Remortgage to a Fixed Rate Now?

WineDarkSea · 11 February 2018 at 3:59PM

We have a good standard rate after our initial 2yr fixed ended - 1.99% over base. 17 years and less than £87k remaining. LTV is about 25%, maybe less.

We have a large amount saved up but don't plan to overpay - we're maxing out the best savings rates and plan to pay for some home improvements. Plus I enjoy the flexibility of easy access cash just in case.

I'm looking at the potential to fix with a remortgage of either 5 or 10 years. 5 years could save us some money over the fixed period while 10 years would cost a bit more but gives longer security against rate rises.

The only hesitation is that we would be giving up a good rate for a reversion rate of around 4%. We'd also be limited in how much we could overpay during the fixed period. And we want to move at some point, maybe extend in the meantime - could be added to the mortgage or use the savings. It's a two bed flat with two primary school aged kids. We can't spend ten years here. We are likely to need to borrow a lot more to upgrade to a house in a few years max - potential mortgage of £300k! :eek:

Any advice or words of warning? What would you do?

dimbo61 · 11 February 2018 at 4:56PM

1.99+ BOE base rate which is 0.5% means you are paying 2.49%
So is it really that good ?
If you have 25% equity I am sure you could get a 5 year fix for about 2%.
How much are you earning from your savings ? Even a 5% regular saver only works out at 2.5% over the year.
Can you extend a 2 bed flat ?
So you have about £250K equity (25%LTV left on mortgage )
Can you get a £300K mortgage on current income ?
Time to consider long term plans.
I am guessing with a £300K plus 2 bed flat you live in London or south east ?

WineDarkSea · 11 February 2018 at 7:33PM

The rate is good as a lifetime tracker compared to fixing again and reverting to a 3.99% rate. If we fix we will have to keep fixing in future rather than riding out on this rate. It’s served us well so far with some cash back from the bank and not paying out exit and arrangement fees. Plus it’s a tiny mortgage.

I won’t answer questions which aren’t directly relevant in detail. Income, location, extensions - it’s all well researched and absolutely doable if we want it. We’ve just got used to a small mortgage and having a lot of spare cash, which explains the savings.

I’ve worked through the savings data from 2017 and we’ve averaged over 3% somehow but we’re running out of places to put it. We’ve got the builders coming in soon for internal changes to use some money up and add value/improve our lifestyle. If we fix and rates rise we should be in the best position to earn interest on savings over the interest on the mortgage. If rates rise significantly I’d be more inclined to overpay.

So it’s a question of whether to fix and if that’s 5 or 10 years. For example

HSBC 5yr 1.94% with no arrangement fee, £275 exit fee, reverts to 3.99 £501pcm
5 year cost = £30,335 10 year cost = £65,615
HSBC 10yr 2.49% with no arrangement fee, £275 exit fee, reverts to 3.99 £520pcm
5 year cost = £31,475 10 year cost = £62,675
Leeds 5yr 2.1% with £1k cash back, £275 exit fee, reverts to 5.69% £511pcm
5 year cost = £29,935 10 year cost = £69,835

*3.99% is £588pcm. 5.69% is £665pcm

Current 2.49% with no fees, tracking base rate. £520pcm average BBR 1.25 £555pcm - £5 cash back
5 year cost = £33,000 10 year cost = £66,000

Projections show the base rate hitting 1.25% in about two years but it’s clearly guess work and a gamble. 10 year fixed seems the best better longer term unless we go with the Leeds five year and hope rates haven’t jumped before we can fix again.

dimbo61 · 13 February 2018 at 5:36PM

" maybe extend in the meantime "
" We've got the builders coming in soon for internal changes to use some money up and add value/improve our lifestyle "
I am all for Improving your lifestyle but will it add value ?
If the 2 bed flat has a poor layout and you can add an extra en-suite or bedroom great but most people need to add an extension to add value.

Thrugelmir · 13 February 2018 at 5:59PM

WineDarkSea wrote: »

I’ve worked through the savings data from 2017 and we’ve averaged over 3% somehow but we’re running out of places to put it.

End of an era. As Central Banks slowly withdraw their financial support. Then normal times will return. Savings deposits rates will sit beneath base rate and borrowing rates above. You've been fortunate to benefit for a period of time. At a point though you'll need to readjust your thinking.

There are 10 year fixes available at reasonable rates as an alternative option.

ViolaLass · 13 February 2018 at 6:02PM

Why would you fix for 10 years when you 'know' that you can't stay in that flat for that long?

Thrugelmir · 13 February 2018 at 6:55PM

ViolaLass wrote: »

Why would you fix for 10 years when you 'know' that you can't stay in that flat for that long?

Mortgages are generally portable. The OP seemed adverse to paying frequent product fees as well. When you know that rates are only heading one way. Then locking in seems the most appropriate course of action.

Rates of 2.5% - 3.0% are currently readily available.

WineDarkSea · 16 February 2018 at 5:59PM

Dimbo, what is with the constant questioning and no advice?

We can extend which will include a new kitchen and provide an extra bedroom. We have already added an extra toilet. The £10k of work will improve the layout and upgrade a bathroom. In the grand scheme of things £10k is peanuts. We can save that again in less than six months. But it is the first step towards extending which could potentially add twice as much as it costs onto the value. And it is necessary work before we can sell as we have kinda already begun the work.

I have arranged an appointment with our current mortgage provider to get assurances on the portability of the mortgage should we switch rates with them. Their deal is cheaper for existing customers, plus no exit fee and we still get the monthly cash back. I am only looking at deals without product fees as they work out cheaper over the fixed period. Luckily this is a tiny mortgage, 10% of net income, whereas we will need a mortgage of £300k plus to move and rate rises will be far more of an issue then. Rate will no doubt rise before that point but it will be nice to secure this small proportion at least.

dimbo61 · 16 February 2018 at 7:38PM

You have 2 kids in primary school and live in a 2 bed flat,
you want to move to a bgger property.
So why are you even looking at a 10 year fix ?
If you take a Long term deal even at a low rate this ties you in with ONE lender
Why not consider a shorter deal and overpay like mad.
The more debt you pay down now the less you need to borrow in 2/3 years time.

kingstreet · 16 February 2018 at 8:21PM

WineDarkSea wrote: »

I have arranged an appointment with our current mortgage provider to get assurances on the portability of the mortgage

Hopefully, they will tell you portability is based on you meeting criteria at the time as a new application is needed and new affordability, status and property checks will be carried out.

How can you possibly know your current lender is going to lend what you need and will have the best deal for your overall mortgage needs when you come to move?

It's a potential scenario where the tail will be wagging the dog. You'll try everything to make your current planning decisions fit the future. That may not be possible.

You should remain in flexible deals, preferably with no/low ERCs such as a tracker where you can pick the best deal/lender when you need it.

In the next year or two, rates are not going to rise that much. Keep your perspective.

WineDarkSea · 16 February 2018 at 9:22PM

We are well below the affordability criteria and could pay off this mortgage within a couple of years if needed - if we do not extend. Even £300k is below the affordability criteria based on current income too. Unless the economy tanks (and house prices plummet), our income is pretty secure and likely to keep increasing. No need for doom and gloom. We massively under borrowed buying this flat and have lost out consequently by being too risk averse.

I have no interest in overpaying. I would rather have the money in the bank. Our savings are currently just about nudging over the interest rate we have on the mortgage - more so if we find a better deal. The money saved is the equivalent to the amount paid off when we come to sell, it makes no difference and all contributes to the equity in a new property.

My original question was whether to go for a long term fix. I had decided against it in the past. Some advice has suggested longer term fixing is better and that our current rate isn;t worth staying on. Not meeting the affordability criteria for a mortgage of £87k is never gonna be an issue, and not being able to afford the mortgage to jump up to a three bed house will mean we have to stay put and extend, which we already have enough saved to pay for.

We could fix for two years but I don;t think its worth it as we d lose our current tracker rate, which is good compared to current SVR after the fixed period.

Remortgage to a Fixed Rate Now?

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