I'm about to come to the end of a 5 year fixed term deal. I've been offered another 5 year fixed rate that is 1% lower than the current market rates.
Does a 5 year fixed rate make sense in the current economic climate or would it be wiser to take out a shorter deal (at a higher rate)?
Thanks in advance.
Last edited by Rocket Man; 4th September 2023 at 18:14.
All things considered I would probably do 5 years. It’s still less than the historical avg which I think is 7%.
I have three years left on my five year fix. Stupidly turned down a 10 year fix for an extra £35 per month as we thought we would remortgage and extend. Not at these rates we won’t.
In Your shoes I'd go for 2 years, expecting interest rates to drop. They may not of course but I'd take the gamble - doubtful they'll go higher
Nobody has a crystal ball.Originally Posted by Rocket Man
What is right for one person may not be for the next.
It comes down to where you believe interest rates are headed and your appetite for risk, and if movements in interest rates significantly affect your ability to afford the mortgage, or otherwise.
The need to fix because you would financially be in difficulty if they went even higher, versus being able to afford higher rates and want to take a gamble if they go lower.
Taking an important decision like this to random strangers who know nothing about your wider financial situation may not help you that much.
I reckon most people on the forum last year were predicting lower interest rates, and looked how that turned out.
Take the 5 year fixed all day long. You then know exactly what you need to pay for 5 years and can forget about it.
How are you paying more than current rates? When you took out the original 5 year mortgage, rates were on the floor.
I'm in the same position and opting for 2yr fixed on the assumption that rates will fall. [I have 2 houses / mortgages - the other is on a 5yr fixed at 1%]. But, YMMV. P.S. This is not advice.
I don't think he says that...does not mention those rates, I assume the mortgage that's ending will be low as you aver and the current rate he refers to is current BOE base. I could be wrong...nope on 2nd thoughts you've read it correctly, I think.
Last edited by Passenger; 4th September 2023 at 17:58.
Any fees involved? Need to take that into account too
Sorry, I wasn't very clear in my OP!
My current rate is 1.80% and the fixed term deal that I've been offered is 4.29%.
Of course I need to consider risk aversion, job security etc. and make a decision based on my individual circumstances.
I'm just curious to know what range of opinions there might be.
Last edited by Rocket Man; 4th September 2023 at 18:13.
fwiw I'd take the offer.
If it is for 5 years, I would too. MSE best buy comparison tool can get nowhere near that.
Good to know, thanks guys!
I think 4.29% in todays market is very good and well worth a five year fix.
If rated drop back down to the very low rates that we are now used to, some calculations msg need to be done in order to determine whether or not to buy out of the deal in favour of a cheaper one.
https://www.theguardian.com/money/20...e_iOSApp_Other
Rates reported to be dropping. Don’t forget to consider the penalties on the fixed term. A five year fix with a low penalty, etc.
That makes more sense.
Our first mortgage back in 2006 was 2 years at 4.75%. We had no idea what we were doing but lucked out when rates dropped at remortgage time.
In hindsight, and looking at the state of the world today, I'd be more inclined to fix as long as possible.
I’d take the 5yr fixed. China economy is terrible state, US borrowing in the multiple trillions $, etc etc. end of the world is nigh.
“ Ford... you're turning into a penguin. Stop it.” HHGTTG
Five year fixed. If you can afford it today, you are okay for the next five years (assuming you have earnings security).
I think you will probably find that the 2 year deal is loaded with fee's. Due to the short term its another way for lender to make money. Interesting that Ryan is going for the gamble and no one else. This possibly tells us more about a personal approach to risk.
I would be all in for a 5 year fixed. Might be worth you sharing details for others on here who could benefit.
Thanks, it's been useful to get different perspectives. I arranged the deal a couple of months ago and it's no longer available unfortunately - now it's time for me to sign the dotted line!
Ryan (and others) has been repeatedly calling the peak of interest rates for well over 12 months now, and from about when IRs were about 2%.
This on the basis that when they went over 2% there would be Armageddon, as nobody would be able to afford their debt, including the Government.
If you guess enough times, you may be correct one day.
Markets are currently forecasting a peak of 6%, versus the current 5.25%. At least that is what I read a couple of weeks ago.
The forward yield curve and most analysts believe rates will fall in the future. But you have to do the math to form a view on what to do as those projections are priced into current offers. So let's say you have two choices, 2 year fix at 5% or 4 year fix at 4%. The latter is a factor of an expectation that rates will fall, in paying 1% more for two you implicitly need to then get a deal paying 1% less (i.e 3%) for the least 2 years.
Same for savings rates, it's not just about likely direction of travel, but how much it has to move to be ahead of the game compared to what is already priced in.
I've just been getting quotes for my first mortgage (late bloomer at 48)
Couple of weeks ago, the rate for 2 year was higher than 5 year. Simply because the consensus was/is that these high rates will come down soonish, in those 2 years at least. Now the economy is really feeling the pinch of higher rates they will stay stable for a while before coming down soonish. It made sense to me...though my natural tendencies would be stick at 5 year so you know the numbers.
Inflation has come down because of reduction in volatile prices, like crude oil. Service price inflation is still rampant.
Crude oil is now rallying again strongly. You have probably noticed the 10p per litre extra you are paying at the pumps. Add another 5p to that in the next two weeks.
Plus sterling is under pressure which will only compound the cost of oil and imports. And the more the economy tanks the devaluation of sterling will continue, compounding inflation further
Don’t rule out inflation ticking upwards again and hence the same with interest rates.
Some brave people willing to bet in lower interests in the short to medium term.
I would do the longest period allowed just to save the hassle
Fortune favours the brave!Inflation has come down because of reduction in volatile prices, like crude oil. Service price inflation is still rampant.
Crude oil is now rallying again strongly. You have probably noticed the 10p per litre extra you are paying at the pumps. Add another 5p to that in the next two weeks.
Plus sterling is under pressure which will only compound the cost of oil and imports. And the more the economy tanks the devaluation of sterling will continue, compounding inflation further
Don’t rule out inflation ticking upwards again and hence the same with interest rates.
Some brave people willing to bet in lower interests in the short to medium term.
Can I swim against the tide a little here.
Todays data is unemployment is up, wage rises are up more than expected, and oil is over $91. I’d expect another 0.25% base rate increase within two weeks.
Good for savers (wait two weeks if looking for a 12 month fixed rate bond). Not good for variable rates mortgages.
Not really against the tide, the vast majority in the thread are advocating the longer fix.
I’d be more tempted by the 3yr and no-low penalties than a 5.
If you’ve a decent term left on your mortgage, then I’d take the fix at 5 years.
Based on current inflation rates, with an expected spike due to fuel in particular in the near future, I’d be locking in as I believe it’ll get worse before it gets better.
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Does LTV typically top out at 60%? As in, if you have a lower LTV then are better deals available?
Oil price rises are like an interest rate rise - they dampen economic activity (whilst also feeding into inflation - granted). Given the weak employment data and the rising oil price slowing the economy then there must be an increasing chance to leave the interest rates alone for a month or so? The medicine seems to be working……
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Can't really answer this question without full details of the two different headline rates plus fees plus any exit penalties.
However, I will say that most people opt for/recommend longer term fixes more for budgeting and peace of mind issues than they do for value comparison. If you know what you're paying for 5 years then there is some value in that. And it protects you from some of the more extreme scenarios that some people worry about. But the rate is also designed to deliver profit based on the financial institution's view of the longer term interest rate direction, and whilst nobody knows - their assessment will be conservative. You'll probably be overpaying towards the end of the term for the less hassle, more peace of mind choice but that might be worth it to you depending on the size of the mortgage.
Mortgage rates are coming down right now but on the other hand the offer you quoted looks better than the current average for a 5 year fix, without any knowledge of your LTV.
Ignore all guesses on interest rates in the short term. Including mine - which is that the majority at the Bank probably leans to no more rises unless there is shock inflation data.
Seems too, at least for the banks I've looked at. My guess is that beyond 40% equity there's minimal risk left on the secured debt.
It’s not working fast enough given the politics or the inflation target. I’d expect another .25 at next MPC and then watch spending over Christmas before it starts to come down ready for the election free cash bonanza.
Rates are relaxing for quality credit risk, not across the board.
Higher LTV, high PV in new builds ( especially investor grade) and worsening PD in certain sectors mean the crust quality is key.
The Property has a Value known as the PV. This can be calculated by a human or automated. This is key because the automated calculations are in fairly new territory and will produce some odd values.
The Loan to Value is the ratio between the loan you have and the Property value. When you buy the place this is the same figure as the ratio between loan and deposit, but the property value will change and the banks will be using the Loss Given Default value instead . This is if you fail to pay the mortgage ( you default on the loan) how much will they lose when they repossess, sell it and recover their legal fees.
The Probability of Default is one of several metric that drives if they will lend and the circumstances (rate, affordability, max LTV,etc.).
PD is increasing as borrowers cannot service the increased repayments ( perhaps because of high multiples of income but equally changes in disposable income). certain sectors are no longer viable (BTL).
It’s worth asking the lender for illustrations for a range of LTV ratios.
Last edited by joe narvey; 14th September 2023 at 05:24.
Been looking at a change in mortgage as well - trying to decide if we should fix for 2 or 5 or maybe just opt for a 2 year tracker as the flexibility may be important for us in the next couple of years as we may look to sell and downsize etc. But then again, we may not!
Currently on a Lifetime Tracker of 1.5% above Base Rate so any of the current options save us money each month. Have to admit to taking my eye off the ball on this completely and now it’s hurting!
As above the penalties need to be factored in. A 5yr fix with minimal penalties is very different then punitive lock-ins.
Don't forget how much you're saving in admin fees with the lifetime deal.
That is true.
With HSBC at the moment and they have some decent offers with and without fees. To switch is apparently simple as I’m an existing mortgage customer.
Have a longer term plan/idea of selling up and buying something cheaper over the next few years and being mortgage free hence the aversion to exit fees.
Over payment and exit fees with some lenders are aligned with the calendar year so it’s worth planning if you’re going to pay early without penalties. Nationwide was 10% over payment a year, so possible to do a 30% overpayment within a 14 month period without penalties.
The last fixed mortgage I had was 5.45% over 15 years, within two years rates had dropped to an all time low! However I could pay 99% of the total borrowing off with no penalties which I made sure I did.
Long way of saying 'yes'
Apologies for over answering.Long way of saying 'yes'
If it helps here’s a screen print from the FT following the MPC rate announcement confirming (from my perspective) a shorter term is better. I expect these lower rates would be offered to lower PD* customers.
( *sorry, couldn’t help myself).
Last edited by joe narvey; 22nd September 2023 at 11:25.
I realise it’s G&D so will limit my response to any politician of any ruling party wants the cost of living to be as low as possible (and also trending downwards or stable) before going in to an election. Of course what happens in two years time is a gamble, so do you feel lucky? Many homeowners under the age of say 50 don’t have much if any spare cash after paying the basics and have to act purely on guaranteed affordability. If you can afford to take a punt you are in a very good position irrespective of the outcome.
UK lenders are expected to launch another round of mortgage rate cuts next week amid optimism home-loan costs have peaked after the Bank of England’s decision to keep interest rates on hold.
What’s the latest thinking on this? Anyone changed their opinions due to the rate being held and rates being reduced on some products??
if you can still live comfortably with the 5yr id go for that. I am 1 year into a 5 stretch and it gave me the confidence to do a 3 year car plus scheme as I know where my finances will be for some time. Obv you can apply that to any long term commitments you may have. Just feels more secure in the current climate
Just in case any of the participants to this thread are Barclays BTL clients.
Previously I was thinking go short as interest rates will drop. I am starting to go the other way to 5yr fix the way the bond markets have gone last few weeks - factoring much higher interest rates for longer scenarios.
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Last edited by chrisjones3; 4th October 2023 at 23:53.
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