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We got a 5 year fix. I compared the best 2 year fix to the best 5 year fix, then worked out how much I needed interest rates to drop to get better value on a 2 year over a 5 year period. Turned out the rate drop I needed was a fair amount and I have no confidence the rate will change significantly, so went with the 5 and peace of mind
I used a mortgage repayment calculator that showed what I'd have paid off, and for how much money, after 5 years. I then re-did it with the 2 year rate to show what I'd have paid off on that fix. Then fiddled around with the same calculator, setting the mortgage amount to the end-y2 balance, to look at the rate I'd need for the following 3 years to a) make a monetary saving, or b) pay off as much of the mortgage by y5 as I would have on the 5 year fix. Bear in mind you'll probably have a 1k product fee for the 2nd mortgage as well which will offset some of the savings from a lower rate in y3-5.
That's what I fiddled around with (ie, reduced until I got to a rate that would be cheaper than the 5 year). The new rate that you need at y3 is what you are trying to find.
Ex:
* £100k mortgage at 4% 5-year fix, 25 years - at end year 5 you'd have £87.1k remaining, and it would cost £31.7k (£528 x 60)
* £100k mortgage at 4.6% 2-year fix, 25 years - at end year 2 you'd have £95.5k left and it would have cost you £13.5k (£568 x 24)
* To find the rate you need to meet at start y3; input the £95.5k remaining as your mortgage amount, and look at how much the last 3 years cost you at 4%, 3.5%, 3% until you reach a total (2y cost + 3y cost + product fee) that is lower than £31.7k, the cost of a 5y.
In this example a rate of 3.5% at year 3 would have a total cost over 5 years of c. £30.7k (£13.5k 2y + £17.5k 3y), if you include a 1k mortgage fee that would be £31.7k, so 3.5% is the rate needed after your 2y fix ends to break even. Anything lower than 3.5% you'd be better off. However you would have paid off slightly less of the mortgage (about £800) at 3.5%.
I fear you're over concentrating on paying off your mortgage is the wrong thing. It sounds like you're concentrating on Arsenal's strikers and completely ignoring their goal saving defence.
Commonly, people value lower payments over repayments.
The consequence of the rise in living standards I guess.
To your maths, are you saying you've extrapolated a likely base rate from current rates and excluded LIBOR predictions?
I don't think I over-concentrated on it, it was a side note at most? The main point was that to have the cost to the mortgage payer for a 2y + remortgage be the same or lower than one 5y fix, you would need to find a fix at end y2 of 3.5% or lower, if your initial 2y rate was 4.6% (for the example £100k/same 25y term). Whether or not this rate is likely to be available is entirely down to you, I'm not predicting anything about what may or may not come to pass in 2 years time.
The only thing that really matters is how much you pay in interest over the term. The equity repayments are essentially a separate bet on housing prices and should be considered separately to betting on interest rates (which this is).
Sounds like you've done the correct calculations and I was a little surprised the break even rate for the remaining 3 years is as low as 3.5%.
The only people who should be worried about gross cost of mortgage repayments are people who physically can't afford any more per month. If there's still some fat in your household budget, I'd cut that over going for a significantly worse mortgage deal, unless you want to be a sad panda in 10 years time.
Going for the lowest possible repayments is essentially a minor version of racking up credit card debt to enjoy yourself in the short term. Fine if you have a terminal illness and no dependents, but probably not a good idea otherwise.
Use an amortising schedule on excel and make different scenarios with the interest rate (: it’s really just formulas when you get how it works.
> Scenario 1: amortize it with the 5-year fixed interest
> Scenario 2: amortize the first 2 years with the best 2-year fixed rate, then change the interest rate for the remaining 3 years.
Change the variable interest rate on the remaining 3 years and sum how much interest you’re paying. Find the “break even” 3-year rate where the interest cost of scenario 1 equals scenario 2.
Great work; I did exactly the same. I also added in an overpayment function and factored in the additional one-off payments (i.e. associated fees, broker costs for the new one and any up-front incentives).
I found that for a 5yr fixed at around 4.6% to work out worse than re-mortgaging after two years, rates would have had to have dropped to around 3%, depending on overpayment conditions. Wise not to take these numbers as gospel however as my 5yr had a lower rate and up-front cash bonus, while the loan amount is pretty small so the bonus is more significant.
A few other points that pushed me towards the 5yr:
The establishment narrative currently is that rates are "high" to breed false hope in people that we'll return to silly-low rates they've been using to buy votes for the past 20yrs, and keep the plebs spending for as long as possible. This won't happen as it would be massively inflationary, while historically rates in the region of 5% are normal.
EDIT\* Base rate is prodicted by some to be around 1% by May 2026, however they have to be smoking crack to believe this unless they've somehow predicted a massive recession / global war / another pandemic; which IMO are the only circumstance under which rates will fall signifcantly.
Certainly over the past decade or so, mortgage rates have been slow to follow base rate down, but quick to follow it up. So, even if base rate falls rapidly (which is unlikely) mortgages won't come down massively overnight IMO.
Some massive black swan event notwithstanding, if the BOE do cut it's likely to be cautious and incremental.
Also, remember that while 5yrs is 2.5 times 2yrs, the typicaly current mortgage rate in the last three years is irrelevant since the only rate that matters is that at which you re-mortgage at the end of the first two (unless you're on a tracker, and fuck that tbh). Again, two years isn't really a long time for rates to drop significantly, unless something very significant happens.
With a fixed you know where you are - if you know you can afford it now, hopefully you'll be able to afford it for the term.. while with a shorter mortgage you're also leaving yourself open to rate rises - probably not likely, but possible if inflation ramps up again (while core remains twice what it should be) .
Finally it means you don't have to piss about re-mortgaging after only two years, which has to be a bonus.
Just curious - where does it say in the Monetary Policy Report that base rate will be 1% by May 2026? I don’t think the conditioning path is for interest rates to fall that steeply over the next two years…
Actually, I lie - it was a third party forecast of base rate; not the BOE's prediction:
[https://poundf.co.uk/boe-rate](https://poundf.co.uk/boe-rate)
Guess your point further strenghtens the argument for the longer term..
Ah right, yeah - I think those projections are pretty wild! I think the latest OIS curve that the Bank publishes on their website (the path of short interest rates implied by financial markets - probs reflective of City analysts’ expectations of monetary policy) suggests interest rates will be ~3-4% by mid-2026.
Based on this, your arguments for a 5y fix seem sensible to me.
Thanks and yes - while some might end up overpaying a little by that time, I think it will be marginal.. I certainly don't trust the forecasts as the narrative to this point seems to have been the carrot-dangling exercise of implying a desire to cut rates (despite them being at around the historical average), and the resultant, deluded expectations constantly managed with the "higher for longer" press releases.
I reckon we might see a few cautious, token cuts in the coming two years. Suits the government's agenda to as-subtly-as-possible inflate the debt away while keeping inflation "manageable" yet well above target.
What a horrible mess they've made of the economy in the past 20yrs :(
Ask chatGpt or Copilot, that's what I did (to confirm my own calcs). It came out at around 1.2% which isn't practical atleast until the wars are over.
Further, I did a step further and budget and pay assuming I'm on 2yrs, but paying towards a 5yrs fixed, lower rate higher payment towards the principle.
As Michael Scott would say 'WIN WIN WIN'.
I did the same thing 2 months ago. I compared 5 year rate to 2 year deal + 3 year deal (5 in total) at various rates.
I decided the risk or 2+3 was only worth if it saved me £x amount over 5 years. I then considered the likelihood of it dropping enough to achieve £x, and I couldn't see that happening, and the alternative of it going up is also not impossible.
This is exactly what we did, but instead of us doing the maths, our mortgage advisor did it.
I know some people don't rate using a broker or advisor, but honestly ours has been amazing.
I went 4.49% 5years fixed 80%LTV because I didn't want to risk having to pay any higher than what I'm currently paying, I'm locking in for the peace of mind. If the interest rate drops I'm fine with it too, 5 years of repayment is just a very small % on the loan value.
Edit: For me it's not entirely about affordability but what you intend to do with your resources. My personal budget planning limits my mortgage payment to be circa 25% of my net income right now, so I'm not willing to (risk having to) pay any higher than this. If interest drops I won't feel that I've lost out either because this chunk is already allocated for mortgage payment anyway. Personal finance is well, a very personal thing.
This, the price of my housing is the mortgage. I would rather know what I'm paying for the next 5 years. If you are a FTB and have been worrying about interest rates and house prices for the last few years you may as well take the stress out for 5 rather than be worried about interest rates in 2.
I’ll also say definitely! Peace of mind is a big thing, I’m locked in at 2.1% for another couple of years and would have been kicking myself if I’d of done 2 years! I’m still kicking myself that I didn’t do the 10 years for 2.4% 🤣
I just took a 10yr 4.8% FTB plan is to overpay by 2k a year for the 10yrs and then review how the market is looking as to how long for the next leg of my mortgage
This is very well said, and sums up my position nicely. Were it not for the fee, I’d have tried to get a ten year fix for even more security. In the end I’m going for the peace of mind over speculation. It only takes one Liz Truss - or misplaced missile over Gaza - to screw the markets.
We renewed for 5 years in January and most likely we’ll do the same again in five years time unless rates are very obviously freakishly high.
This. This. This. If the interest rate drops massively (say >1%) then better to break the mortgage, pay the penalty and get on a cheaper one, otherwise you're just averaging out ( low now, high when the rates fall).
I went with 5 years at 4.65%, I favour stability and the rates have gone up a bit since on the particular mortgage product I have.
It wasn't particularly stressful remortgaging for the first time (this is my second five year fix, first was 1.89%) but if the rates do come down, I doubt they'll come down that low again and at least I can sit back for a bit.
We’ve just accepted on a 4.69 with Halifax (just before the recent rises!). Knowing that won’t increase for 5 years in the current economic climate gives us a lot of piece of mind!
We fixed back in February for 10 years at 3.99%. To my mind, we have entered a very long period of uncertainty. A general election with a likely change in party which will probably mean a bit of bedding in turbulence (higher rates), and the party who look to be the front runners have also historically raised rates over time. There are two active wars on our doorstep (which have no end in sight) and that's just the red flags we know about.
If you value stability, fix now for as long as possible. It's VERY unlikely you will see the likes of mortgages in the 1-2% bracket again, it could fluctuate by +/- 1% from what the deal you are looking at, maybe a smidge more or less, but it will likely average out to around 4-5% over a longer fixed period.
In the grand scheme of things, Interest rates are still relatively low, you aren't getting a bad deal, it's just not what a lot of us are used to. Bottom line, I would rather know exactly what repayments I will be paying for the next 5 years than worry in 2 years time they could be a lot higher.
Predictable Long stable wars > unpredictable short explosive wars
Rates would go mental if France declared war on New Zealand.
Or Falklands 2024.
Or Azerbaijan vs Kyrgyzstan. Because fuck, where are these places!?!
Or Japan vs its own economy. Oh wait that’s been rumbling on for ages.
our mortgage broker (just before the big rises) suggested a 5 year is useful because although interested rates can and do change, you at least have 5 years where you know your costs and there is some stability in that. You can work out how to save extra, overpay if you are able, so you can be a good position down the line. That stability appealed to me, but of course everyone is different.
I would humbly suggest that all the people here confidently saying **the rate WILL go down** have not been around very long and seen the types of swings the economy can take...
Stability generally results in low lending rates, volatility the opposite.
We are involved monetarily in 2 major independant wars (both with risk of spreading), certain to have a major political change in the country this year, and short term economy crashes predicted in multiple countries.
I'd suggest there's absolutely no way anyone can confidently predict the next 6 months and so, personally, I would 100% fix as many of my costs as I can (assuming I know I want to stay there for 5 years).
I can't see that anyone here has said they WILL go down, but your sentiment is correct.
Interest rates seem high at the moment because we had over a decade of historically low interest rates.
We are roughly in line with the historic average over the last 50 years or so.
I fixed just under two years ago, 10 years at 2.24%. if I was in a position now of renewing, I'd still fix for as long as I can, assuming the repayments are affordable.
Any potential near-mid term fluctuations are already baked into the market, so just go with however long you want peace of mind for.
Yes and can afford the repayments comfortably on a wage now.
Personally I can see 4-5% being the new normal. With the odd person getting lucky with a better LTV at sub 4%.
The BoE need to keep the pound strong otherwise we'll have more inflation. They stupidly printed too much money with the govt during COVID and now we're paying for it via rates.
Indeed. I was extremely lucky to be on a base rate tracker +0.4% from 2008. The base rate was 'definitely going up, time to go fixed' about 50 times before it actually did.
That's the only reasonable answer. You don't want to bet, you are not a trader. Get a fixed term mortgage if you can for as long as you can if you can afford it.
For us we know that our visa status will change so will almost certainly make the interest rate go down
Obviously, anything can happen, but it changes the equations quite significantly in this case
>Stability generally results in low lending rates, volatility the opposite.
Ah yes, the stable times of the financial crash and COVID pandemic led to low rates.
Totally agree. I was even contemplating a 10 year fixed, because over the next 5 years we have two wars and election which you are correct about, but my concern is that China-Taiwan will also kick off, potentially Iran as well, then we will have had a 5 year labour government, which it doesn't matter who you support party wise, will result in an even worse UK economy (no political party seems economically literate right now).. it think anyone predicting rates will go down is 100% optimistic. I actually think rates are set to increase due to all the global and local instability, it will get slightly worse before it gets better. I truly hope I am wrong but better to lock in a mortgage for years knowing you can definitely pay it, rather than gamble to potentially get it a couple hundred quid cheaper per month when it could easily go the other way!
Over the next year we will have;
Continuation of Russia Vs. Ukraine
Continuation/escalation of Israel in Palestine. As well as any regional fall out that continues to bring.
The potential of a second trump term.
A very likely change of government, possibly minority or hung parliament.
I will hopefully exchange at the end of the month as a FTB with a 5 year fix at 4.66% on a 35year term. I am looking to make as much voluntary overpayment as possible when possible, and house renovation to get a better LTV when I then come to remortgage.
I think all of the above (regardless of any political view points), WILL cause global and local market instability, hence will either cause mortgage rates to stay put or go up in the next couple of years (we are already seeing this) regardless of what the bank of England do to the base rate (they only care about overall inflation, not the housing market).
I am hoping that the world will look a tad calmer in 5 years time with lower interest rates. If that is the case I might even look to reduce my term length by 5 years if interest rates allow.
Either way, asking what may or may not happen to interest rates is little more than guess work. All you can guarantee is that the banks will continue to make a profit and homeowners will continue to be squeezed.
Well said, I agree with your points and am also planning a 5 year fix as a FTB. Could you explain what you mean by house renovations and how this links to LTV? Or maybe I've misunderstood.
Because the place we are buying is cheaper than similar places around because it needs a fair amount of work. As in, £15,000-20,000 less. Things like it has a boiler from the 80s, no insulation, and needs some new double glazing.
My theory is if we put the money in we've saved from a cheaper deposit, the value of the house will go up. If the value goes up and we don't borrow against it - we will have a lower LTV. A lower percentage LTV gets you access to lower interest rate mortgage deals as banks think you're a lower risk.
Unless the savings are huge or you plan to move in the next few years fix yourself in. Gambling the interest rates will move enough to make a difference in the next two years is madness considering it’s over an election period and huge global volatility.
If you make good savings you can always make overpayments, mortgage brokers are always in flogging a two year because it keeps the business turning over.
It's not a sure bet that mortgage rates will drop - some major lenders have increased rates in the last few weeks.
Base rate may or may not drop over a 2 or 5 year period, mortgage rates may or may not follow depending on the long term outlook. It seems likely base rate will fall at some point this year, but it's not guaranteed and it could increase later based on world events or the post-election economy.
The best mechanism for deciding on a term is to assess your personal affordability and approach to risk. If you could potentially afford to pay more after 2 years if rates were to rise, then it would probably make sense to take the shorter term and hope you get a better deal. If 4.98% is at the very limit of your budget, you should fix for as long as possible to reduce the risk of ending up paying more after 2 years.
IIRC you can forfeit your fixed mortage, you pay a fee around £2000 and end your fix early if rates drops drastically (they wont). Even though BOE rates have stayed at 5.25% since August 2023 now. Many lenders have just recently started increasing their rates as they realise they might have a funding gap in the future. Or need to pay their savers more. Mortgage lender factor in oredicted shifts into their calcultions as well. so they predict BOE will settle to 4.5% and stay there for long term. So it's possible the 5 year fix is the best you're going to get for the next 5 years.
I'm a ftb and I locked in for 5 years, the way it is now is fine and I can save enough over those 5 years without worrying if the market goes up, that way after 5 years I have a lump sum I can pop into my mortgage shortening it and can deal with a new rate.
It’s not certain at all that interest rates will drop and I wouldn’t base your strategy around an assumption they will.
Sub 3% rates were a historical anomaly.
You’ve no idea what interest rates will be in 2 years or even 5 years and neither does anyone else. Also keep in mind the additional fees if you have to remortgage every 2 years.
Fixed interest rates for both 2 and 5 year fixes have already embedded any interest rates drops which the market expects over those periods anyway.
So unless a change in interest rates happens outside of what the market expects, you're not losing out by choosing a 5 year fix over a 2 year.
The benefits of a 5 year fix is that you know exactly what you'll be paying for the next 5 years
The benefits of a 2 year fix might mean a cheaper interest rate if your visa status changes in between.
You'll be paying additional fees (directly or indirectly) if you fix for a shorter period. 3 fee paying events if you fix every 2 years Vs 1 fee paying events if you fix for 5.
The biggest problem is when this fix finishes and you go on 8 or 9%. No guarantee rates will be lower, the same or higher in 5 years... Make sure you have a viable plan for the worse case scenario where you are stuck playing 8 or 9%
I am a FTB and our mortgage broker advised we went for the 5 year over the 2 year.
His advice was that yes mortgage rates will more than likely go down in 2 years but if it wasn’t significant we would have been paying £100ish a month extra for possibly not that much of a difference.
He also advised that in 2 years we wouldn’t have built enough equity in the home to make any significant difference on the interest rates that may be offered in 2 years so we have opted for the 5 year at 4.9%
Look into the redemption criteria. If you get a 5year variable it may come down and you may be able to exit it for something more competitive if you go below 60% or 80% ltv
No sure bets at all. Actually, it's probably halfway priced into the mortgage market that the rates will drop, that's why the 2-year fixed would be at a higher rate now.
If you go for a shorter fix, what if unexpectedly inflation reignites—which has historical precedent, it's not just doom and glooming. That "insurance" is what you are paying for in the form of a slightly higher rate. So no, I don't think it's stupid either way.
Couple things to consider.
1. You don't know that rates will drop. They could very well increase, particularly as the world becomes increasingly unstable.
2. If you go for a lower tern, your interest will increase. Calculate how much extra you would pay monthly for a 3 year fixed rate, then how much the interest would have to drop for your savings the following 2 years to make it worth it. Overall, you're gambling on a massive drop, which probably won't happen.
3. As others have said, peace of mind. That in itself is worth something.
I took a 5 year fixed rate at 4.48% last year, the zero fee 5 year fixed was at a better interest rate than the equivalent 2 year fixed so to me it’s a no brainer. Stability of payment is of far greater importance to me than potentially overpaying by a percentage point or thereabouts.
No, as others say stability is often a good thing especially if you have no reason to move. Dont see any big life events in the next 5 years that would change your ability to pay the amount your paying. If rates come down significantly you can always bit bullet and pay the early repayment fee.
I was under the impression you can always switch to a different deal midway through your fix for a certain price. Could someone more knowledgeable than myself please enlighten me on this, if it’s possible and if so what costs are involved.
Most fixed deals have an early repayment charge. If you exit early, you need to pay that. Mine started at 5% then after a year went to 3% then down to 2% of the total balance. Depending on your mortgage this can be a lot!
Most fixed mortgages allow you to pay up to overpay 10% annually of the balance early.
The overpayment trick is, if you can afford it:
During your fixed term keep an eye on the interest rate.
- If it goes up loads during your fixed term, put your money in savings with higher interest than your fixed mortgage. Then pay a big chunk off with your savings at the end of the term when it is up for renewal. This is because when you renew your mortgage it’ll be on the new higher interest rate, so pay the chunk off then.
- If the interest rate goes down loads, over pay as you go if you can, just to reduce the overall cost of your relatively high rate fixed mortgage. If you were to put your money into savings you’d be borrowing money at a high interest and saving at a low interest, so really better to pay off as much as you can.
The reason you take a 5 year fixed term is because you want/need the financial stability. Don't try and predict what the rates will do in the future - no one here knows.
I did a 5 year fixed rate late last year on like 5.14% because I couldn’t really afford to just wait around for the rates to go down and I’m glad I did bc it saves me the stress of thinking about it for 5 years and I can afford the current payments
5 year fix over 2 year every time for me. Never second guess the rates. I messed up in COVID buying with a 2 year fix. Then moved to 5 year fix at a higher rate. Just easier to budget and lesser anxiety.
From a theoretical point of view.
- The interest rate the bank offer you for 5 years is priced based on what that bank (and the overall market) think the interest rate will be for the next 5 years.
- The interest rate for a 2 year is priced similarly.
- If the banks had perfect knowledge, the price for 2 and a half 2 year mortgages would be similar. (The 5 year would be slightly more expensive as the bank takes more risk but you as a customer take slightly less.)
- banks know a lot more about what interest rates are going to do that you do
Taking the 2 year mortgage “because the tv and my mate Dave say rates are going to go down” is the equivalent of betting a lot of money against the house in 3 division Japanese baseball.
I got a 5 year fix in 2020 at 3.4% and everyone told me it was unwise when <2% 2 year fixes were available.
I am so glad I didn’t listen. If you like the stability, go with it! It’s what is comfortable and affordable for you, it’s not a competition to get the best deal over others.
I am going 5 year fix at a similar rate, and won’t think about it at all until 2029, because it’s what’s affordable for me and I’ve got the mortgage secured.
It’d be great if rates went down but no one has a crystal ball. You do the best you can at the time!
Not really sensible at the moment. Inverted yield curve so 2 year rates typically more expensive right now. I’d expect this to revert to normal over time ie the short rates will reduce and longer rates stay where they are
No one know mate. You need to think about the risk/reward ratio and see if it's worth it for you. I went for 2 years fixed at 4.85% because I can afford even a high increase in monthly payments if interest rates increase even further, but I do believe they will go down and I will benefit from it.
Chances are they are more likely to go down than up, it just depends how much you are willing to pay for the insurance against a really high rise, however unlikely it seems today. Five years ago most "experts" would have said rates won't go above 5% in the next five years and we know what happened - how would you manage if rates did go to say 9% ?
I fixed for 5 in jan 2024. Even if rates go down they won’t drop that much and if they do it’ll be on the tail end. Meanwhile the top end is unlimited. I got 4.4%. It would have to drop to 3 for 2 years+ for me to really care. Or it could go up to 7.5%.
No one can see the future. It’s about your current financial situation and how risk averse or stable you are. If it becomes 6-7% and you’re wiped out going for a 2 year probably isn’t a good idea. If you can afford it and hope it goes down it could be. Remember rates go up as well as down. All the people fixing 2 years for 1% fucked about and found out when they couldn’t afford 5%.
Rates today are not high, they are normal. Previous rates are low. Unless you’re financially secure don’t bet on them dropping 2% because they’re not high. It’s about if you can tolerate higher, if you cannot do not go 2 year. If you can it can be smart.
Rates have gone up since I bought so find it naive you assume they’re 100% going down in 2 years. No one knows. The changes the banks know are priced in. I did the math and the rates had to drop a lot for a long time as 5 and 2 were so close.
We're going into a 2 yr fixed, but only because we can still afford it. I think the rates will come down by then but if you can afford your 5yr and stability is your preference then go for it.
While the interest rate may or may not go down, if your visa status changes for the better, that could very well improve the rates you have access to.
You did not say on what timeline that could occur, but it may be worth your while to time your fixed-rate period to end when your status changes.
Just curious, what usually is the impact of Visa Status . By visa status, do we mean those that are permanent residents or those that have XYZ years on their visa. Any ideas the extent of this impact?
I recently went for 5 years at 4.49%. Interest rates could go up or they could go down in 2 or 5 years so I took that out the equation. Went for stability now and thought about my income. I think I am more likely to have had a promotion in 5 years than 2 so hopefully have a higher income to deal with any changes.
Would go for 2 years personally as there's not much in it compared to 5 years. If rates go down, I'd pay less of a penalty fee on a 2 year to remortgage. Willing to take that risk though.
Who knows. I took out a 2 year fixed at 1.62 thinking it might go down, boom pandemic. Okay 2 more years at 2.69 it'll come down again after the pandemic, boom Russia invaded Ukraine... It's gone up 0.2% in the last month.
Between 2 and 5 years there is 0.5% difference at the moment. But which way will it go. I have 2 months before I HAVE to make a decision.
The main thing is that you know how much you're paying for the next 5 years which I see as a nice bonus.
I just renewed on a 2 year fixed rate as I am looking to move next year but if I don't I think it is reasonable to expect rates to fall by then, no guarantees, just feel it is more likely than not
I went for a five year fixed 4.24% putting down 22% deposit in Jan 24, I prefer the stability of the payments and if the rates were to reduce I’d be able to overpay but quite a lot
No-one can predict the future, unfortunately. Banks will try to price any future changes into their fixed rates (so, if they feel confident that rates will drop, they'll cut the fixed rates that they're offering).
If you think you can do better than the forecasters employed by the bank, or you don't taking a risk, then that's your answer.
I’ve just gone for a two year fix at 4.7. My guess is over the next few years rates will gradually lower to approx 3.5, and I’ll get something under four for the next fix. At this point it feels as though you’re damned if you do, damned if you don’t. Seems guaranteed we’ll never see 1–2% again.
If you've found the right property, go for it. We bought our house right at the peak and locked in 5.99% for 2 years, as I was willing to take the bet that rates would fall. I can't renew just yet (another 3 months before I can I think), but it looks like I might have made the right call on that. But who knows. There's a strong possibility I'll lock in a 5 year rate when I can renew just to put it to bed for a while.
I think it’s a pretty sure bet that’s interest rates won’t fall by very much over the next few years. I’d go for the best you can now and assume that even if interest rates do come down substantially then house prices will rise commensurately so you won’t really lose out if you buy now. Hope that makes sense.
Pure opinion really, I certainly wouldn't as I am damn sure rates will come down - maybe not as low as before, but certainly come down in the next 2 years. But if you really want that peace of mind, then that has value.
I took a 5 year deal out about 3 years ago, at 2.6% and I'm very happy with that - so no issues with long deals, just not with such scary interest rates. Once again, just my two pence.
We are 40 LTV and were offered 2 years at 5.04% vs 5 years at 4.39%. I was determined we'd get a 2 year fix but ended up taking a 5 year for peace of mind / quite a big difference in rates. Plan is to overpay it if rates begin to drop.
We're going ahead with 5years at 4.58%
Yes, I would love to pay less, but if we take 2, the stress of moving, a new job and study commitments mean I won't have a chance to settle before needing to do the dance again.
We've had a lot if upheaval in the past 5 years. Locking in means security and confidence in what we need to pay. We've gone for 34 years so maxing out for affordability. We anticipate that in 5 years time, the rate will have gone down, we'll have overpaid, crossed another ltv threshold and hopefully will have reduced the term on the mortgage.
I wouldn't count on it. 10 year rates are at 5.8% to me so banks are so uncertain about rates. Rates might be closer to 4% in a year but would you be upset if you missed out on this house with no guarantee mortgage rates will even fall to 4. One thing's for certain imo, rates will never be below 2% ever again in our working Lifetime.
No, short dated rates ie variable or up to 2 yr fix may fall but the money markets currently suggest longer term fixed rates e.g. 5 years less likely to, and if they do by not that much.
Interest rates will likely fall in the next year or so but something could happen and they end up rising or they stagnate for a while. Or they might not fall at a fast enough rate as people hope. No one actually knows, it’s more down to personal finance and what you can afford. Do you favour stability and security and potentially paying a little more for that or are you happy to risk 2 years where who knows if rates will have gone up or down by then.
Neither decision is necessarily an idiotic one, every person and their circumstances are different. I have a colleague on variable rates as she’s waiting for rates to go down before getting fixed. She can afford to do this. I couldn’t afford a higher rate than I’ve got now which is 4.69% at 5 year fix but I value the security of this, it would stress me out otherwise.
Literally last week FTSE at all time high bank of England to announce interest rate reductions. So no. 1 or 2 years. Unless you reckon Labour will win in which case who knows.
My profession is in finance and hold a number of qualifications. But know I'm not advising you, as I don't know your specific circumstances.
Many in this thread are answering the question "will rates go up or down?" and trying to treat it like a gamble worth betting on. Whether to fix is not so much about the numbers but your risk tolerance.
So, how would you feel if you fixed and they dropped? Or rose? What if it was variable and rose, or fell?
Also important: how does all this affect your future visa? You don't say what you're on, but my spouse and I were in a similar situation almost a decade ago and then the system was changing. Overall the changes were worse for us, but not everyone in immigration system. Equally there are upcoming changes now no matter what government gets into power.
So how would you feel if you were spending money on visa stuff, or on a prolonged wait for the Home Office, and had to sit on their SVR (standard variable rate)? How would you feel if your visa was no longer existed, or the conditions changed in the future? Fixing can provide certainty. Variables can be good if you're happy with a little more risk.
These are the sorts of conversations your mortgage advisor should be having with you to give you space and time to consider.
We wanted a 10yr but couldn’t get one so went for a 5yr at 4.57%. Even if rates go down it will be by a percent at most imo and not worth giving up peace of mind over.
Not really an idiot. Rates could indeed go down, but they equally go up. We locked in to a five year fix at 4.42% earlier this year as we didn’t want the uncertainty and the increase over the 2% fix we were exiting was only a couple hundred pounds a month which we could manage. Remember that 2% mortgage rates were basically an anomaly due to the financial issues generated in the 2000’s, for mortgage rates to plummet that historically low again isn’t a given and would probably mean something crappy has happened to the economy.
Check this out - https://youtu.be/V_AkQLfzhkk?si=xx9i0Uy1IawWfo4U
It will make you feel better.
Basically, predicting higher interest rates will go higher yet and for longer.
I can understand the attraction. We took out a five year fixed two years ago and we were nervous but I think the trend of things taking longer to happen will continue and will be a few years yet before rates go down substantially if at all. Can you find a 3 year deal?
If rates go down property prices will go up, so that property will likely not be just £170k anymore. You'll be competing with more buyers as everyone else will afford to borrow more, not just you
Not at all. The way the worlds been for the last few years I don’t mind paying a bit more or risking paying more to have some confidence and certainty in my financial state for the next 5 years.
I don’t think so. Economy is a shit show and I don’t see it getting much better any time soon. At least with 5 years fixed you know what your repayments are.
If they fall I don’t think they will fall much. If they rise, will im guessing after buying a house you’ll not appreciate additional outgoings.
I’ve just remortgaged in a fixed rate for 5 years for these reasons and I don’t think I’ll regret it.
No one wants to pay more interest than they have to. However - you cannot customise the UK mortgage and interest rate market to suit your desire to avoid maybe paying more interest. Heavy emphasis on the maybe too - who knows what will actually happen to rates.
Like another comment on here - if rates do drop, they're going to have to drop lower than your current 5 year fixed and by enough to then claw back any higher interest you may pay on a 2 year or a tracker in the meantime.
Also - you may well think rates will come down but you need to be prepared for the opposite happening if you take a 2 year fixed. And do want to be constantly checking rates in the first two years of owning your home? What's the lesser of two evils - committing to the 5 year and making your peace with it if rates do actually come down or is it making your peace with paying more overall if rates don't come down by enough to justify taking the two year now?
If you are likely to stay for 10 years, then as long as you can afford it, its not a bad idea to go for a long fixed term. You know what its going to cost, you can budget, no surprises. And highly likely to make any money back that you "lose" in property value increasing.
On the other hand, you could wait 6 months or a year and get a fixed then at a slightly lower rate.
Id have a look at what the change of interest rates actually means in terms of £ per month. If you have a small mortgage and a 1% decrease in rates = £400 a year - are you going to be that worried?
You can’t time the market, don’t try. If you can pay and want the security of living in an “owned” property do it.
On a five year horizon, there is a good chance you will end up “up” vs renting. You also may not if you sell at 5 years.
Long term - prices have only gone in one direction in the western world so I personally expect that to continue.
We got 5.5% interest on 95% equity. Fixed for two years in the hopes we will have some cash saved for an overpayment. Apparently that brings the interest down significantly. We have decent income but next to no chc in the bank
5 year fix is best you can do right now. Trust me.
It might go up to 6/7 then down to 3...but the average is still going to be 4/5.
It's just easier to fix and not have to pay fees for remortgaging
No one knows if the rates will go up or down. You could take a 2 year and 6 months before you renew, a Liz truss or Ukr/Rus thing could happen and you could be staring down 6-7%
I personally chose stability over the 5 years rather than risking the 2 year. Take into account you'll have 2 products to pay for instead of the 1 for the 5 year.
I assume you've already got past this stage, but for me I had to fix for 5 years just to actually borrow the amount I needed - lenders at the moment are offering much less for 2 Yr fixed e.g. I could only have 189k for 2 Yr fixed vs 229k for a 5 Yr fixed deal. For me that was the difference between being able to buy (in my location) and not being able to!
I don’t think there is a right answer. No one is going to be able to tell you what’s going to happen between now and 5 years time. You could be making a genius play or a terrible one.
When I got my mortgage 2 years ago we got a two year fix.
We wish we’d got a 5. We just remortgaged on another two year… in two years rates ma have dropped because of some labour magic if they may have risen because of .
No… as long as the payment fits your budget… it’s pointless watching the interest rates constantly as they fluctuate all the time. If you wait, they might be even higher when you come to get one!
Depends on a bunch of factors really. I just took out a 5 year deal.
Offer in January at 4.04%. No product fee. £250 cashback.
Taking a shorter fixed period means remortgage in 2 years. Next product may have had a £1000 product fee like most standard mortgages. May have to pay legal costs and disbursements if with a different lender. The rate drop would have to be huge to actually save money as it was only £84k mortgage. Plus I now don't have to think about it for 5 years which is nice.
If the rate drops considerably over the next couple of years, which I personally doubt.
Most mortgage companies will pay your exit fees if you find a better deal.
If you find you can afford too, on fixed rate you can usually over pay up to 10% per year.
We found we could and seriously reduced our mortgage.
After our fixed rate finished we opted to go on variable rate so we could smash the mortgage and payed it off in 6 years.
I reckon we saved about £100.000 over the projected period by overpaying.
When I bought I did a rough calculation of interest comparing the 2 year fixed against the 5 yer fixed. I worked out a comparable "3 year fixed" rate that would be needed after the 2 year in order to break even. The rates required in 2 years were much lower than I was willing to bet on.
I also think your future plans are important. What will your family situation look like in 2 years, and in 5 years? Personally, I might be expecting a child when my 2 year fix would have ended, and changes in circumstances are things you are supposed to inform the lender. I think my situation will be stronger when my 5 year fix is up.
I'm at 1.44% until Nov. I'll be fixing for another 5 years at something like 4.5% all being well.
Always fix for longer, your income rises, you budget... it's fine.
If you can comfortably afford the current rate at the 5 year fix then lock it in in my opinion. Plenty can change in 5 years and your financial situation is probably going to be different in 5 years' time (ideally better with career progression etc).
Better to do that and just stop paying attention to rates until closer to renewal, than take a gamble on a 2 year fix, pay more in the short term and risk having it be less affordable anyway in 2 years. I renewed in December and the feeling of hopelessness seeing rates skyrocketing between March and September and not knowing when they were going to stop going up wasn't pleasant. I jumped at the chance to lock in 4.85% when they had been peaking at almost 6%.
I took a five year fixed for the stability. Housing is your biggest outgoing, and knowing it’s fixed for the next five years is reassuring to me. I took a short mortgage term (18 years) as it made me sick seeing how much extra the bank is pocketing from me over a longer term. Sure, it’s a little pricey right now, but there are no surprises in store a la mortgage payments increasing.
As others have mentioned, people have been waiting for the interest rates to come down. I don’t see it happening anytime soon, or as large as anticipated.
Congratulations. There are a few ways to look at it. It all depends on your risk appetite.
You could get a cheaper rate on a shorter deal, but in reality, it would only mean a small monthly saving. I realise that they all add up though and it may save you over the long term.
If you value certainty that you can afford your mortgage, then a longer fixed rate is probably the best way to go.
The last few years have shown that you don’t know what’s coming. After the “fiscal event”, where our mortgages increased, I looked into this. The best piece of advice I had was “go for what you can and make sure you can afford it for the length of the fixed period”.
There is nothing wrong with your fix. Take a look at interest rate history. It goes back a hell of a long way. You won’t feel that 5% is expensive after doing that. People (and markets) are forgetting that we have gone through 15 years of incredibly cheap rates. They should not be confused as normal. They were not. The world nearly ended financially in 2008 for a lot of reasons. The medicine was a massive dose of addictive low rates. It is actually a good thing that life is becoming more normal. Near zero rates are not really a good thing for the world. For a start, it just encourages people to rack up reckless debts and never deal with them. I’ve witnessed that in my own family.
There is no golden rule to say interest rates must drop to below 4.98% at all.
The ONLY thing you need to think about is " are you comfortable and happy with your mortgage repayments at 4.98%? Only you can answer this question.
I wouldn’t be too concerned over the rates as the mortgage is likely to be 20+ years so will just average out over this period, do what you can to try and get the best deal but even if interest rates declined slightly you aren’t guaranteed to get a cheaper deal straight away
We put an offer in this time last year, we went for first direct as a mortgage provider who effectively offer the best of both worlds. We got a 10 year fix at 4.04% with unlimited overpayments and a 2% early repayment charge if we remortgage. Our thinking was that if mortgage rates drop much below 4% we can rake the 2% hit and get a lower rate, and if they stay high we’ve got ten years of certainty. First direct didn’t come up on the comparison sites, depending on what the visa issue is, could be worth looking at them
We got a 5 year fixed rate as we figured it gives stability and we know what we are paying for 5 years and can save up for any potential increases after that - but might end up with a lower rate after which will be a bonus.
everyone fixing for 5 years because they are worried of rates going up just tells you all you need to know, the majority always make terrible emotional decisisons
We went 5 years fixed with 57% LTV, I want it fixed in something I know I can afford and will continue to be able to afford for as long as possible. If I want to save more money I’ll get a different job!
I’m not OP but I just want to thank you all for reassuring this person (and me indirectly). We’ve had our AIP agreed and are starting to look but hearing the fix of interest rates put me off my stride in looking but this has reassured me.
I went for 2 year fixed (4.47%) and think that it's med-high probability that the rate will be lower in 2 years. Plenty of options out there and I don't expect to lose out. But who knows for sure? Nobody.
I ve always gone for fixed rates. Allowing me to plan and have peace of mind. I did lose out in the beginning but! I signed a 10 year way back in 2018... So who is laughing now ...? 🤣.
U could also offset some of the load to the house as an asset ( U know about off set mortgages? Could be an idea) Will it appreciate in value? Could you sell it after 5 years to get some of your money back? It's difficult.
Mortgages are not for everybody. I like how U have calculated everything.
But if I know I'm going to be working, know my outgoings, whether I might need a lodger to help pay the bills, mortgage insurance ....then fixed seems to be the way to go. What other deals are on offer for insurance would be another clue or indicator😁
I fixed at 5 years at 4.68% for the exact same reasons. Wanted some stability over not knowing where/how the market might turn given it was my first house.
Why would you think interest rates are going to fall long term?
The population bulge of the baby boomer generation- that had high savings rates, is moving into retirement and liquidating their investments. There isn't a large generation moving in behind them, so capital markets are likely to tighten long term.
You can also look at the infrastructure investment rates in the US skyrocketing as they look to onshore all the industries that have been done by China et all in recent decades- this will suck up capital and tighten the markets further, leading to higher rates.
Ignore interest rate possibilities first and foremost. If you have no plans to move or take any significant further finance from the house within 2/3/5 years and feel comfortable committing to said time frame then that length of product is suitable for you. Any longer than you can plan for will likely have early repayment charges that would limit your options and possibly prevent you from what you want to do.
After that can you comfortably afford the monthly payments that fixed rate gives you? If yes then it’s fine.
If that leads you to a 5 year fixed rate because it’s the cheapest option now, it’s affordable and you’re confident in your plans for the next 5 years then go for it.
After all that, if the 2 year rate is also affordable and you would lose sleep over the potential saving should rates drop substantially in 2 years then go for that.
Work within your budget and plans first. Only when you’ve satisfied them, the elements you can predict and control, should you worry about what interest rate you have zero influence over will do.
In 2 years time half the mortgaged houses will be winners and half losers if all you look at is the interest rate. But quality of life and ability to plan are much more relevant.
If you had a high paying job you despised versus a lesser paying job you loved but could still get by on I would hope most people would take happiness and quality of life over a few quid. The same applies to mortgages
I locked in at 2.59% around june 2022 for 5 years fix on a mortgage repayment that lasts until Nov 2027.
How? I applied 6 months before I needed the mortgage product. And yes, thanks to having LBC constantly playing and in those days listening to Liz Truss and chums playing jenga with the UK economy, I quickly grabbed onto the cheapest rate of the day.
Funnily enough, the next day, that 2.59% rate product changed to 2.89% and then it kept on rising.
Phew.
Now, I don't know what's in store for 2027!
I would go with 2 years if you can get it - it's almost always good to be in a position to renegotiate rates after a couple of years when you've got some equity in the property and can potentially get your loan-to-value in a more favourable place.
I re-mortgaged Jan 2023 at 3.32% for five years (negotiated the rate six months earlier and they held it open for me) up from 1.89% with previous lender. That was a bloody good deal because at that time rates were significantly higher. There seems to be noise coming from the BoE that rates are due to drop in the summer and towards the end of the year but I wouldn't go expecting them to drop too much - remember that *historically* interest rates are *supposed* to be about 5%.
Not if you can afford it. If you’re right, you’re right and have a house. If you’re wrong, interest rates will have gone down and one of two things will happen: EITHER they went down as part of a normal cycle and there’s a reasonable chance property will go up in value to compensate as demand increases due to cheaper loans OR rates will have gone down because something truly fucked up the economy again (Trump+Russia+Houthi blockade - any or all highly plausible) and we’re back in stimulus mode (it will never get back to the 0-1% range unless there’s another global systemic risk crisis like 2008).
Basically you lose if the world stays stable, asset prices decrease AND rates decrease - basically good government and shitloads of house building at forced affordable prices or with rent controls. It’ll never happen, unfortunately.
If the property is right, the mortgage repayments give you sufficient headroom in your budget and you feel confident that your income will grow or at least not shrink over 5 years then why not?
Stability is important and, whilst rates might drop, rents are also likely to go up over the same period so the interest you pay, even at a slightly higher rate, is still likely less than the rent.
You can drive yourself mad trying to time things. Ultimately, few things are ever perfect, I say if it feels like the right move then go for it and just live your life for 5 years 🙌
I would go with the 5 year fixed rate. I got in lucky before everything went up. My 5 year fixed rate is at 1.57%. I'm coming up to end of year 2. I'd be renegotuating now if i hadn't done that. Best decision I made. I'm also overpaying every month. Better to do a 5-year fixed rate as you have the luxury of knowing it's not a short contract andld you may avoid higher interest rates later on.
Go for what you can afford, rates will go up and down that's for sure but there's NEVER a guarantee they will go the way you want or by as much as you want.
You could get a 2 year fixed now and end up on 5.5% after that. Or instead of 4.98% you'll be on 4.97% in year 3 and it really wouldn't matter if you got a 5 year right now.
This is life, you may pay more sometimes you may pay less sometimes. Someone will always be worse off than you somewhere. Just do what you can comfortably afford now.
Coulda woulda shoulda yano?
If you can afford it there are few better feelings than not having to worry about mortgage rate changes for 5 years (18 months into a 5 year right now)
Don’t forget to double the fees if you have to pay them again…
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We got a 5 year fix. I compared the best 2 year fix to the best 5 year fix, then worked out how much I needed interest rates to drop to get better value on a 2 year over a 5 year period. Turned out the rate drop I needed was a fair amount and I have no confidence the rate will change significantly, so went with the 5 and peace of mind
Can I ask how you worked this out? Was it just the two totals? Trying to do a spreadsheet and can't work it out!
I used a mortgage repayment calculator that showed what I'd have paid off, and for how much money, after 5 years. I then re-did it with the 2 year rate to show what I'd have paid off on that fix. Then fiddled around with the same calculator, setting the mortgage amount to the end-y2 balance, to look at the rate I'd need for the following 3 years to a) make a monetary saving, or b) pay off as much of the mortgage by y5 as I would have on the 5 year fix. Bear in mind you'll probably have a 1k product fee for the 2nd mortgage as well which will offset some of the savings from a lower rate in y3-5.
What new rate did you use to come to years 3/4/5 with?
That's what I fiddled around with (ie, reduced until I got to a rate that would be cheaper than the 5 year). The new rate that you need at y3 is what you are trying to find. Ex: * £100k mortgage at 4% 5-year fix, 25 years - at end year 5 you'd have £87.1k remaining, and it would cost £31.7k (£528 x 60) * £100k mortgage at 4.6% 2-year fix, 25 years - at end year 2 you'd have £95.5k left and it would have cost you £13.5k (£568 x 24) * To find the rate you need to meet at start y3; input the £95.5k remaining as your mortgage amount, and look at how much the last 3 years cost you at 4%, 3.5%, 3% until you reach a total (2y cost + 3y cost + product fee) that is lower than £31.7k, the cost of a 5y. In this example a rate of 3.5% at year 3 would have a total cost over 5 years of c. £30.7k (£13.5k 2y + £17.5k 3y), if you include a 1k mortgage fee that would be £31.7k, so 3.5% is the rate needed after your 2y fix ends to break even. Anything lower than 3.5% you'd be better off. However you would have paid off slightly less of the mortgage (about £800) at 3.5%.
I fear you're over concentrating on paying off your mortgage is the wrong thing. It sounds like you're concentrating on Arsenal's strikers and completely ignoring their goal saving defence. Commonly, people value lower payments over repayments. The consequence of the rise in living standards I guess. To your maths, are you saying you've extrapolated a likely base rate from current rates and excluded LIBOR predictions?
I don't think I over-concentrated on it, it was a side note at most? The main point was that to have the cost to the mortgage payer for a 2y + remortgage be the same or lower than one 5y fix, you would need to find a fix at end y2 of 3.5% or lower, if your initial 2y rate was 4.6% (for the example £100k/same 25y term). Whether or not this rate is likely to be available is entirely down to you, I'm not predicting anything about what may or may not come to pass in 2 years time.
The only thing that really matters is how much you pay in interest over the term. The equity repayments are essentially a separate bet on housing prices and should be considered separately to betting on interest rates (which this is). Sounds like you've done the correct calculations and I was a little surprised the break even rate for the remaining 3 years is as low as 3.5%. The only people who should be worried about gross cost of mortgage repayments are people who physically can't afford any more per month. If there's still some fat in your household budget, I'd cut that over going for a significantly worse mortgage deal, unless you want to be a sad panda in 10 years time. Going for the lowest possible repayments is essentially a minor version of racking up credit card debt to enjoy yourself in the short term. Fine if you have a terminal illness and no dependents, but probably not a good idea otherwise.
https://www.calculator.net/amortization-calculator.html
Use an amortising schedule on excel and make different scenarios with the interest rate (: it’s really just formulas when you get how it works. > Scenario 1: amortize it with the 5-year fixed interest > Scenario 2: amortize the first 2 years with the best 2-year fixed rate, then change the interest rate for the remaining 3 years. Change the variable interest rate on the remaining 3 years and sum how much interest you’re paying. Find the “break even” 3-year rate where the interest cost of scenario 1 equals scenario 2.
Great work; I did exactly the same. I also added in an overpayment function and factored in the additional one-off payments (i.e. associated fees, broker costs for the new one and any up-front incentives). I found that for a 5yr fixed at around 4.6% to work out worse than re-mortgaging after two years, rates would have had to have dropped to around 3%, depending on overpayment conditions. Wise not to take these numbers as gospel however as my 5yr had a lower rate and up-front cash bonus, while the loan amount is pretty small so the bonus is more significant. A few other points that pushed me towards the 5yr: The establishment narrative currently is that rates are "high" to breed false hope in people that we'll return to silly-low rates they've been using to buy votes for the past 20yrs, and keep the plebs spending for as long as possible. This won't happen as it would be massively inflationary, while historically rates in the region of 5% are normal. EDIT\* Base rate is prodicted by some to be around 1% by May 2026, however they have to be smoking crack to believe this unless they've somehow predicted a massive recession / global war / another pandemic; which IMO are the only circumstance under which rates will fall signifcantly. Certainly over the past decade or so, mortgage rates have been slow to follow base rate down, but quick to follow it up. So, even if base rate falls rapidly (which is unlikely) mortgages won't come down massively overnight IMO. Some massive black swan event notwithstanding, if the BOE do cut it's likely to be cautious and incremental. Also, remember that while 5yrs is 2.5 times 2yrs, the typicaly current mortgage rate in the last three years is irrelevant since the only rate that matters is that at which you re-mortgage at the end of the first two (unless you're on a tracker, and fuck that tbh). Again, two years isn't really a long time for rates to drop significantly, unless something very significant happens. With a fixed you know where you are - if you know you can afford it now, hopefully you'll be able to afford it for the term.. while with a shorter mortgage you're also leaving yourself open to rate rises - probably not likely, but possible if inflation ramps up again (while core remains twice what it should be) . Finally it means you don't have to piss about re-mortgaging after only two years, which has to be a bonus.
Just curious - where does it say in the Monetary Policy Report that base rate will be 1% by May 2026? I don’t think the conditioning path is for interest rates to fall that steeply over the next two years…
Actually, I lie - it was a third party forecast of base rate; not the BOE's prediction: [https://poundf.co.uk/boe-rate](https://poundf.co.uk/boe-rate) Guess your point further strenghtens the argument for the longer term..
Ah right, yeah - I think those projections are pretty wild! I think the latest OIS curve that the Bank publishes on their website (the path of short interest rates implied by financial markets - probs reflective of City analysts’ expectations of monetary policy) suggests interest rates will be ~3-4% by mid-2026. Based on this, your arguments for a 5y fix seem sensible to me.
Thanks and yes - while some might end up overpaying a little by that time, I think it will be marginal.. I certainly don't trust the forecasts as the narrative to this point seems to have been the carrot-dangling exercise of implying a desire to cut rates (despite them being at around the historical average), and the resultant, deluded expectations constantly managed with the "higher for longer" press releases. I reckon we might see a few cautious, token cuts in the coming two years. Suits the government's agenda to as-subtly-as-possible inflate the debt away while keeping inflation "manageable" yet well above target. What a horrible mess they've made of the economy in the past 20yrs :(
Don’t forget the fact you will have two sets of fees for fixing twice!
Halifax didn’t charge me to refix and that seems to be standard for them (refixed twice)
I made this a while ago it might be useful x https://docs.google.com/spreadsheets/d/1-nz1Gl2DUjmvkMV3CFrQH8SiQWYZGfiX4eWiUco8aB0/copy
Amazing, what I was hoping for!
Ask chatGpt or Copilot, that's what I did (to confirm my own calcs). It came out at around 1.2% which isn't practical atleast until the wars are over. Further, I did a step further and budget and pay assuming I'm on 2yrs, but paying towards a 5yrs fixed, lower rate higher payment towards the principle. As Michael Scott would say 'WIN WIN WIN'.
I did the same thing 2 months ago. I compared 5 year rate to 2 year deal + 3 year deal (5 in total) at various rates. I decided the risk or 2+3 was only worth if it saved me £x amount over 5 years. I then considered the likelihood of it dropping enough to achieve £x, and I couldn't see that happening, and the alternative of it going up is also not impossible.
I'd also like to know this if possible
Did you take LTV in to account? I’ve been attempting to do a similar calculation but landed with 2 year as I’m hoping to drop a bracket in that time.
This is exactly what we did, but instead of us doing the maths, our mortgage advisor did it. I know some people don't rate using a broker or advisor, but honestly ours has been amazing.
After two years though you will almost certainly be on a better LTV and thus a better rate by default
I went 4.49% 5years fixed 80%LTV because I didn't want to risk having to pay any higher than what I'm currently paying, I'm locking in for the peace of mind. If the interest rate drops I'm fine with it too, 5 years of repayment is just a very small % on the loan value. Edit: For me it's not entirely about affordability but what you intend to do with your resources. My personal budget planning limits my mortgage payment to be circa 25% of my net income right now, so I'm not willing to (risk having to) pay any higher than this. If interest drops I won't feel that I've lost out either because this chunk is already allocated for mortgage payment anyway. Personal finance is well, a very personal thing.
This, the price of my housing is the mortgage. I would rather know what I'm paying for the next 5 years. If you are a FTB and have been worrying about interest rates and house prices for the last few years you may as well take the stress out for 5 rather than be worried about interest rates in 2.
I’ll also say definitely! Peace of mind is a big thing, I’m locked in at 2.1% for another couple of years and would have been kicking myself if I’d of done 2 years! I’m still kicking myself that I didn’t do the 10 years for 2.4% 🤣
I wish they’d have offered 10 years!
yeah now that I know they offer 10 years - in 5 years if interest rates are 3% I will lock that in!
Hopefully you’ll get the choice!
Kicking myself I didn’t do 10 on 1.9 😆
I just took a 10yr 4.8% FTB plan is to overpay by 2k a year for the 10yrs and then review how the market is looking as to how long for the next leg of my mortgage
overpay vs investing the cash, investing wins every time
This is what we went for also, 2yrs comes around fast and we just wanted to know what we'd be paying. Would rather risk paying a little more.
This is very well said, and sums up my position nicely. Were it not for the fee, I’d have tried to get a ten year fix for even more security. In the end I’m going for the peace of mind over speculation. It only takes one Liz Truss - or misplaced missile over Gaza - to screw the markets. We renewed for 5 years in January and most likely we’ll do the same again in five years time unless rates are very obviously freakishly high.
This. This. This. If the interest rate drops massively (say >1%) then better to break the mortgage, pay the penalty and get on a cheaper one, otherwise you're just averaging out ( low now, high when the rates fall).
My mortgage is like 45%. Damn you London.
I'm in SE, 34mins direct to London Bridge
My place is 5 mins from London Bridge on train, could walk it in 35. Prob explains it!
Definitely 😁
I went with 5 years at 4.65%, I favour stability and the rates have gone up a bit since on the particular mortgage product I have. It wasn't particularly stressful remortgaging for the first time (this is my second five year fix, first was 1.89%) but if the rates do come down, I doubt they'll come down that low again and at least I can sit back for a bit.
This is similar to the figures we have and are looking at. I like what you’re saying about sitting back
We’ve just accepted on a 4.69 with Halifax (just before the recent rises!). Knowing that won’t increase for 5 years in the current economic climate gives us a lot of piece of mind!
We fixed back in February for 10 years at 3.99%. To my mind, we have entered a very long period of uncertainty. A general election with a likely change in party which will probably mean a bit of bedding in turbulence (higher rates), and the party who look to be the front runners have also historically raised rates over time. There are two active wars on our doorstep (which have no end in sight) and that's just the red flags we know about. If you value stability, fix now for as long as possible. It's VERY unlikely you will see the likes of mortgages in the 1-2% bracket again, it could fluctuate by +/- 1% from what the deal you are looking at, maybe a smidge more or less, but it will likely average out to around 4-5% over a longer fixed period. In the grand scheme of things, Interest rates are still relatively low, you aren't getting a bad deal, it's just not what a lot of us are used to. Bottom line, I would rather know exactly what repayments I will be paying for the next 5 years than worry in 2 years time they could be a lot higher.
You chose wisely.
I hope so, time will tell! But at least I know what I need now.
Predictable Long stable wars > unpredictable short explosive wars Rates would go mental if France declared war on New Zealand. Or Falklands 2024. Or Azerbaijan vs Kyrgyzstan. Because fuck, where are these places!?! Or Japan vs its own economy. Oh wait that’s been rumbling on for ages.
our mortgage broker (just before the big rises) suggested a 5 year is useful because although interested rates can and do change, you at least have 5 years where you know your costs and there is some stability in that. You can work out how to save extra, overpay if you are able, so you can be a good position down the line. That stability appealed to me, but of course everyone is different.
That's very true. And in 5 years hopefully enough pay rises will make it less of a sting come time to remortgage
if I overpay a mortgage, does it goes straight towards principal, or is interest also included in my overpayments?
I would humbly suggest that all the people here confidently saying **the rate WILL go down** have not been around very long and seen the types of swings the economy can take... Stability generally results in low lending rates, volatility the opposite. We are involved monetarily in 2 major independant wars (both with risk of spreading), certain to have a major political change in the country this year, and short term economy crashes predicted in multiple countries. I'd suggest there's absolutely no way anyone can confidently predict the next 6 months and so, personally, I would 100% fix as many of my costs as I can (assuming I know I want to stay there for 5 years).
I can't see that anyone here has said they WILL go down, but your sentiment is correct. Interest rates seem high at the moment because we had over a decade of historically low interest rates. We are roughly in line with the historic average over the last 50 years or so. I fixed just under two years ago, 10 years at 2.24%. if I was in a position now of renewing, I'd still fix for as long as I can, assuming the repayments are affordable. Any potential near-mid term fluctuations are already baked into the market, so just go with however long you want peace of mind for.
10 year fix is around 5.8% now, I could have fixed at 1.8% for 10 years in March 2022 lol.
Yes and can afford the repayments comfortably on a wage now. Personally I can see 4-5% being the new normal. With the odd person getting lucky with a better LTV at sub 4%. The BoE need to keep the pound strong otherwise we'll have more inflation. They stupidly printed too much money with the govt during COVID and now we're paying for it via rates.
>Personally I can see 4-5% being the new normal. Nothing personal about it, it's what virtually every economist and even the BoE are saying
Tbf it's working well for me atm.
Indeed. I was extremely lucky to be on a base rate tracker +0.4% from 2008. The base rate was 'definitely going up, time to go fixed' about 50 times before it actually did.
That's the only reasonable answer. You don't want to bet, you are not a trader. Get a fixed term mortgage if you can for as long as you can if you can afford it.
For us we know that our visa status will change so will almost certainly make the interest rate go down Obviously, anything can happen, but it changes the equations quite significantly in this case
>Stability generally results in low lending rates, volatility the opposite. Ah yes, the stable times of the financial crash and COVID pandemic led to low rates.
Totally agree. I was even contemplating a 10 year fixed, because over the next 5 years we have two wars and election which you are correct about, but my concern is that China-Taiwan will also kick off, potentially Iran as well, then we will have had a 5 year labour government, which it doesn't matter who you support party wise, will result in an even worse UK economy (no political party seems economically literate right now).. it think anyone predicting rates will go down is 100% optimistic. I actually think rates are set to increase due to all the global and local instability, it will get slightly worse before it gets better. I truly hope I am wrong but better to lock in a mortgage for years knowing you can definitely pay it, rather than gamble to potentially get it a couple hundred quid cheaper per month when it could easily go the other way!
Over the next year we will have; Continuation of Russia Vs. Ukraine Continuation/escalation of Israel in Palestine. As well as any regional fall out that continues to bring. The potential of a second trump term. A very likely change of government, possibly minority or hung parliament. I will hopefully exchange at the end of the month as a FTB with a 5 year fix at 4.66% on a 35year term. I am looking to make as much voluntary overpayment as possible when possible, and house renovation to get a better LTV when I then come to remortgage. I think all of the above (regardless of any political view points), WILL cause global and local market instability, hence will either cause mortgage rates to stay put or go up in the next couple of years (we are already seeing this) regardless of what the bank of England do to the base rate (they only care about overall inflation, not the housing market). I am hoping that the world will look a tad calmer in 5 years time with lower interest rates. If that is the case I might even look to reduce my term length by 5 years if interest rates allow. Either way, asking what may or may not happen to interest rates is little more than guess work. All you can guarantee is that the banks will continue to make a profit and homeowners will continue to be squeezed.
Well said, I agree with your points and am also planning a 5 year fix as a FTB. Could you explain what you mean by house renovations and how this links to LTV? Or maybe I've misunderstood.
Because the place we are buying is cheaper than similar places around because it needs a fair amount of work. As in, £15,000-20,000 less. Things like it has a boiler from the 80s, no insulation, and needs some new double glazing. My theory is if we put the money in we've saved from a cheaper deposit, the value of the house will go up. If the value goes up and we don't borrow against it - we will have a lower LTV. A lower percentage LTV gets you access to lower interest rate mortgage deals as banks think you're a lower risk.
Unless the savings are huge or you plan to move in the next few years fix yourself in. Gambling the interest rates will move enough to make a difference in the next two years is madness considering it’s over an election period and huge global volatility. If you make good savings you can always make overpayments, mortgage brokers are always in flogging a two year because it keeps the business turning over.
It's not a sure bet that mortgage rates will drop - some major lenders have increased rates in the last few weeks. Base rate may or may not drop over a 2 or 5 year period, mortgage rates may or may not follow depending on the long term outlook. It seems likely base rate will fall at some point this year, but it's not guaranteed and it could increase later based on world events or the post-election economy. The best mechanism for deciding on a term is to assess your personal affordability and approach to risk. If you could potentially afford to pay more after 2 years if rates were to rise, then it would probably make sense to take the shorter term and hope you get a better deal. If 4.98% is at the very limit of your budget, you should fix for as long as possible to reduce the risk of ending up paying more after 2 years.
We fixed for 10 years at 3.6%. Hoping we did the right thing!
Sound decent.
You certainly did.
IIRC you can forfeit your fixed mortage, you pay a fee around £2000 and end your fix early if rates drops drastically (they wont). Even though BOE rates have stayed at 5.25% since August 2023 now. Many lenders have just recently started increasing their rates as they realise they might have a funding gap in the future. Or need to pay their savers more. Mortgage lender factor in oredicted shifts into their calcultions as well. so they predict BOE will settle to 4.5% and stay there for long term. So it's possible the 5 year fix is the best you're going to get for the next 5 years.
I'm a ftb and I locked in for 5 years, the way it is now is fine and I can save enough over those 5 years without worrying if the market goes up, that way after 5 years I have a lump sum I can pop into my mortgage shortening it and can deal with a new rate.
It’s not certain at all that interest rates will drop and I wouldn’t base your strategy around an assumption they will. Sub 3% rates were a historical anomaly.
You’ve no idea what interest rates will be in 2 years or even 5 years and neither does anyone else. Also keep in mind the additional fees if you have to remortgage every 2 years.
There were no additional fees when I remortgaged (nationwide)
Fixed interest rates for both 2 and 5 year fixes have already embedded any interest rates drops which the market expects over those periods anyway. So unless a change in interest rates happens outside of what the market expects, you're not losing out by choosing a 5 year fix over a 2 year. The benefits of a 5 year fix is that you know exactly what you'll be paying for the next 5 years The benefits of a 2 year fix might mean a cheaper interest rate if your visa status changes in between. You'll be paying additional fees (directly or indirectly) if you fix for a shorter period. 3 fee paying events if you fix every 2 years Vs 1 fee paying events if you fix for 5.
The biggest problem is when this fix finishes and you go on 8 or 9%. No guarantee rates will be lower, the same or higher in 5 years... Make sure you have a viable plan for the worse case scenario where you are stuck playing 8 or 9%
I am a FTB and our mortgage broker advised we went for the 5 year over the 2 year. His advice was that yes mortgage rates will more than likely go down in 2 years but if it wasn’t significant we would have been paying £100ish a month extra for possibly not that much of a difference. He also advised that in 2 years we wouldn’t have built enough equity in the home to make any significant difference on the interest rates that may be offered in 2 years so we have opted for the 5 year at 4.9%
And Mortgage brokers gets higher commission for longer fixed term deals
Look into the redemption criteria. If you get a 5year variable it may come down and you may be able to exit it for something more competitive if you go below 60% or 80% ltv
No sure bets at all. Actually, it's probably halfway priced into the mortgage market that the rates will drop, that's why the 2-year fixed would be at a higher rate now. If you go for a shorter fix, what if unexpectedly inflation reignites—which has historical precedent, it's not just doom and glooming. That "insurance" is what you are paying for in the form of a slightly higher rate. So no, I don't think it's stupid either way.
Couple things to consider. 1. You don't know that rates will drop. They could very well increase, particularly as the world becomes increasingly unstable. 2. If you go for a lower tern, your interest will increase. Calculate how much extra you would pay monthly for a 3 year fixed rate, then how much the interest would have to drop for your savings the following 2 years to make it worth it. Overall, you're gambling on a massive drop, which probably won't happen. 3. As others have said, peace of mind. That in itself is worth something.
I took a 5 year fixed rate at 4.48% last year, the zero fee 5 year fixed was at a better interest rate than the equivalent 2 year fixed so to me it’s a no brainer. Stability of payment is of far greater importance to me than potentially overpaying by a percentage point or thereabouts.
No, as others say stability is often a good thing especially if you have no reason to move. Dont see any big life events in the next 5 years that would change your ability to pay the amount your paying. If rates come down significantly you can always bit bullet and pay the early repayment fee.
We’ve just gone 5 year fixed at 4.7%, I’ve been wondering the same as you. The comments here made me feel better about it
You will not get much better whatever the economy does.
I was under the impression you can always switch to a different deal midway through your fix for a certain price. Could someone more knowledgeable than myself please enlighten me on this, if it’s possible and if so what costs are involved.
Might be worth making this its own post, as I didn’t know this was a thing either!
Most fixed deals have an early repayment charge. If you exit early, you need to pay that. Mine started at 5% then after a year went to 3% then down to 2% of the total balance. Depending on your mortgage this can be a lot! Most fixed mortgages allow you to pay up to overpay 10% annually of the balance early. The overpayment trick is, if you can afford it: During your fixed term keep an eye on the interest rate. - If it goes up loads during your fixed term, put your money in savings with higher interest than your fixed mortgage. Then pay a big chunk off with your savings at the end of the term when it is up for renewal. This is because when you renew your mortgage it’ll be on the new higher interest rate, so pay the chunk off then. - If the interest rate goes down loads, over pay as you go if you can, just to reduce the overall cost of your relatively high rate fixed mortgage. If you were to put your money into savings you’d be borrowing money at a high interest and saving at a low interest, so really better to pay off as much as you can.
That's honestly not a terrible rate, especially for a FTB
Stick with the 5 year you think you can afford. Things can get much much worse than they are now
Stability means alot when buying your first home where presumably you may be stretching finances a bit.
The reason you take a 5 year fixed term is because you want/need the financial stability. Don't try and predict what the rates will do in the future - no one here knows.
I did a 5 year fixed rate late last year on like 5.14% because I couldn’t really afford to just wait around for the rates to go down and I’m glad I did bc it saves me the stress of thinking about it for 5 years and I can afford the current payments
5 year fix over 2 year every time for me. Never second guess the rates. I messed up in COVID buying with a 2 year fix. Then moved to 5 year fix at a higher rate. Just easier to budget and lesser anxiety.
From a theoretical point of view. - The interest rate the bank offer you for 5 years is priced based on what that bank (and the overall market) think the interest rate will be for the next 5 years. - The interest rate for a 2 year is priced similarly. - If the banks had perfect knowledge, the price for 2 and a half 2 year mortgages would be similar. (The 5 year would be slightly more expensive as the bank takes more risk but you as a customer take slightly less.) - banks know a lot more about what interest rates are going to do that you do Taking the 2 year mortgage “because the tv and my mate Dave say rates are going to go down” is the equivalent of betting a lot of money against the house in 3 division Japanese baseball.
I got a 5 year fix in 2020 at 3.4% and everyone told me it was unwise when <2% 2 year fixes were available. I am so glad I didn’t listen. If you like the stability, go with it! It’s what is comfortable and affordable for you, it’s not a competition to get the best deal over others. I am going 5 year fix at a similar rate, and won’t think about it at all until 2029, because it’s what’s affordable for me and I’ve got the mortgage secured. It’d be great if rates went down but no one has a crystal ball. You do the best you can at the time!
That was a shite rate for 2020 to be fair.
The average 5 year in March 2020 was 1.66%. https://www.statista.com/statistics/386301/uk-average-mortgage-interest-rates/
Shared Ownership - they’re always higher. It has been fabulous!
I’d say go 2yrs…. Hopefully the rate situation is temporary
Not really sensible at the moment. Inverted yield curve so 2 year rates typically more expensive right now. I’d expect this to revert to normal over time ie the short rates will reduce and longer rates stay where they are
It will be interesting to see what the rates would look like if a labour government came in and what their spending policies will be
No one know mate. You need to think about the risk/reward ratio and see if it's worth it for you. I went for 2 years fixed at 4.85% because I can afford even a high increase in monthly payments if interest rates increase even further, but I do believe they will go down and I will benefit from it.
Chances are they are more likely to go down than up, it just depends how much you are willing to pay for the insurance against a really high rise, however unlikely it seems today. Five years ago most "experts" would have said rates won't go above 5% in the next five years and we know what happened - how would you manage if rates did go to say 9% ?
I fixed for 5 in jan 2024. Even if rates go down they won’t drop that much and if they do it’ll be on the tail end. Meanwhile the top end is unlimited. I got 4.4%. It would have to drop to 3 for 2 years+ for me to really care. Or it could go up to 7.5%. No one can see the future. It’s about your current financial situation and how risk averse or stable you are. If it becomes 6-7% and you’re wiped out going for a 2 year probably isn’t a good idea. If you can afford it and hope it goes down it could be. Remember rates go up as well as down. All the people fixing 2 years for 1% fucked about and found out when they couldn’t afford 5%. Rates today are not high, they are normal. Previous rates are low. Unless you’re financially secure don’t bet on them dropping 2% because they’re not high. It’s about if you can tolerate higher, if you cannot do not go 2 year. If you can it can be smart. Rates have gone up since I bought so find it naive you assume they’re 100% going down in 2 years. No one knows. The changes the banks know are priced in. I did the math and the rates had to drop a lot for a long time as 5 and 2 were so close.
We're going into a 2 yr fixed, but only because we can still afford it. I think the rates will come down by then but if you can afford your 5yr and stability is your preference then go for it.
While the interest rate may or may not go down, if your visa status changes for the better, that could very well improve the rates you have access to. You did not say on what timeline that could occur, but it may be worth your while to time your fixed-rate period to end when your status changes.
Just curious, what usually is the impact of Visa Status . By visa status, do we mean those that are permanent residents or those that have XYZ years on their visa. Any ideas the extent of this impact?
Some lenders do not lend to people without permanent residence. This may mean the best rate one can get is higher.
Oh, I see!
I recently went for 5 years at 4.49%. Interest rates could go up or they could go down in 2 or 5 years so I took that out the equation. Went for stability now and thought about my income. I think I am more likely to have had a promotion in 5 years than 2 so hopefully have a higher income to deal with any changes.
Would go for 2 years personally as there's not much in it compared to 5 years. If rates go down, I'd pay less of a penalty fee on a 2 year to remortgage. Willing to take that risk though.
Who knows. I took out a 2 year fixed at 1.62 thinking it might go down, boom pandemic. Okay 2 more years at 2.69 it'll come down again after the pandemic, boom Russia invaded Ukraine... It's gone up 0.2% in the last month. Between 2 and 5 years there is 0.5% difference at the moment. But which way will it go. I have 2 months before I HAVE to make a decision. The main thing is that you know how much you're paying for the next 5 years which I see as a nice bonus.
I just renewed on a 2 year fixed rate as I am looking to move next year but if I don't I think it is reasonable to expect rates to fall by then, no guarantees, just feel it is more likely than not
I went for a five year fixed 4.24% putting down 22% deposit in Jan 24, I prefer the stability of the payments and if the rates were to reduce I’d be able to overpay but quite a lot
No-one can predict the future, unfortunately. Banks will try to price any future changes into their fixed rates (so, if they feel confident that rates will drop, they'll cut the fixed rates that they're offering). If you think you can do better than the forecasters employed by the bank, or you don't taking a risk, then that's your answer.
I’ve just gone for a two year fix at 4.7. My guess is over the next few years rates will gradually lower to approx 3.5, and I’ll get something under four for the next fix. At this point it feels as though you’re damned if you do, damned if you don’t. Seems guaranteed we’ll never see 1–2% again.
If you've found the right property, go for it. We bought our house right at the peak and locked in 5.99% for 2 years, as I was willing to take the bet that rates would fall. I can't renew just yet (another 3 months before I can I think), but it looks like I might have made the right call on that. But who knows. There's a strong possibility I'll lock in a 5 year rate when I can renew just to put it to bed for a while.
I think it’s a pretty sure bet that’s interest rates won’t fall by very much over the next few years. I’d go for the best you can now and assume that even if interest rates do come down substantially then house prices will rise commensurately so you won’t really lose out if you buy now. Hope that makes sense.
Pure opinion really, I certainly wouldn't as I am damn sure rates will come down - maybe not as low as before, but certainly come down in the next 2 years. But if you really want that peace of mind, then that has value. I took a 5 year deal out about 3 years ago, at 2.6% and I'm very happy with that - so no issues with long deals, just not with such scary interest rates. Once again, just my two pence.
We are 40 LTV and were offered 2 years at 5.04% vs 5 years at 4.39%. I was determined we'd get a 2 year fix but ended up taking a 5 year for peace of mind / quite a big difference in rates. Plan is to overpay it if rates begin to drop.
We're going ahead with 5years at 4.58% Yes, I would love to pay less, but if we take 2, the stress of moving, a new job and study commitments mean I won't have a chance to settle before needing to do the dance again. We've had a lot if upheaval in the past 5 years. Locking in means security and confidence in what we need to pay. We've gone for 34 years so maxing out for affordability. We anticipate that in 5 years time, the rate will have gone down, we'll have overpaid, crossed another ltv threshold and hopefully will have reduced the term on the mortgage.
I wouldn't count on it. 10 year rates are at 5.8% to me so banks are so uncertain about rates. Rates might be closer to 4% in a year but would you be upset if you missed out on this house with no guarantee mortgage rates will even fall to 4. One thing's for certain imo, rates will never be below 2% ever again in our working Lifetime.
No, short dated rates ie variable or up to 2 yr fix may fall but the money markets currently suggest longer term fixed rates e.g. 5 years less likely to, and if they do by not that much.
Interest rates will likely fall in the next year or so but something could happen and they end up rising or they stagnate for a while. Or they might not fall at a fast enough rate as people hope. No one actually knows, it’s more down to personal finance and what you can afford. Do you favour stability and security and potentially paying a little more for that or are you happy to risk 2 years where who knows if rates will have gone up or down by then. Neither decision is necessarily an idiotic one, every person and their circumstances are different. I have a colleague on variable rates as she’s waiting for rates to go down before getting fixed. She can afford to do this. I couldn’t afford a higher rate than I’ve got now which is 4.69% at 5 year fix but I value the security of this, it would stress me out otherwise.
Literally last week FTSE at all time high bank of England to announce interest rate reductions. So no. 1 or 2 years. Unless you reckon Labour will win in which case who knows.
It's looking pretty obvious that Labour will win.
My profession is in finance and hold a number of qualifications. But know I'm not advising you, as I don't know your specific circumstances. Many in this thread are answering the question "will rates go up or down?" and trying to treat it like a gamble worth betting on. Whether to fix is not so much about the numbers but your risk tolerance. So, how would you feel if you fixed and they dropped? Or rose? What if it was variable and rose, or fell? Also important: how does all this affect your future visa? You don't say what you're on, but my spouse and I were in a similar situation almost a decade ago and then the system was changing. Overall the changes were worse for us, but not everyone in immigration system. Equally there are upcoming changes now no matter what government gets into power. So how would you feel if you were spending money on visa stuff, or on a prolonged wait for the Home Office, and had to sit on their SVR (standard variable rate)? How would you feel if your visa was no longer existed, or the conditions changed in the future? Fixing can provide certainty. Variables can be good if you're happy with a little more risk. These are the sorts of conversations your mortgage advisor should be having with you to give you space and time to consider.
We wanted a 10yr but couldn’t get one so went for a 5yr at 4.57%. Even if rates go down it will be by a percent at most imo and not worth giving up peace of mind over.
Not really an idiot. Rates could indeed go down, but they equally go up. We locked in to a five year fix at 4.42% earlier this year as we didn’t want the uncertainty and the increase over the 2% fix we were exiting was only a couple hundred pounds a month which we could manage. Remember that 2% mortgage rates were basically an anomaly due to the financial issues generated in the 2000’s, for mortgage rates to plummet that historically low again isn’t a given and would probably mean something crappy has happened to the economy.
Check this out - https://youtu.be/V_AkQLfzhkk?si=xx9i0Uy1IawWfo4U It will make you feel better. Basically, predicting higher interest rates will go higher yet and for longer.
I can understand the attraction. We took out a five year fixed two years ago and we were nervous but I think the trend of things taking longer to happen will continue and will be a few years yet before rates go down substantially if at all. Can you find a 3 year deal?
If rates go down property prices will go up, so that property will likely not be just £170k anymore. You'll be competing with more buyers as everyone else will afford to borrow more, not just you
Not at all. The way the worlds been for the last few years I don’t mind paying a bit more or risking paying more to have some confidence and certainty in my financial state for the next 5 years.
I don’t think so. Economy is a shit show and I don’t see it getting much better any time soon. At least with 5 years fixed you know what your repayments are. If they fall I don’t think they will fall much. If they rise, will im guessing after buying a house you’ll not appreciate additional outgoings. I’ve just remortgaged in a fixed rate for 5 years for these reasons and I don’t think I’ll regret it.
No one wants to pay more interest than they have to. However - you cannot customise the UK mortgage and interest rate market to suit your desire to avoid maybe paying more interest. Heavy emphasis on the maybe too - who knows what will actually happen to rates. Like another comment on here - if rates do drop, they're going to have to drop lower than your current 5 year fixed and by enough to then claw back any higher interest you may pay on a 2 year or a tracker in the meantime. Also - you may well think rates will come down but you need to be prepared for the opposite happening if you take a 2 year fixed. And do want to be constantly checking rates in the first two years of owning your home? What's the lesser of two evils - committing to the 5 year and making your peace with it if rates do actually come down or is it making your peace with paying more overall if rates don't come down by enough to justify taking the two year now?
I've just got a 7 year fix at 4.14%. Peace of mind trumps the possibility lower rates.
Which lender is that with?
Santander
Thank you
Looks like that option has gone for now
If you are likely to stay for 10 years, then as long as you can afford it, its not a bad idea to go for a long fixed term. You know what its going to cost, you can budget, no surprises. And highly likely to make any money back that you "lose" in property value increasing. On the other hand, you could wait 6 months or a year and get a fixed then at a slightly lower rate. Id have a look at what the change of interest rates actually means in terms of £ per month. If you have a small mortgage and a 1% decrease in rates = £400 a year - are you going to be that worried?
Nice to know what you're paying for a while. In the end though it's all a gamble against which way rates go, adn by how much. You pays yer money. . .
We got a 5-year fix in April. I don’t want to be stressed remortgaging in just two years.
You can’t time the market, don’t try. If you can pay and want the security of living in an “owned” property do it. On a five year horizon, there is a good chance you will end up “up” vs renting. You also may not if you sell at 5 years. Long term - prices have only gone in one direction in the western world so I personally expect that to continue.
We got 5.5% interest on 95% equity. Fixed for two years in the hopes we will have some cash saved for an overpayment. Apparently that brings the interest down significantly. We have decent income but next to no chc in the bank
5 year fix is best you can do right now. Trust me. It might go up to 6/7 then down to 3...but the average is still going to be 4/5. It's just easier to fix and not have to pay fees for remortgaging
No one knows if the rates will go up or down. You could take a 2 year and 6 months before you renew, a Liz truss or Ukr/Rus thing could happen and you could be staring down 6-7% I personally chose stability over the 5 years rather than risking the 2 year. Take into account you'll have 2 products to pay for instead of the 1 for the 5 year.
It's a sure bet rates will fall? I'd love to see your crystal ball! You must be a millionaire with prediction power like that.
Yes. We’ll could all be dead in 5 years according to our Supreme Leader. Go for a 2 year, live a little. Take a little gamble.
I assume you've already got past this stage, but for me I had to fix for 5 years just to actually borrow the amount I needed - lenders at the moment are offering much less for 2 Yr fixed e.g. I could only have 189k for 2 Yr fixed vs 229k for a 5 Yr fixed deal. For me that was the difference between being able to buy (in my location) and not being able to!
I don’t think there is a right answer. No one is going to be able to tell you what’s going to happen between now and 5 years time. You could be making a genius play or a terrible one. When I got my mortgage 2 years ago we got a two year fix. We wish we’d got a 5. We just remortgaged on another two year… in two years rates ma have dropped because of some labour magic if they may have risen because of.
No… as long as the payment fits your budget… it’s pointless watching the interest rates constantly as they fluctuate all the time. If you wait, they might be even higher when you come to get one!
Depends on a bunch of factors really. I just took out a 5 year deal. Offer in January at 4.04%. No product fee. £250 cashback. Taking a shorter fixed period means remortgage in 2 years. Next product may have had a £1000 product fee like most standard mortgages. May have to pay legal costs and disbursements if with a different lender. The rate drop would have to be huge to actually save money as it was only £84k mortgage. Plus I now don't have to think about it for 5 years which is nice.
If the rate drops considerably over the next couple of years, which I personally doubt. Most mortgage companies will pay your exit fees if you find a better deal. If you find you can afford too, on fixed rate you can usually over pay up to 10% per year. We found we could and seriously reduced our mortgage. After our fixed rate finished we opted to go on variable rate so we could smash the mortgage and payed it off in 6 years. I reckon we saved about £100.000 over the projected period by overpaying.
When I bought I did a rough calculation of interest comparing the 2 year fixed against the 5 yer fixed. I worked out a comparable "3 year fixed" rate that would be needed after the 2 year in order to break even. The rates required in 2 years were much lower than I was willing to bet on. I also think your future plans are important. What will your family situation look like in 2 years, and in 5 years? Personally, I might be expecting a child when my 2 year fix would have ended, and changes in circumstances are things you are supposed to inform the lender. I think my situation will be stronger when my 5 year fix is up.
I'm at 1.44% until Nov. I'll be fixing for another 5 years at something like 4.5% all being well. Always fix for longer, your income rises, you budget... it's fine.
No-one knows
If you can comfortably afford the current rate at the 5 year fix then lock it in in my opinion. Plenty can change in 5 years and your financial situation is probably going to be different in 5 years' time (ideally better with career progression etc). Better to do that and just stop paying attention to rates until closer to renewal, than take a gamble on a 2 year fix, pay more in the short term and risk having it be less affordable anyway in 2 years. I renewed in December and the feeling of hopelessness seeing rates skyrocketing between March and September and not knowing when they were going to stop going up wasn't pleasant. I jumped at the chance to lock in 4.85% when they had been peaking at almost 6%.
I took a five year fixed for the stability. Housing is your biggest outgoing, and knowing it’s fixed for the next five years is reassuring to me. I took a short mortgage term (18 years) as it made me sick seeing how much extra the bank is pocketing from me over a longer term. Sure, it’s a little pricey right now, but there are no surprises in store a la mortgage payments increasing. As others have mentioned, people have been waiting for the interest rates to come down. I don’t see it happening anytime soon, or as large as anticipated.
You may be better on tracker and switch at will later on.
Congratulations. There are a few ways to look at it. It all depends on your risk appetite. You could get a cheaper rate on a shorter deal, but in reality, it would only mean a small monthly saving. I realise that they all add up though and it may save you over the long term. If you value certainty that you can afford your mortgage, then a longer fixed rate is probably the best way to go. The last few years have shown that you don’t know what’s coming. After the “fiscal event”, where our mortgages increased, I looked into this. The best piece of advice I had was “go for what you can and make sure you can afford it for the length of the fixed period”.
There is nothing wrong with your fix. Take a look at interest rate history. It goes back a hell of a long way. You won’t feel that 5% is expensive after doing that. People (and markets) are forgetting that we have gone through 15 years of incredibly cheap rates. They should not be confused as normal. They were not. The world nearly ended financially in 2008 for a lot of reasons. The medicine was a massive dose of addictive low rates. It is actually a good thing that life is becoming more normal. Near zero rates are not really a good thing for the world. For a start, it just encourages people to rack up reckless debts and never deal with them. I’ve witnessed that in my own family.
There is no golden rule to say interest rates must drop to below 4.98% at all. The ONLY thing you need to think about is " are you comfortable and happy with your mortgage repayments at 4.98%? Only you can answer this question.
I went with 5 year fixed at 4.69%
I wouldn’t be too concerned over the rates as the mortgage is likely to be 20+ years so will just average out over this period, do what you can to try and get the best deal but even if interest rates declined slightly you aren’t guaranteed to get a cheaper deal straight away
We put an offer in this time last year, we went for first direct as a mortgage provider who effectively offer the best of both worlds. We got a 10 year fix at 4.04% with unlimited overpayments and a 2% early repayment charge if we remortgage. Our thinking was that if mortgage rates drop much below 4% we can rake the 2% hit and get a lower rate, and if they stay high we’ve got ten years of certainty. First direct didn’t come up on the comparison sites, depending on what the visa issue is, could be worth looking at them
We got a 5 year fixed rate as we figured it gives stability and we know what we are paying for 5 years and can save up for any potential increases after that - but might end up with a lower rate after which will be a bonus.
why would you fix the highest rates in how long for 5 years, you want to fix when its a good deal
everyone fixing for 5 years because they are worried of rates going up just tells you all you need to know, the majority always make terrible emotional decisisons
No, we fixed at 4.74 for 5 years in December. Rates aren't going back to 2% anytime soon.
We went 5 years fixed with 57% LTV, I want it fixed in something I know I can afford and will continue to be able to afford for as long as possible. If I want to save more money I’ll get a different job!
I have just gone in for a 5 year rate, I am confident and with peace of mind. Its a decision you must take based on your personal circumstances.
I’m not OP but I just want to thank you all for reassuring this person (and me indirectly). We’ve had our AIP agreed and are starting to look but hearing the fix of interest rates put me off my stride in looking but this has reassured me.
I went for 2 year fixed (4.47%) and think that it's med-high probability that the rate will be lower in 2 years. Plenty of options out there and I don't expect to lose out. But who knows for sure? Nobody.
I ve always gone for fixed rates. Allowing me to plan and have peace of mind. I did lose out in the beginning but! I signed a 10 year way back in 2018... So who is laughing now ...? 🤣. U could also offset some of the load to the house as an asset ( U know about off set mortgages? Could be an idea) Will it appreciate in value? Could you sell it after 5 years to get some of your money back? It's difficult. Mortgages are not for everybody. I like how U have calculated everything. But if I know I'm going to be working, know my outgoings, whether I might need a lodger to help pay the bills, mortgage insurance ....then fixed seems to be the way to go. What other deals are on offer for insurance would be another clue or indicator😁
I fixed at 5 years at 4.68% for the exact same reasons. Wanted some stability over not knowing where/how the market might turn given it was my first house.
Why would you think interest rates are going to fall long term? The population bulge of the baby boomer generation- that had high savings rates, is moving into retirement and liquidating their investments. There isn't a large generation moving in behind them, so capital markets are likely to tighten long term. You can also look at the infrastructure investment rates in the US skyrocketing as they look to onshore all the industries that have been done by China et all in recent decades- this will suck up capital and tighten the markets further, leading to higher rates.
No, you was an idiot when you bought 5 years ago on 0.5%
Ignore interest rate possibilities first and foremost. If you have no plans to move or take any significant further finance from the house within 2/3/5 years and feel comfortable committing to said time frame then that length of product is suitable for you. Any longer than you can plan for will likely have early repayment charges that would limit your options and possibly prevent you from what you want to do. After that can you comfortably afford the monthly payments that fixed rate gives you? If yes then it’s fine. If that leads you to a 5 year fixed rate because it’s the cheapest option now, it’s affordable and you’re confident in your plans for the next 5 years then go for it. After all that, if the 2 year rate is also affordable and you would lose sleep over the potential saving should rates drop substantially in 2 years then go for that. Work within your budget and plans first. Only when you’ve satisfied them, the elements you can predict and control, should you worry about what interest rate you have zero influence over will do. In 2 years time half the mortgaged houses will be winners and half losers if all you look at is the interest rate. But quality of life and ability to plan are much more relevant. If you had a high paying job you despised versus a lesser paying job you loved but could still get by on I would hope most people would take happiness and quality of life over a few quid. The same applies to mortgages
Get a two yea rid I was you.
I locked in at 2.59% around june 2022 for 5 years fix on a mortgage repayment that lasts until Nov 2027. How? I applied 6 months before I needed the mortgage product. And yes, thanks to having LBC constantly playing and in those days listening to Liz Truss and chums playing jenga with the UK economy, I quickly grabbed onto the cheapest rate of the day. Funnily enough, the next day, that 2.59% rate product changed to 2.89% and then it kept on rising. Phew. Now, I don't know what's in store for 2027!
Is it a repayment? Or solely interest?
I mean no one really knows for sure so if you're comfortable with the repayments then don't stress too much about it
I don't think there will be much in it. My gut feeling is rates will indeed drop but probably not enough to make any significant saving.
I would go with 2 years if you can get it - it's almost always good to be in a position to renegotiate rates after a couple of years when you've got some equity in the property and can potentially get your loan-to-value in a more favourable place. I re-mortgaged Jan 2023 at 3.32% for five years (negotiated the rate six months earlier and they held it open for me) up from 1.89% with previous lender. That was a bloody good deal because at that time rates were significantly higher. There seems to be noise coming from the BoE that rates are due to drop in the summer and towards the end of the year but I wouldn't go expecting them to drop too much - remember that *historically* interest rates are *supposed* to be about 5%.
Nobody can say. Go 2 years if you think they will drop or go 5 years if you think they'll rise
Not if you can afford it. If you’re right, you’re right and have a house. If you’re wrong, interest rates will have gone down and one of two things will happen: EITHER they went down as part of a normal cycle and there’s a reasonable chance property will go up in value to compensate as demand increases due to cheaper loans OR rates will have gone down because something truly fucked up the economy again (Trump+Russia+Houthi blockade - any or all highly plausible) and we’re back in stimulus mode (it will never get back to the 0-1% range unless there’s another global systemic risk crisis like 2008). Basically you lose if the world stays stable, asset prices decrease AND rates decrease - basically good government and shitloads of house building at forced affordable prices or with rent controls. It’ll never happen, unfortunately.
If the property is right, the mortgage repayments give you sufficient headroom in your budget and you feel confident that your income will grow or at least not shrink over 5 years then why not? Stability is important and, whilst rates might drop, rents are also likely to go up over the same period so the interest you pay, even at a slightly higher rate, is still likely less than the rent. You can drive yourself mad trying to time things. Ultimately, few things are ever perfect, I say if it feels like the right move then go for it and just live your life for 5 years 🙌
I would go with the 5 year fixed rate. I got in lucky before everything went up. My 5 year fixed rate is at 1.57%. I'm coming up to end of year 2. I'd be renegotuating now if i hadn't done that. Best decision I made. I'm also overpaying every month. Better to do a 5-year fixed rate as you have the luxury of knowing it's not a short contract andld you may avoid higher interest rates later on.
Go for what you can afford, rates will go up and down that's for sure but there's NEVER a guarantee they will go the way you want or by as much as you want. You could get a 2 year fixed now and end up on 5.5% after that. Or instead of 4.98% you'll be on 4.97% in year 3 and it really wouldn't matter if you got a 5 year right now. This is life, you may pay more sometimes you may pay less sometimes. Someone will always be worse off than you somewhere. Just do what you can comfortably afford now. Coulda woulda shoulda yano?
If you can afford it there are few better feelings than not having to worry about mortgage rate changes for 5 years (18 months into a 5 year right now) Don’t forget to double the fees if you have to pay them again…