Mortgage rates: Up or down withn next 2 years?

[Digsy]

I am in the process of re-mortgaging and have narrowed my choices down to two products, both fixed rates, both with the same lender, one for two years and the other for three years. The three year deal has a 0.25% hgher rate than the two year.

 

I usually look at two or three year deals, and go for the cheapest overall (including all upfront fees and fees added to the loan) over those periods. The three year is £360 more expensive overall at the two year point.

 

I am also looking at the potential to overpay my mortgage. I cant quite commit to going back to a "proper" repayment mortgage yet so I am going to get an interest only mortgage and then overpay it by as much as I can each month. This gives me more flexibility but it also limits the lenders that I can go to. The two year deal would allow me to pay off £750 more by the two year point.

 

Two years ago the best deal I could get that fitted my criteria was 2.73%. Now it is 3.04% Yes, there are lower rates out there but I haven't gone into specifics about lenders and rates here because individual lenders' terms and charges plus the peculiarities of my mortgage plans for this year are too complex to go into but suffice to say that I have compared all the current top deals on a like-for-like basis to get me to these two.

 

So my question is, do you think the extra cost and lower overpayment potential is worth fixing at a slightly higher interest rate? I have already lost out on my preferred deal because the lender put their rates up by 0.2% in the few days it took me to go from making a shortlist to getting a deciion in principle. I know these deals change all the time and go down as well as up, so I'm wondering about what might happen over the longer term.

[tooquicktostop]

The rates are creeping up at the moment, lenders are trying to recover some of their losses from the base rate being held so low for a record period of time, I imagine the base rate of interest will remain this low for some months yet but as the green shoots of recovery begin to arrive the BOE will rate the base rate. I believe that this will actually stimulate lending and will also stimulate the amount of mortgage deals available as houses start selling again

 

My fixed deal ran out some 2 years ago but I am still waiting for the better deals to come along, I have also been overpaying for the last 2 years in an attempt to make the next deal even sweeter

[erol_h]

I recently remortgaged with natwest because i was an existing customer i got a 3.04% repayment fixed for two years with no fees at all. But i have the option to make as many over payments each year as i like aslong it is within 10% of the total loan. Have you looked into repayment with the option to do overpayments. Its a gamble but £360 isnt a huge gamble how much difference would it cost you say for the 3rd year interest rates went up by 0.25%.

[Digsy]

Yeah thats what I think. I have looked at some very low rate trackers but once you factor in the charges they all even out, plus you have the added risk of the base rate going up. Similar story with discounted rates except the risk is even higher.

[erol_h]

Also when i remortgaged i reduced my loan by 3years as payments are more affordable now they told there is a £35 charge to sort out which i agreed and asked to add onto the mortgage. The next day i get a call from natwest apologising saying there was a problem i thought here we go. They then tell me i cant add the £35 to the mortgage i have to pay upfront i couldnt help but laugh. I said to the lady so you lot are happy to give me over £100k plus but not a another £35 how stupid.

[Digsy]

Have you looked into repayment with the option to do overpayments.

 

Yes, that's exacly what I'm looking at.

[caseys]

Also would advise to wait a few months. Normally the rates June-August are the most competitive throughout the year due to the fact that banks are trying to get people tied into deals because investment income is pretty lean due to tax year end / year start and people have ploughed money into ISAs etc.

 

HSBC were doing some pretty competitive deals I saw.

 

I can't honestly see the BoE going much more than 1% higher in the next 24 months. But then trackers/variable rates aren't tied much to the BoE rate now but more to banks own SVRs which is crappy. It always seems best to get the best fixed rate at the best LTV you can get then overpay.

 

Edit : Just saw you're looking at interest only - Building Societies are best for this, but they're quite aggressive on their LTV.

[Digsy]

Interesting info on when the best rates might be around, but unfortunately due to circustances beyond my control I have to get this sorted out now.

 

HSBC were on the shortlist but I already know that I don't qualify for their lending criteria for interest only. To be more specific, I need interest only without any proof of a "repayment vehicle" apart from the eventual sale of my house. In my experience over the past couple of weeks there are very few lenders that will allow this without adding extra criteria that you have to have a house worth £250,000 or £150,000 equity, or a second home or some such. I suspect that the lenders are worried about a future wave of mis-selling claims for interest only loans when borrowers suddenly find they won't be able to pay off their mortgages before they retire. Hence they are trying to make you prove you will still be able to buy a home after you have sold and downsized to pay off your mortgage.

 

You're right about building societies being most competitive. LTV isn't an issue as I'm under 50% (assuming my house is worth what I think it is).

[Digsy]

Well apart from crossing the t's and dotting the i's I signed up for a three year fixed rate at 3.29% today. Quite glad having just read this!