Mortgage advice

[Andy_W]

If anyone is thinking of going on a 5 year fixed now, just be careful. Some of the companies have quite large early repayment charges, so if rates do come back down (which almost everyone thinks they will in that time) then you might struggle to get out of your current mortgage without paying a big charge. You could get locked in on something which is poor value. This could be important for people thinking they might remortgage in 2-3 years, or might be moving house and can't port the mortgage in some circumstances etc.

I'm so glad I locked in my 5-year fixed last year mind, but with that much **** going on in the world there was no real reason not to. There are going to be a be a hell of a lot of people not in this position though, and in the next year or two loads are going to get chucked out of their current good deals. This will probably drag house prices down too, so keep that in mind.

If I had to get a new mortgage now I would probably just look at a 2-year fixed and ride it out. I would maybe even consider a variable, but would have to factor that the rate is going to keep going up a bit yet, before it comes back down. It seems were heading towards another maybe two or three 0.25% rises before it starts coming back down.

 

[ForssAwakens]

If anyone is thinking of going on a 5 year fixed now, just be careful. Some of the companies have quite large early repayment charges, so if rates do come back down (which almost everyone thinks they will in that time) then you might struggle to get out of your current mortgage without paying a big charge. You could get locked in on something which is poor value. This could be important for people thinking they might remortgage in 2-3 years, or might be moving house and can't port the mortgage in some circumstances etc.

I'm so glad I locked in my 5-year fixed last year mind, but with that much **** going on in the world there was no real reason not to. There are going to be a be a hell of a lot of people not in this position though, and in the next year or two loads are going to get chucked out of their current good deals. This will probably drag house prices down too, so keep that in mind.

If I had to get a new mortgage now I would probably just look at a 2-year fixed and ride it out. I would maybe even consider a variable, but would have to factor that the rate is going to keep going up a bit yet, before it comes back down. It seems were heading towards another maybe two or three 0.25% rises before it starts coming back down.

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How can you say to people who want security going for a 5 year fixed to be careful. Ultimately you shouldn’t worry about what rates might or might not do, there is no guarantee. You should always pick a fixed rate around your circusmstances. Rate reductions predictions are actually being pushed further out than previosuly thought

If you are staying where you with no anticipated life events (extra borrow, move home, receive lump sum etc) then fixing in for 5 years could be the right product for you

If you get to two years time and rates havent gone down, and have maybe slightly higher, and you feel you wouldn’t want to deal then fixing in longer would preferable even if rates came down, because the priority it protect against rising interest rates

Anyone who picks their rate based on predictions of rates would be unwise to do so, as the financial crash, covid and the mini budget have all proved in the last 15 years

 

[Glover_elbow]

Ive got the classic inheritance conundrum to decide on shortly pay off mortgage about 110k or invest the money and carry on with my mortgage payments which i can affoard fairly comfortably or even pay a lump off and leave myself with a small mortgage. Any advice.

 

[ForssAwakens]

Ive got the classic inheritance conundrum to decide on shortly pay off mortgage about 110k or invest the money and carry on with my mortgage payments which i can affoard fairly comfortably or even pay a lump off and leave myself with a small mortgage. Any advice.

I think the advice would be to pay your mortgage off as there is no guarantee you will return more than the interest being charged through investing

That said it depends what your priorities and goals are. What are your aims of investing. If you pay your mortgage off you could invest monthly, or keep your mortgage while it’s affordable to try and gain more returns.

 

[ForssAwakens]

What I will add, it’s more financial advice than mortgage advice you need, but I was basing the above off what our financial advisers principles were

First consideration is to clear the mortgage and leave some fund accessible for emergencies in cash

 

[Glover_elbow]

What I will add, it’s more financial advice than mortgage advice you need, but I was basing the above off what our financial advisers principles were

First consideration is to clear the mortgage and leave some fund accessible for emergencies in cash

Yes definitely need a financial advisor both my wife and me have made some poor financial decisions in the past depsite earning well.

 

[Andy_W]

How can you say to people who want security going for a 5 year fixed to be careful. Ultimately you shouldn’t worry about what rates might or might not do, there is no guarantee. You should always pick a fixed rate around your circusmstances. Rate reductions predictions are actually being pushed further out than previosuly thought

If you are staying where you with no anticipated life events (extra borrow, move home, receive lump sum etc) then fixing in for 5 years could be the right product for you

If you get to two years time and rates havent gone down, and have maybe slightly higher, and you feel you wouldn’t want to deal then fixing in longer would preferable even if rates came down, because the priority it protect against rising interest rates

Anyone who picks their rate based on predictions of rates would be unwise to do so, as the financial crash, covid and the mini budget have all proved in the last 15 years

Because you're securing a high rate, which you can't get out of without paying an ERC (if ERC's apply, which they have done on every 5 year fixed I've had). That might be safety till the end of 2023 when rates are expected to peak, but likely won't be in years 2-5 (when rates are expected to be lower than now). So if people have plans on remortgaging again, moving, downsizing, end up losing jobs, split up with partners, get forced to sell etc then they will get penalised by ERC's (likely far more than any savings made). The short-term safety net is also a long-term risk, depending on how world circumstances are expected to change. You can port 5 year fixed's though, in some circumstances, I've done it twice, you save the ERC's, but still pay the same rate etc.

It's each to their own though, everyone's circumstances are different, but the consensus of outlook on rates (inflation and base rate) from economists is very consistent.

Of course, a counter to my own point is that rates could just keep going up for 24,25,26 etc, but who thinks that would happen? Nobody? If it did happen the entire housing market would crash and values probably drop significantly.

Everywhere in the developed world has practically shown inflation has peaked (at local highs), and practically everywhere is predicting rates to drop again when the inflation rate drops (like it's already doing), but there's a lag on this of around 6 months.

If people are happy with the ERC risk, as well as the chance of interest overpayment risk for 2-5 then that's fine, but they need to be made aware that this is the most likely scenario.

Nowhere is predicting rates to be higher in 2 years, than they are now, and the curve would likely be on a downwards trajectory, not like now where it's expected to go up for maybe 6 months (so any mortange provider now will insure against that rise). A 2-year fixed would end up as roughly the same payments, and then they could take another 2 year fixed or do whatever suits at the time.

The mortgage providers themselves know rates will come down (or won't go up more than expected), this is why 5 year fixed's are slightly cheaper than 2 year fixeds, if they thought rates were going up and/or staying up, they 5 year fixed would be a couple of percent higher. 5 year fixeds have hardly ever been cheaper than a 2 year fixed, this is probably a good clue as to why they might be a bad idea for some people.

The financial crash is a good example, when I bought a house in 2008 nearly every adviser was saying to get a 3-5 year fixed deal. It didn't make any sense to me and my circumstances, as everyone was forecasting rates to soon drop, and then they dropped further than most expected. I took a discount variable and within two years the rate was at 0.5% (about 4% lower), and then once the discount period ended I just fixed for 2 years at the low rate.

There are pro's and cons for all types of mortgage, but you need to look at what is expected to happen in each of the timeframes.

Like for now, if I was a first-time buyer who had the money to buy, I wouldn't even bother buying now, I'd just rent for one to two years and wait for prices to drop, and mortgages to drop, just build up more LTV too etc. If I was in a no or low stamp duty band I would possibly even think about selling, renting and then buying again in 1-3 years.

 

[ForssAwakens]

Because you're securing a high rate, which you can't get out of without paying an ERC (if ERC's apply, which they have done on every 5 year fixed I've had). That might be safety till the end of 2023 when rates are expected to peak, but likely won't be in years 2-5 (when rates are expected to be lower than now). So if people have plans on remortgaging again, moving, downsizing, end up losing jobs, split up with partners, get forced to sell etc then they will get penalised by ERC's (likely far more than any savings made). The short-term safety net is also a long-term risk, depending on how world circumstances are expected to change. You can port 5 year fixed's though, in some circumstances, I've done it twice, you save the ERC's, but still pay the same rate etc.

It's each to their own though, everyone's circumstances are different, but the consensus of outlook on rates (inflation and base rate) from economists is very consistent.

Of course, a counter to my own point is that rates could just keep going up for 24,25,26 etc, but who thinks that would happen? Nobody? If it did happen the entire housing market would crash and values probably drop significantly.

Everywhere in the developed world has practically shown inflation has peaked (at local highs), and practically everywhere is predicting rates to drop again when the inflation rate drops (like it's already doing), but there's a lag on this of around 6 months.

If people are happy with the ERC risk, as well as the chance of interest overpayment risk for 2-5 then that's fine, but they need to be made aware that this is the most likely scenario.

Nowhere is predicting rates to be higher in 2 years, than they are now, and the curve would likely be on a downwards trajectory, not like now where it's expected to go up for maybe 6 months (so any mortange provider now will insure against that rise). A 2-year fixed would end up as roughly the same payments, and then they could take another 2 year fixed or do whatever suits at the time.

The mortgage providers themselves know rates will come down (or won't go up more than expected), this is why 5 year fixed's are slightly cheaper than 2 year fixeds, if they thought rates were going up and/or staying up, they 5 year fixed would be a couple of percent higher. 5 year fixeds have hardly ever been cheaper than a 2 year fixed, this is probably a good clue as to why they might be a bad idea for some people.

The financial crash is a good example, when I bought a house in 2008 nearly every adviser was saying to get a 3-5 year fixed deal. It didn't make any sense to me and my circumstances, as everyone was forecasting rates to soon drop, and then they dropped further than most expected. I took a discount variable and within two years the rate was at 0.5% (about 4% lower), and then once the discount period ended I just fixed for 2 years at the low rate.

There are pro's and cons for all types of mortgage, but you need to look at what is expected to happen in each of the timeframes.

Like for now, if I was a first-time buyer who had the money to buy, I wouldn't even bother buying now, I'd just rent for one to two years and wait for prices to drop, and mortgages to drop, just build up more LTV too etc.

I’m a mortgage adviser, and although it’s good to know about predictions, all that goes out the window when advising clients. If you see a mortgage adviser and they tell you to do something because ‘interest rates are predicted to do this’ I’d walk away from them

Advice is circumstantial, not what I think might happen with interest rates. Circumstances might involve what a client thinks interest rates might and how the what to shapes their mortgage around that

I lost count of the people I saw in 2010-2013 who said my mortgage adviser told me to fix for 5 years they said rates are going up.

 

[Andy_W]

I’m a mortgage adviser, and although it’s good to know about predictions, all that goes out the window when advising clients. If you see a mortgage adviser and they tell you to do something because ‘interest rates are predicted to do this’ I’d walk away from them

Advice is circumstantial, not what I think might happen with interest rates. Circumstances might involve what a client thinks interest rates might and how the what to shapes their mortgage around that

I lost count of the people I saw in 2010-2013 who said my mortgage adviser told me to fix for 5 years they said rates are going up.

I totally get that, and understand where you're coming from, and in your position I would do the same, certainly with a lot of clients, not all though. It also covers your back too, which is fine.

When I spoke with my FA in 2008, after speaking to a couple of mortgage brokers I basically just wanted to run by him what my thoughts were (effectively going against the brokers) and he effectively said he had basically done the same as I was intending (i.e not fixing). I was a first-time buyer then, and none of the brokers were interested in looking at my circumstances. I basically didn't give a toss if rates went up 0.5-1% short term (could afford it), as every sign in the world was saying that would be short-lived, and then things will go to the floor, which they did.

I don't think there were many signs of rates going up in 2010-2013, we (and especially the US market) were in one hell of a hole back then, but this is why rates offered were so good then, everyone knew we were in a hole and were not coming out for a while. The problem now is that everyone got used to the 1% and 2% deals (a decade does that), and think that would end up lasting forever, which it was never going to do at that level. There are a lot of people where inflation has eat away their free cash, and they simply won't be able to afford the interest aspect of their mortgage going up 300-400%.

To be fair though, for the 5-year fixed option, if people can get that at ~4% then they're around the historical average, which may be comforting, but there is also a problem with that because house prices have gone up so much relatively v earnings, a 4% rate now is about the same as 10% in the late 80's (as house prices are 2.5x what earnings were in the late 80's). 4% now, isn't parity with historical times, it's worse, which probably means 4% now isn't a great deal until house prices drop significantly. To me it seems that either house prices will crash, rates will, or they will both come down to a lesser degree (most likely to me). They kind of have to or millions will be out on the street, and no government would let that happen. Doesn't seem a great time to be entering the market, that's for sure.

 

[Nano]

Ive got the classic inheritance conundrum to decide on shortly pay off mortgage about 110k or invest the money and carry on with my mortgage payments which i can affoard fairly comfortably or even pay a lump off and leave myself with a small mortgage. Any advice.

The general advice for overpayments is if you can earn more elsewhere than the interest you will save then you are better off saving/investing. Don't just think about today's rates though. If you have 10 years left or 30 years left it's probably different. The longer the timescale the more you can be confident that investments will beat interest rates. Also, you can't just stick £100k into an ISA when the limit is £20k so some investment earnings would be taxed. A mixture of overpayments and investments might be the best option.

The safety net/security/feeling of not having a mortgage can be more beneficial than the cash though.

 

[ForssAwakens]

I totally get that, and understand where you're coming from, and in your position I would do the same, certainly with a lot of clients, not all though. It also covers your back too, which is fine.

When I spoke with my FA in 2008, after speaking to a couple of mortgage brokers I basically just wanted to run by him what my thoughts were (effectively going against the brokers) and he effectively said he had basically done the same as I was intending (i.e not fixing). I was a first-time buyer then, and none of the brokers were interested in looking at my circumstances. I basically didn't give a toss if rates went up 0.5-1% short term (could afford it), as every sign in the world was saying that would be short-lived, and then things will go to the floor, which they did.

I don't think there were many signs of rates going up in 2010-2013, we (and especially the US market) were in one hell of a hole back then, but this is why rates offered were so good then, everyone knew we were in a hole and were not coming out for a while. The problem now is that everyone got used to the 1% and 2% deals (a decade does that), and think that would end up lasting forever, which it was never going to do at that level. There are a lot of people where inflation has eat away their free cash, and they simply won't be able to afford the interest aspect of their mortgage going up 300-400%.

To be fair though, for the 5-year fixed option, if people can get that at ~4% then they're around the historical average, which may be comforting, but there is also a problem with that because house prices have gone up so much relatively v earnings, a 4% rate now is about the same as 10% in the late 80's (as house prices are 2.5x what earnings were in the late 80's). 4% now, isn't parity with historical times, it's worse, which probably means 4% now isn't a great deal until house prices drop significantly. To me it seems that either house prices will crash, rates will, or they will both come down to a lesser degree (most likely to me). They kind of have to or millions will be out on the street, and no government would let that happen. Doesn't seem a great time to be entering the market, that's for sure.

Ultimately you’ve just ploughed an absolute load of waffle into a thread over 3 posts, and shown you don’t have understanding on how mortgage advice works. Your first post implied advice against 5 years fixed. Sorry to sound hard but people should ignore what you have said, and speak to a mortgage adviser, either with their current provider or @WeeGord who has nothing but positive reviews on here

 

[Andy_W]

Ultimately you’ve just ploughed an absolute load of waffle into a thread over 3 posts, and shown you don’t have understanding on how mortgage advice works. Your first post implied advice against 5 years fixed. Sorry to sound hard but people should ignore what you have said, and speak to a mortgage adviser, either with their current provider or @WeeGord who has nothing but positive reviews on here

It doesn't matter to me how mortgage advice works, and I understand why you (and any advisor) would advise the way you do to most people, that's 100% fine, not everyone is the same though, that's all I'm basically saying.

All I'm basically saying is what the BOE, IMF and economists etc are predicting what will happen with rates, and this is what the mortgage industry does when setting the current rates, and predicting future rates (which it uses to price it's 5-year deals etc). If the BOE and IMF etc are wrong, then lenders are going to end up wrong too.

I personally wouldn't take out a 5-year fixed now, if I needed to remortgage, why would I? Like the rest of the world I think inflation rates have peaked, interest rates are going to peak soon, and then come down. This all controls the entire industry you're in, and on the balance of risk, and total cost paid, probability suggests that a 5-year fixed is not going to be good value over 5 years, without even factoring in for EPC's or changes of circumstance. Would I advise this to everyone else or most people, absolutely not.

It's not like I'm against 5-year fixed's either, they're the most common mortgage I've taken out (about 5 I think), and took one out last year with a rate used from March 2022 (1.75%).

I'd advise speaking to a Mortage Advisor and also a Financial Advisor, and then maybe considering a few possible scenarios for the potential terms looked at, and what is the most likely. The people who will get the better reward (or pay the least overall) are usually the ones who can afford to the risk.

 

[alvez_49]

Ultimately you’ve just ploughed an absolute load of waffle into a thread over 3 posts, and shown you don’t have understanding on how mortgage advice works. Your first post implied advice against 5 years fixed. Sorry to sound hard but people should ignore what you have said, and speak to a mortgage adviser, either with their current provider or @WeeGord who has nothing but positive reviews on here

He's got one thing right... House prices are going to collapse for most of the nation. 30% over the next couple of years is likely.

 

[Andy_W]

He's got one thing right... House prices are going to collapse for most of the nation. 30% over the next couple of years is likely.

We'll see what the rate does in 2,3,5 years etc, will likely be down quite a bit by then, but I'll have forgotten about this by then I'll have to remortgage in 4 years mind, so might remember then.

If house prices drop that much it might prop the rates up, but then again lenders might drop margins a touch to try and keep things moving, it's complicated. Alternatively, 2008/10 might happen again and rates go through the floor, this is possibly less likely as lending has been stricter, but inflation could really bite. Either way, a lot of people would lose a lot of LTV, or go into negative equity, which wouldn't be good for their rate of course (or the economy). So if it's going to be that bad then fixing still wouldn't be a good idea for those with high LTV, it would probably best to just sell, and renting for a few years, then buying after prices have bottomed. Not many will do this of course, as they will think they're throwing money away (and they would be wrong).

I think we're in bother with regards to house prices mind, and will be for a good 3-10 years, so I've sold off my rentals, might go back into that in a few years, depends on other opportunities elsewhere at the time I suppose.

 

[Soutra]

I know this isn’t the obvious place to come for this advice but I love and trust my fellow Boro fans. I’m useless with money, but we need to renew our mortgage. Is now a good time? Or best to wait a little while? Looking for a fixed rate. We don’t have the greatest credit rating but we aren’t terrible. Don’t want to do loads of searches and worsen it but also don’t want to pay someone after being ripped off and getting a really bad deal. Any advice appreciated!

Such is the volatility of markets in 2023, and potentially for a few more years yet that it's entirely possible that you could invest your inheritance and not manage the same rate of return as the interest on your mortgage.

My advice would be to invest a small part of the money in a safe investment - maybe a cash ISA (up to £20k) where you can achieve 4½% at the moment, and use the rest to pay off your mortgage, or as much of it as you can manage. You'd have some resilience in the face of unexpected events, while decreasing your outgoings.

If mortgage rates tumble in 2024 (which I think is unlikely) and if you want a war chest to invest, then take out a new mortgage somewhere down the line.

 

[ForssAwakens]

He's got one thing right... House prices are going to collapse for most of the nation. 30% over the next couple of years is likely.

It’s important factor to consider and have a clients view on what if house values come down particularly if you’re 80% or above and prices come down over 2 years, you are restricted to higher ltv. Definitely a consideration, cos even if rates come down you might not see the saving if your loan to value ratio is now above 90%

Also important for people who put 10% or 5% down, the dangers of negative equity are real, and that tends to be first time buyers who take longer terms and that means they don’t reduce a whole lot of capital in the first 2 years, even more so now with rates higher

 

[alvez_49]

We'll see what the rate does in 2,3,5 years etc, will likely be down quite a bit by then, but I'll have forgotten about this by then I'll have to remortgage in 4 years mind, so might remember then.

If house prices drop that much it might prop the rates up, but then again lenders might drop margins a touch to try and keep things moving, it's complicated. Alternatively, 2008/10 might happen again and rates go through the floor, this is possibly less likely as lending has been stricter, but inflation could really bite. Either way, a lot of people would lose a lot of LTV, or go into negative equity, which wouldn't be good for their rate of course (or the economy). So if it's going to be that bad then fixing still wouldn't be a good idea for those with high LTV, it would probably best to just sell, and renting for a few years, then buying after prices have bottomed. Not many will do this of course, as they will think they're throwing money away (and they would be wrong).

I think we're in bother with regards to house prices mind, and will be for a good 3-10 years, so I've sold off my rentals, might go back into that in a few years, depends on other opportunities elsewhere at the time I suppose.

Demographics is a time bomb, the end of unipolar geopolitics is another.


Zero percent rates are done, there's just no way to get back there in the medium term.

I won't feel for deano with his PCP range rover and his 4 bed Barratt in ingleby barwick but sadly millions of families are going to be absolutely devastated.

 

[ForssAwakens]

We'll see what the rate does in 2,3,5 years etc, will likely be down quite a bit by then, but I'll have forgotten about this by then I'll have to remortgage in 4 years mind, so might remember then.

If house prices drop that much it might prop the rates up, but then again lenders might drop margins a touch to try and keep things moving, it's complicated. Alternatively, 2008/10 might happen again and rates go through the floor, this is possibly less likely as lending has been stricter, but inflation could really bite. Either way, a lot of people would lose a lot of LTV, or go into negative equity, which wouldn't be good for their rate of course (or the economy). So if it's going to be that bad then fixing still wouldn't be a good idea for those with high LTV, it would probably best to just sell, and renting for a few years, then buying after prices have bottomed. Not many will do this of course, as they will think they're throwing money away (and they would be wrong).

I think we're in bother with regards to house prices mind, and will be for a good 3-10 years, so I've sold off my rentals, might go back into that in a few years, depends on other opportunities elsewhere at the time I suppose.

I mean where to start with this

 

[Glover_elbow]

Demographics is a time bomb, the end of unipolar geopolitics is another.


Zero percent rates are done, there's just no way to get back there in the medium term.

I won't feel for deano with his PCP range rover and his 4 bed Barratt in ingleby barwick but sadly millions of families are going to be absolutely devastated.

Your so close we got rid of the rangie for an EV and its a persimmon not a barratt 4 bed in IB

 

[BaronSmoggie]

We took the hit last year and paid an early repayment penalty of around 1700 quid in order to take a new 5 year fixed. It is more important to us to have consistency in our payments. Ours went up approx. £170 per month, but if we had waited until April this year when the old product ended, it would have been up over £400 per month and that just isn't feasible for us.

We are quite lucky in that we put a large deposit down so our LTV rate is around 53% which should protect us for the house price decreases everyone is expecting.

Its interesting reading comments above from people and mortgage advisors. We used MAB and have for 10 years and the guidance we got really helped us see what worked for our circumstances. There isn't a one size fits all model.

I feel for everyone stuck on high LTV's or SVR's right now. Its a horrid situation to be in.