3 ms·

"a changing fixed rate" sounds like an oxymoron to my ears.

kypro 4y ago
Yes, this is why I've always been critical of fixes in the UK. They're not really fixes. You basically pay a significant premium and risk large early redemption charges for "long-term" fixes here in the UK (5-10 years), and even then they're not fixed for the lifetime of the mortgage so you still won't get the full protection from rate moves. The best option you have in the UK is generally a 2 year fix because the fees and premiums are more reasonable. If I could take a US style mortgage I would have obviously. We just don't have that option here unfortunately. It's hilarious though because you see so many articles written by "experts" here in the UK suggesting people take out fixes to protect themselves from rate moves, but a 2-5 year fix basically offers no meaningful protection. I'm not against people taking fixes, but I just wish they weren't sold in the way they are. They're barely safer than trackers and depending on your circumstances, you might actually be better with a tracker in many cases. As I said in another comment, people fixing for longer periods today may not realise they're locking themselves in to much higher rates for years and will be unable to switch to a better deal or sell their home without incurring large fees. The price you pay for that marginal safety really needs to be considered carefully.
- pjc50 4y ago
  Conversely, the US 30-year-fixed mortgages are fixed at a much higher spread vs the central bank rate. You pay a premium for the bank to insure you against higher rates. It's effectively option pricing, and neither side has a free lunch. I was very happy to get a <2% fix for five years last year. I don't consider myself "locked into a high rate" because the rates are asymmetric: interest rates get weird towards zero and you're never going to see a negative nominal mortgage rate. (as rates tend towards zero, house prices would tend towards infinity)

Yes, this is why I've always been critical of fixes in the UK. They're not really fixes. You basically pay a significant premium and risk large early redemption charges for "long-term" fixes here in the UK (5-10 years), and even then they're not fixed for the lifetime of the mortgage so you still won't get the full protection from rate moves. The best option you have in the UK is generally a 2 year fix because the fees and premiums are more reasonable. If I could take a US style mortgage I would have obviously. We just don't have that option here unfortunately. It's hilarious though because you see so many articles written by "experts" here in the UK suggesting people take out fixes to protect themselves from rate moves, but a 2-5 year fix basically offers no meaningful protection. I'm not against people taking fixes, but I just wish they weren't sold in the way they are. They're barely safer than trackers and depending on your circumstances, you might actually be better with a tracker in many cases. As I said in another comment, people fixing for longer periods today may not realise they're locking themselves in to much higher rates for years and will be unable to switch to a better deal or sell their home without incurring large fees. The price you pay for that marginal safety really needs to be considered carefully.

pjc50 4y ago
Conversely, the US 30-year-fixed mortgages are fixed at a much higher spread vs the central bank rate. You pay a premium for the bank to insure you against higher rates. It's effectively option pricing, and neither side has a free lunch. I was very happy to get a <2% fix for five years last year. I don't consider myself "locked into a high rate" because the rates are asymmetric: interest rates get weird towards zero and you're never going to see a negative nominal mortgage rate. (as rates tend towards zero, house prices would tend towards infinity)