Mortgage decision - long term base rate predictions

[Sound Money]

Looking for some opinions. Currently on a mortgage that is locked to base rate for the mortgage term, so has gone from 0.5% to 5% now. This is a benefit as a bank employee. However, if surrendered it is not possible to get this deal back.

I could alternatively switch to a 5 or 10 year fix of approximately 3.9%.

So the question is, do you see rates going back below 3.9%, meaning it’s worth holding on to this base rate mortgage that I otherwise couldn’t get back, or switch now and lock for 5-10 years.

I’m leaning towards the latter. Additionally, if I switch jobs I also lose this benefit

[King Penda]

4 minutes ago, Sound Money said:

Looking for some opinions. Currently on a mortgage that is locked to base rate for the mortgage term, so has gone from 0.5% to 5% now. This is a benefit as a bank employee. However, if surrendered it is not possible to get this deal back.

I could alternatively switch to a 5 or 10 year fix of approximately 3.9%.

So the question is, do you see rates going back below 3.9%, meaning it’s worth holding on to this base rate mortgage that I otherwise couldn’t get back, or switch now and lock for 5-10 years.

I’m leaning towards the latter. Additionally, if I switch jobs I also lose this benefit

Are you allowed and can you afoard to overpay by 10% per annum?

[Axeman123]

What are the penalties on the hypothetical 10yr fix to remortgage?

If they are low the security of a fix that isn't dependant on employment, and the option to remortgage if you have a shot at a much lower fix would be very valuable IMO. If they are high that makes it a much tougher choice. How comfortable would 3.9% be long term? 

If rates do drop to near zero next year it will be because the wheels have come off and likely short lived, in that scenario spreads to base rate on mortgages could easily keep them above 3%. Also consider lenders' appetites, valuations/LTV, and whether your job could go at just the wrong time preventing you switching products.

Peace of mind is an underappreciated commodity. Like oxygen you only miss it when it is gone.

[Stuey]

We're going to face massive (healthy) cost-push deflation towards the end of the year, as prices follow energy down like they followed it up.  The short term blip in interest rates will reverse very quickly.

I'd hold.

I'd love to buy some gilts in the next month or two. 

[TNS]

20 minutes ago, Stuey said:

We're going to face massive (healthy) cost-push deflation towards the end of the year, as prices follow energy down like they followed it up.  The short term blip in interest rates will reverse very quickly.

I'd hold.

I'd love to buy some gilts in the next month or two. 

Only if the Ukraine shit ends and nato give up in favour of some sort of peace. Otherwise, come winter, gas prices will rocket again.

[Wight Flight]

1 hour ago, Sound Money said:

Looking for some opinions. Currently on a mortgage that is locked to base rate for the mortgage term, so has gone from 0.5% to 5% now. This is a benefit as a bank employee. However, if surrendered it is not possible to get this deal back.

I could alternatively switch to a 5 or 10 year fix of approximately 3.9%.

So the question is, do you see rates going back below 3.9%, meaning it’s worth holding on to this base rate mortgage that I otherwise couldn’t get back, or switch now and lock for 5-10 years.

I’m leaning towards the latter. Additionally, if I switch jobs I also lose this benefit

How much could you afford rates to go to before it caused you difficulties?

[Sugarlips]

3.9% is pretty low at this point given the 2 year gilt is over 5% now. Can you lock that in before it's pulled?

[Virgil Caine]

1 hour ago, Sugarlips said:

3.9% is pretty low at this point given the 2 year gilt is over 5% now. Can you lock that in before it's pulled?

Yield on 10 year gilt is currently 4.37 according to the FT so 3.9% looks a very reasonable fix. I would imagine there are a lot of current mortgage holders who would be very happy to take that offer.

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

Edited June 27, 2023 by Virgil Caine

[Pip321]

Who is the fixed rate with ie is it from a general provider or Is the 3.9% also an employee deal because you need to factor in the benefit in kind should HMRC alter its rates moving forward

If you are tracking base then last year and this year there will be almost no benefit in kind

Taking a fixed rate is a tricky decision and generally I would say it’s comparing apples and oranges ie who takes the risk, the man who fixes or the man who doesn’t? I would tend to choose the one that meets your needs rather than the one you think will ‘win’…..and as soon as I chose which, I would expect that due to Sod’s Law overall I will end up paying more…but I would except that.

Historically (real history not this made up stuff since 2008 crash) 3.9% is a good deal…..so if it’s a public offer let me know, I may switch to it. 👍

 

 

[Sound Money]

The 3.9% is also an employer benefit. I believe it’s their current public rate minus 1%. That would also be lost (presumably the 1% discount) if changing jobs.

Full disclosure it’s not actually me in this situation but a family member who asked me for advice - I just wrote is as though it was me as it was easier.

I’ll check on what overpayments are allowed since that was one of their concerns about going with the fix, especially the 10 year, and on the penalties for remortgaging during the fix.

Seems there isn’t consensus on whether rates will come down, so I guess it all depends on their risk appetite (which is low, so I think I’ll advise they should fix before rates go up any further)

 

[King Penda]

4 hours ago, Stuey said:

We're going to face massive (healthy) cost-push deflation towards the end of the year, as prices follow energy down like they followed it up.  The short term blip in interest rates will reverse very quickly.

I'd hold.

I'd love to buy some gilts in the next month or two. 

If he overpays at 10% he can’t fucking loose unless interest rates go negative.it’s peace of mind has much has anything he wants it’s also a buffer zone to redundancy 

[Sugarlips]

12 hours ago, King Penda said:

If he overpays at 10% he can’t fucking loose unless interest rates go negative.it’s peace of mind has much has anything he wants it’s also a buffer zone to redundancy 

With inflation where it is I agree unless so long as they are aware f the consequences if they leave their job at some point plus banks are shedding staff a lot these days - shame our crystal ball is broke,

[snaga]

15 hours ago, Sound Money said:

The 3.9% is also an employer benefit. I believe it’s their current public rate minus 1%. That would also be lost (presumably the 1% discount) if changing jobs.

Full disclosure it’s not actually me in this situation but a family member who asked me for advice - I just wrote is as though it was me as it was easier.

I’ll check on what overpayments are allowed since that was one of their concerns about going with the fix, especially the 10 year, and on the penalties for remortgaging during the fix.

Seems there isn’t consensus on whether rates will come down, so I guess it all depends on their risk appetite (which is low, so I think I’ll advise they should fix before rates go up any further)

 

is it a taxable employee benefit?

[HousePriceMania]

22 hours ago, Sound Money said:

Looking for some opinions. Currently on a mortgage that is locked to base rate for the mortgage term, so has gone from 0.5% to 5% now. This is a benefit as a bank employee.

As someone who was forced to bail out the banks.

Go f**k yourself

Harsh I know,  but that's how I feel, that's my opinion.

 

Tell everyone you work with, I said they should go f**k themselves too.

 

[Sound Money]

3 hours ago, snaga said:

is it a taxable employee benefit?

Yep

2 hours ago, HousePriceMania said:

As someone who was forced to bail out the banks.

Go f**k yourself

Harsh I know,  but that's how I feel, that's my opinion.

 

Tell everyone you work with, I said they should go f**k themselves too.

 

I get that and I hate banks too. It’s not actually me it’s a family member, and they need the money. They unfortunately aren’t in a position to give up a decent paying job

[eek]

4 hours ago, snaga said:

is it a taxable employee benefit?

Nope - 3.99% is currently above HMRC's rate for being a tax benefit which is 2.25% so no tax would be due see

https://www.gov.uk/government/publications/rates-and-allowances-beneficial-loan-arrangements-hmrc-official-rates/beneficial-loan-arrangements-hmrc-official-rates

Now it's a different story for anyone on a fixed rate below 2.25% though but I suspect that would be too complex for HMRC to deal with...

[With a crooked smile]

4 hours ago, HousePriceMania said:

As someone who was forced to bail out the banks.

Go f**k yourself

Harsh I know,  but that's how I feel, that's my opinion.

 

Tell everyone you work with, I said they should go f**k themselves too.

 

I believe you sold to rent a very long time ago because you thought you could time the market. 

Ultimately you probably could have stuck and paid that mortgage off by now. You made a decision and it wasn't the right one.

No falls in property prices over the next 18 months will change that position. 

What's the plan now? Will you ever buy a house? Personally I don't think you will.

One thing is for certain moaning repeatedly over multiple platforms on a daily basis isn't going to do your mental health any good.

[Covid19 and life to go]

21 hours ago, HousePriceMania said:

As someone who was forced to bail out the banks.

Go f**k yourself

Harsh I know,  but that's how I feel, that's my opinion.

 

Tell everyone you work with, I said they should go f**k themselves too.

 

@Frank Hovis wait until he finds out what canvassing is!

[Sugarlips]

Was a decision made or have the numbers changed already anyway? What a difference a week makes.

[Sound Money]

On 06/07/2023 at 11:52, Sugarlips said:

Was a decision made or have the numbers changed already anyway? What a difference a week makes.

Numbers have changed already. They were too slow. They’re sticking on the base rate tracker now as the 5 year fix is now over 5%, but going to pay down the mortgage with extra savings instead of stocks

[steppensheep]

the funny thing is, the current. "high" interest rates are even more negative in real terms than previously. ive never really understood how we got here and how the economy continued to function with negative rates, but equally i now dont understand why people think the new norm will be for interest rates to remain higher as inflation drops.

[Chewing Grass]

3 minutes ago, steppensheep said:

the funny thing is, the current. "high" interest rates are even more negative in real terms than previously. ive never really understood how we got here and how the economy continued to function with negative rates, but equally i now dont understand why people think the new norm will be for interest rates to remain higher as inflation drops.

Suggest you have a go at this, its a good read and the Penguin Paperback (Sunlounger Material) can usually be had for £3 on ebay delivered.

I usually recommend it to people who want to understand this shtick if they haven't already.

https://oceanofpdf.com/authors/john-kenneth-galbraith/pdf-epub-the-great-crash-of-1929-download/

 

[King Penda]

33 minutes ago, steppensheep said:

the funny thing is, the current. "high" interest rates are even more negative in real terms than previously. ive never really understood how we got here and how the economy continued to function with negative rates, but equally i now dont understand why people think the new norm will be for interest rates to remain higher as inflation drops.

Yes they will drop but not to zero 

[crashmonitor]

On 09/07/2023 at 14:40, steppensheep said:

the funny thing is, the current. "high" interest rates are even more negative in real terms than previously. ive never really understood how we got here and how the economy continued to function with negative rates, but equally i now dont understand why people think the new norm will be for interest rates to remain higher as inflation drops.

Yep Base Rates at negative 2.3%, CPI almost four times over target and the World and his wife outraged by the fact we have even gotten to 5% Base Rates in the first place. The likes of Dinghra and Tenreyro on the MPC wanted to freeze rates at 3.5% months ago.There is now a concerted effort to stop any further rises, the Media led by Liam Halligan and Alex Brummer have become evangelistic in their call to stop this happening.

 

The odd thing is the FED, who have virtually defeated inflation across the pond, raised to 5.5% yesterday. How can our Rates be compatible  with that. If the target was really 2% you'd need about 5 years of deflation to get back on the long term target after Bailey's print- a - thon.

 

You just know that Monetary policy has an inflationary bias to protect house prices and about 10% of the population that are overstretched on mortgages ( and indeed the Government itself with its 2 trillion debt mountain) How the hell does the Market fall for this con and keep backing  Sterling when Bailey is turning it into toilet paper.

Edited July 27, 2023 by crashmonitor

[Democorruptcy]

12 minutes ago, crashmonitor said:

Yep Base Rates at negative 2.3%, CPI almost four times over target and the World and his wife outraged by the fact we have even gotten to 5% Base Rates in the first place. The likes of Dinghra and Tenreyro on the MPC wanted to freeze rates at 3.5% months ago.There is now a concerted effort to stop any further rises, the Media led by Liam Halligan and Alex Brummer have become evangelistic in their call to stop this happening.

 

The odd thing is the FED, who have virtually defeated inflation across the pond, may raise to 5.5%. How can our Rates be compatible to that. If the target was really 2% you'd need about 5 years of deflation to get back on the long term target after Bailey's print- a - thon.

 

You just know that Monetary policy has an inflationary bias to protect house prices and about 10% of the population that are overstretched on mortgages ( and indeed the Government itself with its 2 trillion debt mountain) How the hell does the Market fall for this con and keep backing  Sterling when Bailey is turning it into toilet paper.

Who are "the Market"? The BoE is there to look after bankers and they are doing OK, as is the financial sector in general? Sterling is in demand to buy chips in the UK casino?

The thing that puzzles me if why do the so called business interest groups fall for it? They have called for more mortgage lending etc. The more houses cost the more disposable income it takes from people to service the debt, so they have less cash to spend supporting businesses. Also there is no incentive to start a business and create jobs that could lose money, when they see all the governbankment props that go into the housing market, to make it the only game in town. FTSE's gone nowhere in over 20 years.