Author Topic: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.  (Read 675 times)

edgema

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UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« on: February 14, 2018, 02:52:36 AM »
If people are interested you can currently get, if you are a Barclays premier customer, a 10-year fixed at 2.39% interest only for under 50% LTV.

Just to be clear - I don't work for Barclays! However, I am currently in the process of refinancing from a lifetime of preferring floating rate.

It is not that I think interest rates are going to spike up, but I am a year away from FIRE so the ability to fix my cash flows for the next 10 years takes a significant variable away for a while. This refinance also cuts our monthly mortgage cost in half and eases the budget. By then our kids will likely be close to out of the house and we have always said we would get a smaller house then so don't want more equity in the house (hence the IO). We have the stash we want so don't want to be 'forced savers' through a repayment mortgage.

There is endless debate over paying down mortgages versus investing and usually I sit more in the pay down camp but this is the lowest rate I have ever seen (there is not much history of 10 year fixed). A couple of years ago these were around a percent higher.

UK inflation has averaged 2.43% annually for the past decade, so in real terms were this to inflation rate to continue you are actually being paid to borrow (theoretically speaking). Put another way, £100k borrowed now will feel like paying back £78k in 10 years time.

never give up

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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #1 on: February 14, 2018, 10:25:40 AM »
Congrats that's great news. Even with my level of cautiousness I would be opting to invest rather than overpay on that. The peace of mind in knowing what your payments will be for such a long period of time is worth a lot.

icbatbh

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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #2 on: February 15, 2018, 02:38:04 AM »
Wow this sounds right up my street. Unfortunately I'm fixed in another Barclays mortgage product until the end of June so I hope something similar is available then!

edgema

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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #3 on: February 15, 2018, 02:57:20 AM »
There is also the option to overpay by 5% annually so you could choose to effectively pay this down to 50% over ten years if you decided you wanted to. I think it is a steal and hopefully it will still be around in June if you choose to investigate.

As it is priced off 10 year rates a rate rise in May won't necessarily mean it stops. That said, the 10-year gilt has gone up from 1% yield to 1.6% over the past year so the bank's margin has already been pressured on this product. I don't think it will be around for long.

(https://markets.ft.com/data/bonds/tearsheet/summary?s=UK10YG)
 

Monkeytennis

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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #4 on: February 15, 2018, 01:34:37 PM »
I just fixed at 1.84% for 5 years with Santander, I also get cashback on the mortgage payment.

frugledoc

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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #5 on: February 16, 2018, 03:34:27 AM »
Makes me wish I needed a mortgage!   These mortgage rates are amazing.  I sold a property in London a couple of years ago that was mortgage at BOE rate + 0.5% for life. 

Kwill

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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #6 on: February 16, 2018, 06:23:09 AM »
I don't quite understand all this. I am applying for a mortgage now, and for various reasons need to use one particular lender who only has up to 5 year fixed options. I've said I want the lowest rate one, which is 1.74%, but that is not fixed. It might be too late for me to change, but why might I want a higher rate for 5 years?

never give up

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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #7 on: February 16, 2018, 06:46:13 AM »
Hi Kwill. This will depend on your expectations of interest rate rises in the future. By fixing for a longer period you have certainty of your payments and budget. If you are on a variable rate then the interest rate will rise and fall at any time. If you only fix for a year and interest rates go up 2% during that time the more expensive 5 year fix from a year ago may suddenly look cheap.

I guess this all ties into the investing versus mortgage paying debate again and your goals around this.

Kwill

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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #8 on: February 16, 2018, 07:38:35 AM »
Thanks, never give up. I guess what I really want is a crystal ball to see the future and figure out which is better in the long run. This one is only discounted for 2 years, after which I guess I would have to do something else, but it's also the only one that doesn't have any restrictions on pre-payment. I thought I might pay extra while the required payments were low so as to owe less later.

never give up

  • Bristles
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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #9 on: February 16, 2018, 08:57:54 AM »
Yes Iím afraid I canít help you on the crystal ball front. I was a five year fixer. I didnít see it as more expensive than the 2 and 3 year fixes because I valued the piece of mind in knowing my payments couldnít go up. So I was happy to pay this small premium. I was also happy with the amount it let me overpay.

I guess if someone falls into the category of an investor over a mortgage payer, and they are happy to have the mortgage for years and pay the bare minimum, then they are probably brave enough to pick the cheapest mortgage possible. They probably donít fear the interest rate rises as they are happy the stock market will beat the mortgage rate in the long run.

If however you hate debt and want to mortgage overpay alongside investing, the longer term fix may appeal more. I bet the 5 year fix rate you have been quoted (although higher than the 2 year fix) is a lot cheaper than the historical average. Thatís why the op is happy with the ten year rate quoted here. Although higher than some shorter term deals, historically that is a very low rate to have fixed for that length of time.

Kwill

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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #10 on: February 17, 2018, 07:39:38 AM »
That's helpful. Thank  you.

PhilB

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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #11 on: February 18, 2018, 01:39:06 AM »
Hi Kwill.  The other massive factor to consider is your ability to cope with an interest rate rise. 

The banks offering 10 year fixed rates are taking on the risk of market rates going higher than that and pricing them accordingly.  On average, therefore, you would expect variable rates to save you money - but only in the same way that you would expect not taking out insurance to save you money 'on average'.  If you could cope with interest rates going up to say 5% or more then you might take the variable rate in the same way that you wouldn't bother buying insurance on your tumble dryer.  You'll probably win and you can cope if you lose.  If 5% interest rates would bankrupt you then the 10 year fixed rate makes a lot more sense - like insuring your house.

edgema

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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #12 on: February 19, 2018, 05:34:23 AM »
Without doubt this is about security of cash flows which is important to me as I am close to FIRE. People have covered the difference between floating and fixed rates but a couple of other observations.

1) Refinance risk - I have always steered clear of shorter term fixed rates as I fear the refinance risk as these mortgages usually ratchet up to un-competitive rates at the end of the fixed period. If for whatever reason the computer says no and you cannot refinance you are stuck at these horrible rates. I know I have that in 10-years time but having this risk every 2 or 3 years never sat comfortably with me. You also have to factor in the refinancing costs in money (and time) as well. Personally, this is particularly relevant now as in 14 months I will be 'unemployed' and the computer will definitely say no!

2) Relative value - The heated competition between lenders has always been on the shorter term deals and the longer term deals were much worse value even accounting for the additional security. As I mentioned, not long ago the same 10 year deal was something like 3.8%, so the difference in cost to floating / short term deals was massive. For the first time ever I feel the spread is now good value. Works for me to have the 5-years of additional security for 0.55% a year (vs the 1.8% deal quoted)

3) Range of outcomes - Were you fixing when rates were higher and you had to pay say 5%, you have watched as floaters rode the wave down and now pay very little. Painful. But where things stand now you cannot be that 'wrong' as rates just cannot come down much in absolute terms. Feels like the risk of feeling like an idiot for fixing are very low as we are now in a rate hiking UK with modest but persistent inflation.

It is definitely true that historically it has always been better to float rather than fix, but that is partly due to the fact that yields have relentlessly come down over the past couple of decades. The biggest bull run in fixed income there has ever been. As such, I am not sure for the next 10 years that it will be true that you are paying the insurance premium for security, and the reverse might be true. It is true historically and should be theoretically true, but I think with inflation running where it is and given that rates are going up, it might not hold for the next 10. At least that is implicitly my bet I suppose!

Wherever you are picking you point, what is clear is the borrowing money is super cheap right now.

sea_saw

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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #13 on: February 19, 2018, 07:13:11 AM »
Also @Kwill it's worth knowing that while most fixed rate mortgages come with a penalty for large overpayments (usually repaying up to 10% extra principal per year is allowed for free, but more than that comes with a charge), those penalties end when the fixed rate period ends.

So instead of overpaying every month for two years, you could just keep the money you would have used for the overpayments in a savings account, then when your fixed period is up, use it to reduce your principal before getting your next fixed period (or not, as you prefer).

Depending on the amounts and rates involved you may not be able to beat your mortgage rate in a savings account Ė so there might not ultimately be much in it, especially if you aren't eating a higher rate for the privilege of free overpayments. But I thought it was worth pointing out. It's an underutilised option because for most people, if they don't overpay it into the mortgage they'd just spend it.

It's also worth remembering that there may be fees associated with getting a new mortgage deal when this one is up, which is another potential advantage to a longer fixed rate period. (Not all of them have fees, but the ones that don't tend to have higher interest rates, so it's just another number crunching exercise when you get there as to which deal is best).

Ultimately I like to remind myself that it's okay to take a stab at doing a Reasonably Sensible And Advantageous Thing and not stress too much that it might not be the Optimum Thing (that requires a crystal ball). You're already ahead of most of the population here.

Kwill

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Re: UK 10 year fixed mortgage at 2.39% - I am biting their hand off.
« Reply #14 on: February 20, 2018, 07:25:03 AM »
Thank you, @PhilB @edgema @sea_saw. This is all good to know. I am particularly comforted by the idea of it being okay to do a reasonably sensible thing even if it does not turn out to be optimal. You all are making the fixed mortgages sound pretty good, but I am afraid it may be too late to switch at this point. I guess it wouldn't hurt to ask. I'm out of the country on an awkwardly timed long work trip. I let the seller's agent know that I would be gone, and they still thought there might be a chance of completing next week or the first week of March.