Interest rate estimates - are trackers really good value?

straddie

Shrewdlywalking wrote: »

Not wanting to butt in, but unless wage inflation rises sharply they are unlikely to hike interest rates too severely over the coming months – what would be the benefit? Historically, the rate we have currently is still quite low, the highs of the 90s would not have been allowed has the BoE had independence. By all means take you fixed rate and feel comfortable and secure in you future, but borrowers running scared will only make a poor situation seems much worse than it is…..Individuals need to do what they feel is best, but you just feel that there is too much scaremongering and not enough considered thought!

I agree with lisyloo. BR and mortgage rates have become somewhat disconnected, so even if wage inflation stayed low, that doesn't mean that mortgage rates will stay stable or decrease.

As has been said earlier in the thread, the advantages of a long term fixed rate don't just relate to the interest rate figure either - they give you stability to assist you in preparing for lifestyle changes such as a family or new job; they also shelter you from negative equity, from tightening lending criteria, and avoid the need to pay exorbitant fees every 2-3 years. And with the First Direct deal in particular, the flexibility it offers means you can do so much more with your mortgage (overpay, underpay, borrow back etc) than a normal short term fixed deal, and even most other longer term deals.

These are factors which the average remortgager looking for the smallest jump in their payments may not immediately think about, so it is worth pointing them out.

lisyloo

but if the inflation that we are currently seeing is just a blip, which is likely as it is without wage inflation

I've just had a look at the BOE inlfation report and it does indeed look like a blip (acccording to them).
It also implies fairly level rates (well that's what I inferred anyway).

If that's the case then it really is very finely balanced between fix and tracker.
At the moment I'd rather have the security in these uncertain times.

straddie

I think it's worth pointing out we're discussing two different choices here:

- Fixed v tracker
- Short term v long term

The first of these choices is primarily influenced by the outlook of interest rates. The second of these choices has wider influences eg house prices, credit crunch, lifestyle choices.

You can have most of the benefits of a long term fixed rate with a lifetime tracker - ability to overpay, shelter from negative equity, stability to allow lifestyle changes etc.

Likewise, whether you were to go for a short term deal, whether fixed or tracker, you would still face the risk of negative equity/high LTV when the deal expires, you don't tend to have much scope to overpay, have regular fees, and run the risk of a lifestyle change clashing with the remortgage.

So there are two different decisions to make, and two sets of criteria to base those decisions on.

lisyloo

The first of these choices is primarily influenced by the outlook of interest rates.

I don't thinkI'd agree with that (although I certainly agree with the general point).
I don't pretend to know the interest outlook for 10 years.
I think it should be primarily based on circumstances and attittude to risk.
Anyone who tries to second guess interest rates is a bit foolish IMO as they are trying to out wit the bankers at their profession.
If it was based on rates then it should be based on lending rates and not BOE rates.
Over the last 2 years the margin has gone up about 1%.

straddie

lisyloo wrote: »

I don't thinkI'd agree with that (although I certainly agree with the general point).
I don't pretend to know the interest outlook for 10 years.
I think it should be primarily based on circumstances and attittude to risk.
Anyone who tries to second guess interest rates is a bit foolish IMO as they are trying to out wit the bankers at their profession.

Yes, sorry, my statement was a bit too general - I didn't mean a literal outlook on interest rate figures for 10 years, but basically how prepared you feel to cope with any future fluctuations in the base rate. If you're prepared to take a risk on rates rising then a tracker will give you the chance to take advantage of lower initial rates.

This is still a decision ultimately influenced by interest rates rather than house prices, remortgage fees etc though, which is the distinction I was trying to make.

lisyloo wrote: »

If it was based on rates then it should be based on lending rates and not BOE rates.
Over the last 2 years the margin has gone up about 1%.

Hmm this is more a short v long term matter - once you're on a tracker deal, it will only move up and down as much as the base rate, regardless of what the latest lending rates are. So when deciding on a tracker over a fixed, you don't need to consider the future lending rates, only the future base rates. When you're deciding on a short v long term deal then you do need to think about lending rates, because if you choose a short term tracker, you may find remortgage deals are tracking at a higher margin above base rate.

Hope that made sense!

aliwali

We had to go on the SVR of our old mortgage for 2 months at 7%. We managed ok and this was our base comparison. We decided that it would be tight but we could have afforded more than 7% so choosing a tracker at +0.48% meant that we would be ok with maybe 8 0.25% rises before it would become a major problem. Plus fees were lower and there was no exit fee so we could change easily if we needed to.

We have always had fixed rate mortgages before, but we have our family now, I am back at work and we don't have any other debts so at our stage in life a tracker seemed like a good idea. I guess we'll just have to wait and see over the coming months whether it really was or not.

curlyboy

things are very depressing AT THE MOMENT

lisyloo

things are very depressing AT THE MOMENT

I fear this is really just the start. So get your finances organised and batton down the hatches.

foreversummer

I have to smile reading the last couple of threads!

I've been through several recessions, been through 15% interest rates with a mortgage and a good deal more, but do you know . . . . . life goes on! I've been through periods where money has been extreeeemly tight but hey, you cut your cloth and all that, and actually it really wasn't all that bad . . . honest!

I don't wish to make light of what is happening, obviously some folk are going to hit hard times, but the majority of people will go about their lives, just as we are doing today, just as we were doing last year, and nothing very much will change apart from the fact they may have a few bob less to spend.

There is far worse things going on in this world and folk suffering a hell of a lot more than any of us are likely to.

Foreversummer

curlyboy

Foreversummer not been rude u sound a bit old fashioned in this day and age u look out for number 1 and number 1 only no one else will, I dont give a !!!!!! about other folk or people or whats going on in the world as long as i have a roof over my head bils paid and food on the table thats whats matter yes life goes on