Tracker or fixed rate...? Advice needed!

steviejazzygee

I'm in a quandary and I'm pretty sure I'm not the only one.. was on a fixed rate with northern rock for the last 2 years at 4.79 and come september i'll be on their 7.49 as they try to shed as many borrowers as they can.
I've got a mortgage offer from halifax at 6.24 fixed for 3 years which obviously is a lot higher than what I was paying but is affordable for me, I could also go for their tracker at .79 above base rate, which would be considerably cheaper right now and if the BOE cuts interest rates in the next year as most people seem to be expecting I would be even better off.
Of course the risk with the tracker is that rates go up which is a distinct possibility as well with inflation possibly going to hit 6%. I guess the real question I want to ask is whats the risk of interest rates soaring now the way they did in the late 80s? If they go up a bit I would be ok, like say to 6 or 6.5, I could afford and even with that might still be better off over the 3 years than the fix considering that I will be saving money from next month, but if it went up to double digits like it did back then, to 12 or 15% then I would really be in trouble.
Although in that case surely everyone would be?? And even on a fixed rate as soon as it ended I would still be in a bad situation...
I don't know it's a tough decision so would love to hear what other people in similar situations or with more knowledge and experience than me would advise...
Thanks!
Steve

handful

The choice you face is the same choice as thousands of others are having to face, me included but thankfully not until the end of the year. (4.25% fixed for 5 years coming to an end :eek: )

The decision can only be made by you based on the usual questions like, what you can afford, attitude to risk etc. The consensus seems to be that rates will probably rise a little in the short term before dropping back next year and don't forget their is an election due before too long so I am swaying towards a tracker deal myself. Particularly because this sees an instant drop when rates come down rather than what has happened this year with LIBOR rates keeping SVR's disproportionately high.

I think it's unlikely we would see a return to double digit rates although having been a mortgage payer during this period, I am well aware of the dangers. Then again, what the hell do I know, every day there are conflicting headlines as to thich way the next movement will be so nobody can give you anything other than their opinion

I'm not a financial advisor by the way, just another concerned mortgage payer who keeps his ear to the ground.

steviejazzygee

handful wrote: »

The choice you face is the same choice as thousands of others are having to face, me included but thankfully not until the end of the year. (4.25% fixed for 5 years coming to an end :eek: )

The decision can only be made by you based on the usual questions like, what you can afford, attitude to risk etc. The consensus seems to be that rates will probably rise a little in the short term before dropping back next year and don't forget their is an election due before too long so I am swaying towards a tracker deal myself. Particularly because this sees an instant drop when rates come down rather than what has happened this year with LIBOR rates keeping SVR's disproportionately high.

I think it's unlikely we would see a return to double digit rates although having been a mortgage payer during this period, I am well aware of the dangers. Then again, what the hell do I know, every day there are conflicting headlines as to thich way the next movement will be so nobody can give you anything other than their opinion

I'm not a financial advisor by the way, just another concerned mortgage payer who keeps his ear to the ground.

well i appreciate your opinion thats what i was hoping to get was just some other peoples views in similar situations. that must have been painful paying double digit interest rates.. how did anyone afford it??
i spoke to a friend of mine yesterday who works for rothschilds and knows the financial markets pretty well and he also said its unlikely that we could return to that situation because apparently they have more sophisticated ways of combating inflation, currency strength etc than they did in the 80s but then i guess no one really predicted the credit crunch either!

straddie

What's your LTV like Steve? You also need to factor in the falling house prices, which some commentators say could continue for many years yet, plus the tightening of mortgage criteria. If prices fall faster than your ability to pay off the mortgage then you could find that in 3 years time you don't have enough equity to get a competitive deal. If you have a healthy LTV now then obviously you have a big cushion so it's less likely to be an issue.

I say this because you might find a lifetime tracker, such as those from HSBC, Woolwich and First Direct, a better option than a fixed term deal, as at least you wouldn't have to worry about the prospect of going through all this again in 3 years time. You'd also save yourself on remortgage fees.

As for my personal take on the fixed v tracker, we've been stressing about what the best thing is to do for so long that we've decided to fix for 10 years. May result in us paying more over the term if rates do fall, but at least we can forget about the mortgage for a decade. It's also an offset so we can mitigate against falling rates by boosting our savings to reduce the interest we pay.

steviejazzygee

straddie wrote: »

What's your LTV like Steve? You also need to factor in the falling house prices, which some commentators say could continue for many years yet, plus the tightening of mortgage criteria. If prices fall faster than your ability to pay off the mortgage then you could find that in 3 years time you don't have enough equity to get a competitive deal. If you have a healthy LTV now then obviously you have a big cushion so it's less likely to be an issue.

I say this because you might find a lifetime tracker, such as those from HSBC, Woolwich and First Direct, a better option than a fixed term deal, as at least you wouldn't have to worry about the prospect of going through all this again in 3 years time. You'd also save yourself on remortgage fees.

As for my personal take on the fixed v tracker, we've been stressing about what the best thing is to do for so long that we've decided to fix for 10 years. May result in us paying more over the term if rates do fall, but at least we can forget about the mortgage for a decade. It's also an offset so we can mitigate against falling rates by boosting our savings to reduce the interest we pay.

well i paid 170K and halifax did a drive by valuation of 230K, so i guess its around 70-75 LTV... which isn't bad but it's not a huge cushion so i take your point that if house prices keep falling for 3 years next time i remortgage could be even tougher. however my feeling is that prices will be on the way back up in 3 years time but of course thats pure speculation on my part!

if you fix for 10 years though u have to know that you're not going to sell within that time frame, isn't there usually early repayment charges for the fixed rate period?

for me thats too long because my work could potentially take me elsewhere so i don't want to commit to so long..

straddie

steviejazzygee wrote: »

if you fix for 10 years though u have to know that you're not going to sell within that time frame, isn't there usually early repayment charges for the fixed rate period?

for me thats too long because my work could potentially take me elsewhere so i don't want to commit to so long..

Although the deal includes an ERC (which isn't so high as to be catastrophic if we had to pay it), this only applies to exitting the deal altogether; the mortgage is portable with no charges incurred in the event that we want to move house (as are the lifetime trackers too incidentally, which tend not to include ERC either).

It sounds like you'll probably be ok with the LTV although the cushion could be bigger. My feeling is it will be a long time before house prices return to their peak last year - even if they stop falling before too long, they won't rise as quickly as they fell. End of the day though, nobody really knows!

It's all about risk at the end of the day and how much you're prepared to take on, whether that's in relation to interest rates, house prices, length of deal etc. We each have to make our own minds up based on our own circumstances!

GETITPAID

I am in the same boat as you .Currently on 4.29 % until 31st of October.On looking at the various deals my current lender Alliance and Leicester( A&L ) have offered me a lifetime tracker at 5.75.( NO FEES ATTACHED )
The best 3 year fixed at the moment would appear to be Nationwides at 5.98% although there is a £599 arrangement fee.

A&L would also want £295 redemption fee for leaving so with a total of £894 to pay out for a higher fixed rate i am willing to take a gamble with the tracker. ( keep your fingers crossed ):beer:

elsien

I'm in the same boat - fixed rate coming to an end in September. My situation is complicated by the fact that I have paid off most of my mortgage, so am looking for low fee/fee free deals, because it really isn't worth paying a huge fee.
The only fee free deals I've seen, both tracker and fixed rate are for 5 years, and the fixed rate (Nationwide) is currently higher than the svr. I don't really want to tie in for 5 years on either, so I'm tempted to just go onto the SVR for a bit and see what happens.

steviejazzygee

GETITPAID wrote: »

I am in the same boat as you .Currently on 4.29 % until 31st of October.On looking at the various deals my current lender Alliance and Leicester( A&L ) have offered me a lifetime tracker at 5.75.( NO FEES ATTACHED )
The best 3 year fixed at the moment would appear to be Nationwides at 5.98% although there is a £599 arrangement fee.

A&L would also want £295 redemption fee for leaving so with a total of £894 to pay out for a higher fixed rate i am willing to take a gamble with the tracker. ( keep your fingers crossed ):beer:

yeah i suppose it comes down to the risk you're willing to take.. i think i'm going to go with the tracker as well

Lally

I wanted to fix for 10 years and had pretty much made up my mind, but my IFA persuaded me to go for a tracker with Woolwich, so that's what we have done.

truescot

GETITPAID wrote: »

I am in the same boat as you .Currently on 4.29 % until 31st of October.On looking at the various deals my current lender Alliance and Leicester( A&L ) have offered me a lifetime tracker at 5.75.( NO FEES ATTACHED )
The best 3 year fixed at the moment would appear to be Nationwides at 5.98% although there is a £599 arrangement fee.

A&L would also want £295 redemption fee for leaving so with a total of £894 to pay out for a higher fixed rate i am willing to take a gamble with the tracker. ( keep your fingers crossed ):beer:

I am also with the A&L currently and the best trackers I can get from them is 5.89% with a 2% fee or 5.98% with a £999 fee. how did you get the fee-free 5.75%???