This reality isnt made clear in the application process, they borrow on past performance of your savings and salaries.
A couple of things to bear in mind.
Until last August, mortgage lenders were required to stress test borrowers to check they could continue to repay in the event of a three percentage point increase in rates - that rule at least used to act as a check on people getting completely caught out by rising rates on a go-forward basis.
The other thing to remember is that (abstracting from wider rate changes) your mortgage rate ought to come down over time as you remortgage, as your loan-to-value ratio will improve each month because of your repayments. In a rising rate environment, that at least gives some offset to the rate increases. I’m coming to the end of a 5yr fix but my LTV bracket has improved enough over that period that my monthly mortgage payments ought not to increase horrifically if I do remortgage for another 5yrs.
I expect to go 5yr again because I know I can afford it and I’m risk averse.
Paying up for a 2yr fix now followed by a cheaper 3yr fix when it expires might work out cheaper overall (if rates do come down in 2025/6 as people expect) but there’s enough uncertainty in the economy/politics/geopolitics that I’d prefer not to take the chance.
Mine 5 yr fix ends in early 2027, I think if rates are still high I’ll only fix for 2 years next time, it’s a dice roll but I think eventually we will stabilise around 3-3.5% base rate
A couple of things to bear in mind.
Until last August, mortgage lenders were required to stress test borrowers to check they could continue to repay in the event of a three percentage point increase in rates - that rule at least used to act as a check on people getting completely caught out by rising rates on a go-forward basis.
The other thing to remember is that (abstracting from wider rate changes) your mortgage rate ought to come down over time as you remortgage, as your loan-to-value ratio will improve each month because of your repayments. In a rising rate environment, that at least gives some offset to the rate increases. I’m coming to the end of a 5yr fix but my LTV bracket has improved enough over that period that my monthly mortgage payments ought not to increase horrifically if I do remortgage for another 5yrs.
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I expect to go 5yr again because I know I can afford it and I’m risk averse.
Paying up for a 2yr fix now followed by a cheaper 3yr fix when it expires might work out cheaper overall (if rates do come down in 2025/6 as people expect) but there’s enough uncertainty in the economy/politics/geopolitics that I’d prefer not to take the chance.
Mine 5 yr fix ends in early 2027, I think if rates are still high I’ll only fix for 2 years next time, it’s a dice roll but I think eventually we will stabilise around 3-3.5% base rate