How long to fix for?

bobobski · 25 September 2018 at 7:43AM

Sorry if this has been posted before; I've had a quick look but couldn't immediately find anything and I'm in a bit of a hurry while typing this

We've had an offer accepted and are in the process of choosing between a 2 or 5 year fix. We can afford both, and they're both under the monthly repayment level that we were expecting, but there's a £92 per month difference in the payments (mortgage of £324k; IR on 2 year 2.05% with £995 product fee; IR on 5 year 2.72% with £1,499 product fee but also £1,000 cashback). We intend to pay the product fee upfront rather than add it to the mortgage.

We are first time buyers with a 10% deposit. We intend to overpay the mortgage on a regular basis. The house is "forever home" material so we don't envisage moving any time soon, and neither of us is expecting any kind of inheritance or other windfall so we're not particularly bothered about redemption penalties. There is a chance of kids within the 2-5 year period.

We are currently thinking that a 5 year fix is more suited to our situation but we really are shooting in the dark.

Any thoughts?

middleclassbutpoor · 25 September 2018 at 7:56AM

It's crystal ball stuff really...

As long as you are sure you will stay there for 5 years. Forever homes are rarely 1st homes in my experience but if you are comfortable you will be there for 5 years then you should be ok considering this length.

The rest is all pure guess work. If I was in your shoes, I see more sense in the 5 years as interest rates are still low and if you plan to have kids in 2-5 years then by going for a 2 yr fixed rate you could end up coming out of a 2 yr fixed into an unknown world of interest rates. The 5 year will give you a bit more stability in your payments throughout a maternity period and likewise you can budget in advance for it as you know what you will need to pay etc.

It all boils down to what you are comfortable but given the above rationale, I would probably agree that on face value, it wouldn't be the worst decision to fix for 5 years for your circumstances.

lindens · 25 September 2018 at 8:12AM

if there is a chance of kids i would do 2 years. You may "think" the home is fine for kids. But once they actually come along with all the paraphernalia they need, and you start to live in the home as a family of 3, sometimes you feel the house isnt working and want to move.

Wobblydeb · 25 September 2018 at 8:29AM

I am going to say 5 years

There are a couple of key risks with the 2 year that push me that way:

1) If you are already considering children in the next few years, you might find that they arrive before the 2 year fix is over, and remortgaging will become a much different prospect.

2) The only way you can mitigate the risk of coming off the 2 year fix into much higher rates and hence repayments is to overpay big chunks off the mortgage, reducing the capital. If you are planning a family you would be far better to put that money into a savings account for maternity/paternity leave.

NB - use a regular saver account which can pay up to 5% - better rate than you get overpaying your mortgage. If you decide to put it against the mortgage anyway, you can still do that when it matures.

ChrisK....._3 · 25 September 2018 at 8:53AM

Best thing we ever did was move our mortgage to a Offset Mortgage with First Direct which means that any savings you have is counted as credit against your mortgage/loan and you only pay interest on the difference. You can offset as many accounts as you like (we had 1 each and 1 joint account = 3). This is all calculated monthly so even your salary payment/s are deducted from the interest so that any over payment comes straight of your capital. The other thing we liked was that FD recommend a monthly payment but only bound you to pay in full by the end date which gives you flexibility if you cant pay some months because of circumstances and in fact you could even borrow allllllllll your payments back if you had a financial emergency, without even contacting the bank, just by transferring the money online.

We paid our house off in no time and I have no doubt at all that had we stuck with our old mortgage we would still be paying it

bobobski wrote: »

..... with a 10% deposit. We intend to overpay the mortgage on a regular basis. .....

getmore4less · 25 September 2018 at 12:55PM

LTV will get better in 2 years.
Pick a lender with good retention rates.

Paying fees up front makes a tiny difference as you can just borrow a bit less if you don't.

Add the net difference in fees to the 2year make the payment the same as the 5 year and see what you owe on both in 2 years.
Then work out what rate you need over the next 3 years to break even with the 5 year.

bobobski · 25 September 2018 at 8:31PM

Thanks for all the input guys - decision made

dimbo61 · 25 September 2018 at 8:47PM

That is a big mortgage.
Add into the mix that you might have a little one or two on the way in 2/5 years and rates have never been this low !
Will you be overpaying by £1,000+ a month ?
What will the LTV be in 2 years maybe 85% if your lucky.
5 years gives you time to hit 80% or maybe 75% with regular overpayments.
Pension saving AVC,s as a higher rate taxpayer !!!

bobobski · 26 September 2018 at 6:35AM

It is a big mortgage, but we're in an expensive part of the country, borrowing about 3.5x combined salary (so not super tight even factoring in higher council tax etc), and it's a 5 bedroom house so plenty of room to grow into. We could overpay by more than £1k a month if we wanted to but are likely to prioritise in a different way.

It's the "rates have never been so low" argument, along with uncertainty, along with our feeling that we'd prefer to know how much we'll be paying for 5 years than 2 etc, that have brought us to choosing the 5 year fix. We're also both aware that this could be "wrong" with hindsight, but in the same way that obtaining house insurance is "wrong" if your house doesn't burn down, so it's a risk we're willing to take.

How long to fix for?

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