Tracker vs Fixed

nevets2001uk

After my fist post about mortgage insurance which is really helping me I thoughts I'd also ask a question regarding tracker vs fixed.

I'm pretty happy I understand the different types of mortgage and how they work. What I'm really trying to understand is what is best to choose in the current market?

I've been offer a reasonable tracker option which is 1.08 above base and therefore cheaper p/m than the fixed options I've seen of around 6.58+%

Our situation is that currently I am the main wage earner and we've budgeted that we can afford a fixed mortgage with approx £750-800 repayments but could live much better if we go tracker at approx £710 p/m. These are fixgures on a 40 year mortgage which we intend to overpay as much as possible and later reduce to many less years once my partner is earning (approx September 2009) her teachers wage.

We are looking to cover ourselvess to ensure things are not too tight, budgeting to end up with £400 (ideally) after food and all bills and expenses.

Even if the base rate goes up .5% it should be cheaper than a fixed, so my questions really is, how likely is it that it could climb even higher than that and start costing more than a fixed rate?

We're looking at a 2 year tracker so can re-evaluate once my partner is earning and the market settles.

Finally the discount options sound even better but I'm aware they jump to SVR after their term. Are these more risky potentially?

lisyloo

is what is best to choose in the current market?

I've been looking at this for months and it's a really difficult question.
I expect the BOE to hold for 2008 and drop rates in 2009, but I could be wrong and that could change depending on what happens in the meantime.

A few mortgage lenders have recently been dropping rates .
This could turn into a wider trend maybe.

i've been offer a reasonable tracker option which is 1.08 above base

First direct do BOE+0.99 and the fees are pretty good.
You can also get an offset tracker which is very flexible.

how likely is it that it could climb even higher than that and start costing more than a fixed rate?

Sorry, I'm really not trying to be unhelpful but this is an impossible question for people to answer.
It is certainly possible in my view that base rtes could be higher than 5.5% (they have in the recent past peaked at 5.75%).
It also possible that mortgage rates (independent of BOE rates) CAN go up (but NOT if you are on a BOE tracker).

We're looking at a 2 year tracker so can re-evaluate once my partner is earning and the market settles.

Only my opinion but I expect the economy to be in s**t street in 2 years time, so it's too short a timescale to fix IMO.
Also you need to pay fees again (which can be quite high).
I'm going for 10 year deal as I don't want to pay fees FIVE times.

Are these more risky potentially?

Everything has a risk.
The risk of a variable rate is that it can rise beyond your affordability and you lose the house.
The risk of a fixed rate is that you pay too much.
Which is better for you depends on your circumstances and attitude to risk.

I'm ot trying to be evasive but you are asking impossible questions that no-one can answer.
All you can do is consider the possibilities, consequences and risks (which looks like you are already doing that).

FWIW - I am currently erring towards a tracker as I think mortgage rates are coming down and base rates will drop in 2009, but I do sometimes change my mind.
I certainly favour a longer deal and have booked a 10 year.

You might want to look at First Direct offerings because
a) their fees are low
b) their flexibility is superb on the offsets.

essexsi_2

Hi,

I too have been wrestling with this issue as my mortgage term with Nationwide is up at the end of September.

I have booked a fee free 5yr fix with NW @6.45%, this has recently been dropped to 6.18%. As no fee has been paid I have been told I can switch to the new rate.

I would prefer a long term fix, but am tempted to book the fee free life time tracker with [EMAIL="NW@ BOE+0.98"]NW @ BOE+0.98[/EMAIL]. This product allows you to switch to any NW fix rate at anytime, you just need to pay the new product fee.

So my plan is to then wait (hopefully!) for the rates to drop a little more in 2009 and then move to a good long term fix with NW.

Having said all that the First Direct products look a great option and indeed I would of snapped them up if they would of had me.

Keep your options open!

All the best Si

DaftMule

Just in the middle of re mortgaging myself. We have decided on a BoE base rate lifetime tracker with the Woollich at 0.89% above base with no fees and no early redemption attached. We could have gone for the latest offer from Woollich which is 0.69 above base but there was a 3 year early redemption tie in and a £900 arrangement fee. A better rate, but for our situation where flexibility is handy for us, we are better off with the 0.89% tracker. In fact, when you add up the cost of a 0.89% tracker over 3 years against the 0.69% tracker over 3 years (including it's £900 fee), the difference is minimal.

I found it useful to compare say a discounted tracker with a base rate tracker by this method of totalling up the monthly cost over a period of 2 or 3 years (depending on tie-in attached to discounted tracker) in each case adding any fees for setup into that total cost. Surprising the result sometimes. For example, a standard tracker at 5.99% for 2 years against the HSBC discounted tracker at 4.99% but with a whopping £2,500 arrangement fee + a bit for "admin" etc actually worked out as the 4.99% being cheaper despite the huge arrangement cost.

It's a crude calc but I found it useful for comparison.

My view on the current situation...possibly a 0.25 to 0.5% increase in the BoE base rate over the next year. But, I think by next year lenders are going to be more confident and we are going to see better deals coming out. Hence, I want to be in a position where I can take advantage of those deals if our situation dictates. So, a tracker with no ties suits us best for now, even if we see the rate go up a quarter point or so. If the base rate falls...great. We see the immediate benefit. The one thing you can be sure of is that a lender will be quick to increase their variable rate when the base rate goes up but if the base rate falls, I'm guessing they will drag their heals to drop their own variable rates. So, those on discounted trackers set against a lenders variable rate are not going to see the benefit of base rate drops as quickly.

boinging_2

It depends on how risk adverse you are. As per other posters above, I think if you can secure a pretty good tracker with no fees (BOE + 0.69%) with no tie in and unlimted overpayments then it's a risk worth taking.

Compared to even the best fix rate (c5.99% + £999 fee) I figure that without paying a fee I can absorb interst rates rising about 1.25% before the tracker becomes more expensive. Plus the great thing with the tracker is I can jump on to a fix rate if things start to look really bad with interest rates.

nevets2001uk

Thanks for all the help so far. I know I'm asking some impossible questions but I'm getting a god understanding of things from your answers.

The lifetime tracker with no tie-in's does sound pretty good. As long as we could switch to fixed if need be, either because there's a good low fix or if things start to rise to much and we want to fix.

I notice on Nationwide that under first time buyers their borrowing limit is 75% of the value of a new build flat and 90% for a house. We are looking at flats and need approx 88% mortgage so I guess this rules out their offers.

Are there any other similar deals around that are suitable for LTV of 90%

lisyloo

As long as we could switch to fixed if need be

The only danger here is that by the time rate rises are obvious to the man in the street, then fixed rates may have risen.
You are gambling on being quicker than the banks (professionals) which logically has to be a bad plan.

Are you going to be monitoring the MPC minutes and LIBOR rate all the time?
or might you be just getting on be life or away on business?

The option IS there to change but I'm just warning that there is a risk that fixed rates won't be that fantastic at the point that it's obvious that rates might rise (plus there might be fees).
But nevertheless you DO have options.

Nero_2

My first post here.

I just looked at Nationwide's and from their website you need to pay £599 fee for Lifetime tracker but some of you said it is 'fee free'. Can you someone expand on this please?

Thanks.

lisyloo

I believe that "fees free" means there are no legal or valuation fee.

I agree it's confusing.

essexsi_2

Hi,

Just be aware that the NW tracker ties you in, unlike for example the HSBC life tracker. With the NW you can switch at anytime to one of their own fixes. If you want to switch to another provider then you have to pay ERC's within the first 5yrs I believe.

A few weeks ago I was quite happy to fix with NW for 5yrs @6.45%. By going onto their life tracker I can switch to one of their fixes at anytime. Not wanting to gamble, as soon as it starts with a 5 I'll jump in and fix with them.

All the best Si

spmc

I think the fee free relates to existing customers - certanly that is the case for the 5 year 6.18% fixed