I'm remortgaging but might move, should I fix for two years or five?

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I'm remortgaging but might move, should I fix for two years or five?
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My mortgage fixed term is coming to an end, and I am looking to remortgage. 

Given the low rates currently available, fixing for five years seems like a good idea – but there is a possibility we will move home before the term is up.

Should we take the longer fix, or opt for a two or three-year deal? If we do fix for five years, will we be charged a penalty if we move?

I'm remortgaging but might move, should I fix for two years or five?
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Angelique Ruzicka, of This is Money, replies: Mortgage rates have hit record lows this year, but the window to take advantage of the cheapest possible deals is closing. 

Mortgage rates had risen ahead of a forecast Bank of England interest rate rise last month and dipped a bit when that failed to materialise, but the lowest fixed rate home loans that had been on offer below 1 per cent have gone.

The top two-year and five-year fixed rates for those with big deposits are nowjust above 1.1 per cent and 1.3 per cent, respectively.

This is forecast to continue, with the Office for Budget Responsibility (OBR) saying that it expects mortgage interest costs to rise in 2022 and then increase by an average of 13.1 per cent in 2023. 

Laura Suter, of investment platform AJ Bell, said: ‘Someone with £250,000 of borrowing, who fixed earlier this year and renewed in 2023, would see £600 a year added to their mortgage costs, while someone with £450,000 of borrowing would see their costs hike by £1,068 a year.’ 

In light of this and expected rises in the Bank of England base rate, fixing now may seem a good idea, as it will lock in a cheap rate. That does spell early repayment charges if you clear the mortgage before the initial deal’s end date, however.

While there are more flexible mortgage options, including a few fixes without early repayment charges and trackers that you are free to leave, these are often more  expensive. 

The advantage with shorter fixes is that you will get a slightly cheaper rate than you would with longer ones, although it may be worth taking a longer fix in order to protect yourself against rises for longer. 

Your potential move does pose a potential problem for longer fixes, although many can be potentially taken with you in a process known as porting. This requires sticking with the same lender, getting them to agree to your new property, and potentially borrowing more with them.

Here, some mortgage experts offer some potential solutions to your problem.

David Hollingworth, associate director at broker L&C Mortgages, replies: Fixed rates are very competitive across the board, and as a result many borrowers have decided that fixing for longer could be a good move for them. 

That’s especially true with the growing expectation of a rate rise and locking in at a low rate could have some obvious benefits.

However, it is worth considering how your potential house move would fit with the choice of mortgage product. 

Most mortgage deals will be portable, which means that they could be taken to a new home without having to break the deal and risk incurring an ERC.

There’s no guarantee that the lender will be able to meet your new lending requirement, however.

They will still carry out affordability checks and need to agree to lend on the property. That could limit the options when you come to move, and any top up borrowing will be at a rate available from the lender at that point in time.

As a result, you may want to consider tying the fixed rate and ERC period up with the expected point in time that you may move. 

That would allow you to shop around for the best deal at the time to suit your new requirements, whether with a new or existing lender.   Dvid 

Can you fix without early repayment charges? 

David Hollingworth says: Some deals offer the chance to fix the rate without applying an ERC at any time, or for a shorter period than the duration of the fix. 

For example, Leeds BS and Coventry BS both offer five-year fixed rates without an ERC at any time, and Habito can let you fix for life without an ERC applying.

TSB offers some five-year fixed rates that only lock the borrower in for three years.

Rates on these deals may not be as low as the standard fixed rates, but could offer the stability combined with flexibility that you’re looking for.

 

Ask your lender to price match the best rate

Ross Counsell, chartered surveyor and director of GoodMove replies: It is worth asking your current provider if they can match a new deal you have spotted elsewhere. 

What would a 13% rise in mortgage interest costs mean? 

The OBR was not referring to mortgage interest rates suddenly rocketing by 13.1 percentage points, to reach almost 15 per cent.

Instead its Budget documents referenced a  13.1 per cent rise in mortgage interest costs.

On a typical rate £250,000 mortgage this would add about £600 per year to payments and on a £450,000 mortgage it would add £1,068 per year. 

> How much would a new mortgage cost you? Compare rates 

Staying with your current lender can save you plenty of time and money, as you won’t have to go through the full remortgaging process.

Although fixing for five years may be tempting, as the rates tend to be more stable than shorter-term mortgage, there are many factors you should be considering before committing to the five-year option. 

Lifestyle changes such as starting a family may mean you want to move house before the fixed period ends, and in this case, it is better to opt for the shorter fix.  

 Seek advice from a qualified financial expert. Doing so not only means that you’ll get the very best options, but this also means that if your mortgage of choice turns out to be unsuitable or something goes wrong for some reason, you can complain to the FOS (Financial Ombudsman Service). 

You should also make sure you go through the usual credit checks prior to applying for a mortgage to avoid disappointments.

In addition, timing is key when applying for a mortgage. 

Most mortgage lenders will allow you to secure a rate up to three months in advance – but you won’t have to start paying the mortgage right away. 

For instance, if your current mortgage deal ends in April, but you find a great deal in January, you can lock in the better rate and continue paying off your current mortgage until your switching date. 

This will enable you to avoid paying any fees to leave your deal early.

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