months from completion after which interest will be charged at the lender's then standard variable mortgage rate, which is currently 7.49%

Now I am a bit clueless on mortgages. I know interest rates will probably change in the five years, but should I be preparing to have to pay more money after five years has passed?

user1977

You should be prepared to pay whatever interest rates will be then, yes. There will (probably) be other fixed rates or other deals available which will be cheaper than the SVR.

Mark_d

After 5 years, if you don't remortgage or book another rate with your lender, then you will move on to the lender's standard variable rate.  The lender's standard variable rate is currently 7.49% but it's unlikely to be the same in 5 years time.

In 5 years time, based on property price growth and the amount of capital you would have repaid, your loan to value ratio will likely be better than it is at the moment.  This might mean that when you remortgage, you fall in to a different bracket and would therefore qualify for a lower interest rate.

Should you be prepared to pay more after 5 years? Your budget needs to have a degree of contingency for unexpected expenses and unexpected increases in costs.

csswiift

Realistically, you’ll find another lender with a lower rate so don’t panic.

Hoenir

csswiift said:

Realistically, you’ll find another lender with a lower rate so don’t panic.

No reason why the current lender won't offer another competitive fixed term rate. All fixed term products default onto the lenders SVR's when they finish. Mortgage lenders prefer people fixing and not being on variable rates. 

TroubledTarts

Just have £2k in the bank free in 5 years time to get a remortgage at that time.

The reason I say have that in the back is if you lump mortgage costs for the remortgage onto your new remortgage (which you can do) it will cost you more in the long run.

Herzlos

DaffyDuck316 said:

Hi everyone, my journey into buying a house is nearing an end, but I am concerned with one aspect of the mortgage offer.

It states:

The initial rate of interest will be 5.20% per annum fixed for 60 full months from completion after which interest will be charged at the lender's then standard variable mortgage rate, which is currently 7.49%

Now I am a bit clueless on mortgages. I know interest rates will probably change in the five years, but should I be preparing to have to pay more money after five years has passed?

Basically you're only locking the fixed rate of 5.2% for the 5 years, and then will have to negotiate a new deal at that point. If you don't choose a new fixed rate it'll default to their standard variable rate.

There's generally no reason to go to the standard rate unless you're just about to pay it off (because the fixed rate will have an early repayment charge but the standard wont).

There's no guarantee what any mortgage rate will be in 5 years time, but your application will be tested against a moderate rate rise.

DaffyDuck316

I appreciate all of your comments, it is reassuring that there is a very probable chance a better deal will come along, although I will prepare myself for any contingencies that may occur between now and then.