2Y or 5Y - Brexit baby

[enigma27]

Hi All.

I know no one has a crystal ball and predict the future but WWYD if your mortgage deal was up and you had a choice of the following.

Stick with current lender on a new 2Y fixed rate deal (Rate competitive) and hope brexit doesn't muck up the UK rates in 2 years

Or

Go with the hassle of finding a new provider with lower 5Y fixed rate (current lender not competitive) and pay the arrangement fee's and legal fees.

 

[Semple]

How comfortable could you afford if there was a sudden hike in the rates in 2 years time?

I don't think Brexit will have any negative effect for borrowers, i imagine the rates will be quite low for a good few years after Brexit too.

 

[GinG]

We will be in a similar position in the coming months. We will be looking at the longest possible at a good rate, just for peace of mind.

 

[Syla5]

Erm lower rate over 5 years with another lender?? More information required.

What is your current rate, what is the new rate you are being offered by your current lender, what is the 5 year rate from the other lender and the fees attached?

 

[enigma27]

Erm lower rate over 5 years with another lender?? More information required.

What is your current rate, what is the new rate you are being offered by your current lender, what is the 5 year rate from the other lender and the fees attached?

Current rate is 3.74 (SVR)

New rate for the 2Y fixed will be 1.84 (no arrangement fees or legal fees just purely swapping to a new deal)
New rate with same lender on 5Y 3.74 (again no fees)

Top five sites i have checked have rates for a 5Y fixed between 1.9 and 2.4 but i would have to pay arrangement fee of around 1000 plus legal cots of swapping lenders although not sure how much that would be.

Usually i would go for the shortest period so i can change again in 2 years.. I was planning on borrowing more to build an extension but have scrapped that now in favor of getting our LTV down and then rethinking in two years time.

Our current monthly mortgage payment is around 1400.. the 2Y @ 1.84 would bring that down to 957

I am not doing it for affordability wise as I can more than afford the 1400 but if you can save money then why not

 

[Trifid]

I've just remortgaged and went for a 2 year. The clincher for me was the lower cancellation fees on short deals.

 

[GinG]

£1400! Wow!

If I was you then I would do the 2 years, reduce the payment but overpay and keep payments at £1400 if lender allows.

As others have said, can't see the rates changing too much. The reason why I am looking at a longer fixed is I am changing jobs and would prefer a longer fixed monthly price for budgeting purpose.

 

[enigma27]

Thanks all.

Yeah at the time even though me and the wife have well paid jobs we didn't have a massive deposit so we couldn't get the best of rates.

Think i will stick with the 2Y and see how it goes.

 

[GinG]

I have just had a quick look on a comparison site, I would work out the costs involved over the 2 and 5 year. Seems I can get a 5 year with a £499 product fee which works out the same monthly costs as a 2 year with a £999 product fee.

 

[Bunka]

I went with a 5 year fix a couple of months ago, interest rates are so low at the moment that the minimal cost of fixing payments for a longer term is a no brainer.

 

[enigma27]

I went with a 5 year fix a couple of months ago, interest rates are so low at the moment that the minimal cost of fixing payments for a longer term is a no brainer.

How much were the legal fee's / Arrangement fee?

For a 5Y i would have to change lender

 

[Bunka]

How much were the legal fee's / Arrangement fee?

For a 5Y i would have to change lender

Fees were £999, we added it onto the mortgage and have overpaid in two instalments to clear the extra capital. I had the money to clear it in one go but the interest was so negligible I was happy to spread the cost slightly.

Mine was with Woolwich (Barclays) and they offer their 5Y fix with an upfront fee or slightly higher interest rate if you choose the no-fee option.

 

[Syla5]

I forgot to ask what your LTV is, that's the real key to this.

Judging by your rate offers I would make a guess that you are in the >= 75% bracket which is where the higher rates and larger fees come from.

Staying with your current lender for the 2 year fixed would be cheaper over the 2 year period, however any 5 year deal + fee that is out there on the market will beat what you are being offered now from your current lender.

The risk with fixing and not fixing is just that, its down to personal preference. I can see the rates rising in the next 2 years and even more so in the next 5 years, but I cant see them rising a lot, and if you improve your LTV position over the next 2 years, even with a rate rise you may well end up in a position where you can get access to an even better rate then.

In your position my view would be to take the 2 year offer and make sure to overpay as much as possible, at a minimum you overpay so your new payment total is the same as your current payment.

Something to consider is look for a tracker or variable rate mortgage that doesn't have an early repayment charge (ERC) penalty and then you can move to one of these now, and if rates look set to rise in the next year you can move to a fixed deal without penalty.

 

[Psycho Sonny]

mortgages with fees are only worth it if you have >£200K outstanding on your mortgage usually.

i'd fix for 2 years for multiple reasons;

lower interest rate - the lower it is the better for you

shorter term - you can then apply for another deal in 2 years time with a lower LTV which means even lower interest rates again

lower ERC's and fees - if you won the lottery or had to sell, etc less fees involved in paying it off.

stable rates - country is unstable and will be for the next 2 years, if rates do rise i see them going straight back down again when brexit kicks in. so I'd lock into a 2 year deal right now it's the perfect time to do so.


overpay as much as you need to, to get into the next LTV band for when the 2 year deal ends. no point in overpaying if it doesn't get you into a lower band as you could just stick it in a savings account for flexibility instead.

 

[enigma27]

Thanks all.

Appreciate the advice.

 

[HangTime]

mortgages with fees are only worth it if you have >£200K outstanding on your mortgage usually.

Although I can appreciate people like to have a rule of thumb, I think it is important to run the numbers for such crucial financial decisions. It really depends on several factors, obviously the more you borrow, the more impactful interest becomes (and hence less impactful the fees become) but as both fees and rates vary between products you can't really put an arbitrary cut over point on it. It also a depends a bit on length of term. On say a 5 year fix borrowing £180k, if paying a fee up to say a grand means shaving 0.25% or more off the rate, it can be worthwhile

 

[HungryHippos]

Although I can appreciate people like to have a rule of thumb, I think it is important to run the numbers for such crucial financial decisions. It really depends on several factors, obviously the more you borrow, the more impactful interest becomes (and hence less impactful the fees become) but as both fees and rates vary between products you can't really put an arbitrary cut over point on it. It also a depends a bit on length of term. On say a 5 year fix borrowing £180k, if paying a fee up to say a grand means shaving 0.25% or more off the rate, it can be worthwhile

I think that as a rule >£200K with fees is not an unreasonable figure to work on, and I would agree in principle, but also with what you are saying in respect to actually looking at the total cost of ownership as well.

For various reasons (mainly speed and max borrowing limits) I am moving from Nationwide to Natwest for my new house purchase.

Natwest don't seem to offer very good rates without fees, on a 2Y basis it was something like 1.3% with arrangement fees, and 1.8% without them.

On top of that the fees were £999, but there is a cash back sweetener of £500 which brings the fees down a bit. So on this basis I am moving to a 2Y fix with Natwest, with effective arrangement fee of £500 and an interest rate at 1.3%.

 

[Freefaller]

We went for 5Y fixed. It made it easier to forecast and budget for the years ahead. Our LTV was around 80%. When we come to remortgage may change my mind but for now it works out well, and we can overpay slightly too.

 

[Adam]

I went for a 5 year fixed at 1.79%.

 

[Psycho Sonny]

I went for a 5 year fixed at 1.79%.

that is very low. i take it you have at least 60% LTV and paid a fee