Reply to: Mortgage fix, 2 or 5 years, WWYD?

[TheCyclingProgrammer]

Thought I'd post an update - having thought about it I decided to go for a compromise and take a punt on a 3 year fix deal. The best deal I've found which I will be applying for through my broker is with HSBC, 3 year fix of 1.49%.

Over 3 years this saves approx. £4.5k in interest vs the best 5 year rate of 2.14%, or a net saving of £4.2k after accounting for other miscellaneous fees (valuation, admin charges etc., the 5 year deal included a free valuation).

Its also about £1.5k less interest than the best 3 year fix offered by my current lender which is 1.75%, or a net saving of about £750 after accounting for other fees and charges.

By making it 3 years we should have been out of the EU for around a year and hopefully things would have settled down a bit. Looking at the long term rates the banks are offering I'm starting to think there won't be any major increases but I've worked out that to end up worse off on the 3 year fix compared to the 5 year fix, we'd have to end up on a rate of around 3.2% or higher for the 2 years after our deal ends. Seeing as we'll be below 60% LTV at the end of the 3 year fix, I'm hoping that's unlikely.

[Smartie]

5

5 year fix with offset. The flexibility of effectively overpaying the mortgage but still being able to get at all the savings is well worth the slightly higher interest rate, for me anyway.

Also remove the hassle and cost of arranging a new mortgage every 2 years.

Balancing overpaying the mortgage against building pension savings is a tricky question though. I'm leaning towards more pension savings personally since you're effectively getting nearly double your money due to the (current) tax breaks.

[d000hg]

How cheap the fixed deal is compared to non-fixed will tell you how likely the lender thinks a rate hike is... are fixes starting to get relatively more expensive?

The idea of taking the cheapest deal and sticking the extra in as overpayments... or into a separate pot... is quite a good one as someone posted.

[The_Equalizer]

My mate fixed for 5 years back in 2008 just before the crunch, after which rates collapsed from 5.5%+ down to 0.5%. I told him to transfer to a new lender and pay the Early Rebate penalty, and he would have been much better off, but he was a simple lad and didn't want the bother.

I reckon now isn't a bad time to fix for 5 years. Rates might not go up, but I don't see them going down. Perhaps if Trump wages war on China then we might see more action in the underlying transfer rates.

For what it's worth - probably nowt - that's my thinking too. It's not as if 5 year fixed is that expensive anyway. You're talking about with 1% overall if you've got a decent loan-to-value ratio.

[TheCyclingProgrammer]

I reckon now isn't a bad time to fix for 5 years. Rates might not go up, but I don't see them going down. Perhaps if Trump wages war on China then we might see more action in the underlying transfer rates.

If what my broker said about the drop to 0.25% not affecting fixed rates is true then I think you're right, fixed rates aren't going to go down.

So the gamble is really if they will go up within 2 years and if so by how much. Trying to weigh up whether or not to take that gamble. The 2 year rates and lack of any fees make them very tempting, even considering the broker fees now and potentially again in 2 years (unless I can stick with the same lender on a good 5 year fix).

Still can't decide. Tempted to get the 5 year fix and be done with it, not having to worry for 5 years about the mortgage rate while focussing on getting my pension going.

[ChimpMaster]

I'd always go for 5 years but that's just because I'd choose stability over almost anything else for things like that.

My mate fixed for 5 years back in 2008 just before the crunch, after which rates collapsed from 5.5%+ down to 0.5%. I told him to transfer to a new lender and pay the Early Rebate penalty, and he would have been much better off, but he was a simple lad and didn't want the bother.

I reckon now isn't a bad time to fix for 5 years. Rates might not go up, but I don't see them going down. Perhaps if Trump wages war on China then we might see more action in the underlying transfer rates.

[WTFH]

Ah, I was basing it on the deposit being fixed, not the loan amount.

[TheCyclingProgrammer]

Maybe I'm reading this wrong but if you're wanting to get the LTV down, then you want a lower valuation, not a higher one.

Higher value = lower LTV.

At £360k our LTV is just under 67%. At £370k it's just under 65%.

[SueEllen]

Maybe I'm reading this wrong but if you're wanting to get the LTV down, then you want a lower valuation, not a higher one.

Yes you are reading it wrong.

[vwdan]

I'd always go for 5 years but that's just because I'd choose stability over almost anything else for things like that.

[WTFH]

No we aren't and it's not an index linked valuation, it's a surveyors valuation. Estate agents valued at £375-400k, index linked valuation was £343k and their online valuation was £365k. They agreed to send a surveyor to account for improvements made and it was valued at £360k which is the one they will use. The survey was free.

We could chance another lender and put forward a value of £370k but broker doesn't think it's worth it. We don't have a spare £10k unfortunately.

We did intend to continue paying what we do now effectively making an overpayment. The 2 year monthly payment is about £90 lower than what we pay now and the 5 year deal about £43 lower.

Maybe I'm reading this wrong but if you're wanting to get the LTV down, then you want a lower valuation, not a higher one.

[TheCyclingProgrammer]

Unfortunately I've got a director's loan earmarked for funding a garden office.

The 2.14% rate was with Nationwide. I have thought about putting through an application with a value of £370k and seeing what happens. At worst computer says no and we fall back to the higher rate. 2.14% over 5 years is certainly not a bad rate. Considering when we bought the house 2 years ago our LTV was 83% we aren't doing badly. They also have a 3 year fix at 1.74% at 70% LTV.

I don't think Nationwide so 65% deals though, their next level is 60%. Will speak to the broker.

[ChimpMaster]

I am going through the same pain of thought (yes, not train) and have looked at so many options that it's done my head in. Eventually I hit the point where a few £ here or there wasn't going to kill me over a 2 year (or however long) term.

I've decided to commit to a 5 year fixed offset mortgage. The rate is OK, well great on a historical scale, and the offset will allow me to drill away at loan quicker that I would be able to do otherwise. The way I look at it, with an offset mortgage, the rate becomes less important IF you can build up a reasonable lump of savings in the account. I'm looking to MVL in a year anywhere so that lump sum will help me in this regard.

Shame that you've just missed out on the 65% though. I don't suppose you'd consider a director's loan to make up the numbers? Or if you go for a survey with another lender, have lots of evidence put forward to justify your £370k figure, especially recent local sales comparables and costs of work you have done on the home. Surveyors hate to be proven wrong so will never change their mind after they have come to a number, but they can be swayed beforehand.

[TheCyclingProgrammer]

No we aren't and it's not an index linked valuation, it's a surveyors valuation. Estate agents valued at £375-400k, index linked valuation was £343k and their online valuation was £365k. They agreed to send a surveyor to account for improvements made and it was valued at £360k which is the one they will use. The survey was free.

We could chance another lender and put forward a value of £370k but broker doesn't think it's worth it. We don't have a spare £10k unfortunately.

We did intend to continue paying what we do now effectively making an overpayment. The 2 year monthly payment is about £90 lower than what we pay now and the 5 year deal about £43 lower.

[chopper]

Are you in a position to make an overpayment to get you to the 65% LTV per the lender's estimated valuation (which will just be an index linked price based on their last valuation), or maybe if you are confident their estimated valuation is wrong, can you pay them some money to get a fresh valuation?

Or remortgage with a new provider, who will do a fresh valuation.

If neither, I'd take the 2 year fix (interest rates aren't going to go up noticably in the next 2 years) but make overpayments to the tune of the difference between the 2 year and 5 year monthlies. No point taking the 5 year fix if you are reasonably near an LTV boundary.