1 or 5 year fix?

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Subotai

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I am currently with AIB, on a variable rate of 2.75%. I am in the middle of switching to KBC, and i am either going to go with a 1 year fixed rate of 2.5% or a 5 year fixed rate of 2.6%.

Now the general consensus out there seems to be that the ECB will raise rates towards the end of next year. With that in mind, if i go with the 1 year fix now, will i have enough time to get a good 5 year fixed rate next year before rates start increasing? Or will i have missed the boat?

I am hoping that rates might fall further this year and next, so if i fix for 5 years now, I won't be able to gain from this. Wheras with the 1 year fix i might.

So my question is should i fix now for the certainty of a lowish rate of 2.6% for 5 years, or take the 1 year 2.5% fixed rate now, and hope that by next September, the 5 year fixed rate will be lower than it is now??
 
If someone had a definite answer to this question, they would make a fortune on the financial markets.

Nobody knows what future interest rates will be - there is a consensus that will eventually increase but when ..
 
You've to way up the risks of missing the bottom of the market (assuming we're not there already) versus losing out on current good deals. Before worrying about evening out all you can I'd first review your own finances and see how much of a rate increase you can absorb. If you are stretched now I would fix for as long as possible now - no point putting your home at risk for the sake of playing financial markets.

Given the difference is so marginal why not fix for 5 years. You can always look to break out of the fixed rate if there are better rates. If I were you I'd review the following thread

https://www.askaboutmoney.com/threads/understanding-fixed-rates-breakage-costs.204427/
 
My crystal ball is broken, but a few thoughts:

If you look at interbank funding / swap rates, the market has already priced in its consensus of rate rises.

When a bank lends fixed rates, they have fixed it in the market, so their cost of funds is linked to market rates.

All other things being equal, if market predictions play out, a 5 year fixed swap next year will cost more than it does right now.

However, similar to you, I believe there is room for bank margins here to tighten further, so any increase in cost of funds over the next year will likely be at least offset by reduced margins.

These are my own musings. I think banks will become a but more selective in the business they compete for, especially as rates begin to rise, but at the moment it's purely a fight for market share.

As pointed out above, if market rates increase you'll be able to break out of a long term fixed with minummi or no cost.
 
My own view is that rates can fall further due to competition whilst the ECB rate should rise, but not significantly.

So on balance I actually think they’ll fall more than they’ll rise if that make sense.

i.e. the further reductions due to competition will be greater than any ECB-related increases.
 
Interesting perspectives. It's impossible to predict, as everyone said, but my opinion is that locking in the 5 year rate of 2.6% is a much lower risk option than taking the 1 year rate and hoping that rates are lower 12 months after closing. Given that OP is still in the middle of the switching process, it will likely be Sept/Oct 2019 by the time the first year ends. My bet is that the lowest fixed rates in the market at that stage will be higher than they are now. Even when AIB inevitably decide to start competing on fixed rates, will they go below 2.6%? EBS, BOI and PTSB are even less likely to consider it, given their up-front cashback offers. Ulster Bank and KBC have been at the forefront of competition in mortgage rates for the last few years (with the exception of AIB's ill-timed decision to compete mainly on variable rates). Current rates have been driven down almost exclusively by these two banks, and they have just arrived at a point where there is very little difference between them, so I can see this being the floor, unless another bank makes an unexpectedly strong move.
 
If OP decides to take the 5 year fixed rate now and in a years time the fixed rates haven't changed can they ask their bank to begin a new 5 year fixed term taking him up to 2024? Or would this involve breakage fees etc.?
 
ANCHOR MAN said:
If OP decides to take the 5 year fixed rate now and in a years time the fixed rates haven't changed can they ask their bank to begin a new 5 year fixed term taking him up to 2024? Or would this involve breakage fees etc.?
Click to expand...
There could be a break fee, because they'll be comparing the 5 year fixed rate now to the 4 year rate next year. So if interbank rates remain as they currently are, there would be a break fee.
 
We just completed our switch to BOI and decided on a 2 year fix. Will revisit options after 2 years but would consider moving again at that time.
 
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