Thoughts - Tracker vs Fixed Rate

ljw_3

I have a decision to make and I'm note sure which way to jump!

I've seen the HSBC tracker at 0.99% above BOE base rate - currently 3.99%. Everyone keeps talking about the BOE rates going lower which is a good thing with a tracker. However, an IFA friend has suggested BOE rates will bottom out soon and start rising again so he suggest a fixed rate - best I've seen so far is an Abbey at 4.79%. I think they will fall again but there isn't much difference between where the tracker is and the fixed rate.

What are peoples thoughts about tracker or fixed at the moment?

confused31_2

it depends on how big your mortgage is?? all the svr rates are coming down and if your mortgage is small, it may pay to go on the svr until you think rates are going to go up then jump on a fixed or tracker.

Theres some big fees on the fixed and trackers, but most banks dont charge a fee for going on their svr product and most of them will let you change to a fixed or tracker product at any time.

confused

svensjr

Talk is that rates could reach as low as 1% by next spring and assuming best case scenario recession-wise start to rise again by mid-late summer. In my opinion it's pretty unlikely they'll be higher than the 3% they currently are before 2010 though, especially if inflation ends up undershooting the target rate.

One thing to bear in mind if you're thinking of a tracker is that there will probably be a minimum rate, so if the rate drops to 1% you won't necessarily get an interest rate of 1.99%

ljw_3

Thanks for the information so far! Mortgage will be approx £130,000 and the Abbey is fixed until Feb 2011 (just under 2.5 years) and HSBC tracker has no lower level. A bit worried by fact that if the BOE can reduce the rate by 1.5% then they can also increase it by 1.5% or more if they need to!

Baz_2

I don;t think Abbey are losing much sleep over those 2 year 4.49% trackers. They are on a good bet that they will be making a fair margin on that deal for the next 2 years.

I really can't see the HSBC tracker being a higher rate than that Abbey fix anytime over the next two years.

The fees are the same for either mortgage so the tracker may be the way to go.

As for the rates being raised 1.5% in one go, it's highly unlikely, there would be an outroar if that happened, especially since this recession is predicted to last until 2010.

mic200202

There isn't any real way to win out with these things.You may end up being lucky and the HSBC doing you a good turn for a while,but for how long? Lets say BOE rates stay down for 18 months or so and start to go up - whats going to happen is that everyone is going to want a fixed rate - are they going to be competitive? Probably not. Fixed rates are relatively good value at the mo when rates have fallen. I think that anyone jumping into a tracker at the moment is taking a chance.Even 0.99% over base isnt really all that good a deal historically.Think about this - in the blink of an eye BOE has come down to 3%, less than 2 months ago you would have been paying 5.99% on the same deal - not quite so attractive. Dont forget you are paying a £799 fee - if rates only stay down for 2 years then you may well end up with another fee (perhaps at least the same) to go to another lender.Will that wipe out any benefit of having the rate? Possibly. I would look at your existing lender - what is their SVR? Why not compare the payments on this to the HSBC and factor in the £799 fee.Over 18 months this is £44.38 pm.If a new lender charged you the same fee 18 months later you would have paid £1598 in fees just to rate jump.Still worth it? My own felling is that this is a very short term mortgage market in that rate swings will happen quite suddenly.I dont know there is any long term indication of rate staying low.

Baz_2

mic200202 wrote: »

There isn't any real way to win out with these things.You may end up being lucky and the HSBC doing you a good turn for a while,but for how long? Lets say BOE rates stay down for 18 months or so and start to go up - whats going to happen is that everyone is going to want a fixed rate - are they going to be competitive? Probably not. Fixed rates are relatively good value at the mo when rates have fallen. I think that anyone jumping into a tracker at the moment is taking a chance.Even 0.99% over base isnt really all that good a deal historically.Think about this - in the blink of an eye BOE has come down to 3%, less than 2 months ago you would have been paying 5.99% on the same deal - not quite so attractive. Dont forget you are paying a £799 fee - if rates only stay down for 2 years then you may well end up with another fee (perhaps at least the same) to go to another lender.Will that wipe out any benefit of having the rate? Possibly. I would look at your existing lender - what is their SVR? Why not compare the payments on this to the HSBC and factor in the £799 fee.Over 18 months this is £44.38 pm.If a new lender charged you the same fee 18 months later you would have paid £1598 in fees just to rate jump.Still worth it? My own felling is that this is a very short term mortgage market in that rate swings will happen quite suddenly.I dont know there is any long term indication of rate staying low.

Sorry but where are these good value low fixes you talk about?

If there was a five year fix at 4.75% with the same fees as the HSBC tracker then I would say thats very very good value. But the 5 years ones are still around 5.5%.

Your damned if you do and dammed if you don't.

ljw_3

Your damned if you do and dammed if you don't. I think you might be right on that one! I'm starting to edge towards the fixed rate, I know its more expensive at the moment but I don't think anyone can predict the market or the rates at the moment so I might err on the safety side. The BOE dropped rates by 1.5% in one go which caused an outcry in the financial section, so I see no reason why they wouldn't raise them again by more that the traditional .25 or .5%. It might cause uproar but if they feel cornered then they have demonstrated that they will take the necessary action! Abbey's website is now showing a rate of 4.49% fixed!

Baz_2

ljw wrote: »

Your damned if you do and dammed if you don't. I think you might be right on that one! I'm starting to edge towards the fixed rate, I know its more expensive at the moment but I don't think anyone can predict the market or the rates at the moment so I might err on the safety side. The BOE dropped rates by 1.5% in one go which caused an outcry in the financial section, so I see no reason why they wouldn't raise them again by more that the traditional .25 or .5%. It might cause uproar but if they feel cornered then they have demonstrated that they will take the necessary action! Abbey's website is now showing a rate of 4.49% fixed!

Yes for the same fee as the HSBC tracker.

I think that demonstrates how long Abbey think these rates are going to be this low.
When they come out with that rate for 5 years then we will be talking. The banks are not into taking risks with their margins just now so Abbey must be pretty confident that rates are staying low for the majority of the term of that fixed.

Theres no value in that fixed rate over two years IMO. However it is one of the best if not the best fix out there right now. But you just know you jump on that and then that 5 years will appear.

maveli

I was on A&L 2 yr tracker at 4.75% starting 2006 and saw the interest rate rising by 1% to 5.75, it was a slow rise 0.25 at a time. Start of this year I moved to HSBC tracker which started at 5.73% and now at 3.23%. It is a gamble sometimes you win and sometimes you loose. I can afford upto 8% and I don't see the interest rate going above 8%. If that happens half of UK's houses will be repossessed and I hope no government will allow that to happen. May be a a too optimistic view.

JayZed

I agree with confused: it might pay off to go on the SVR for six months or so (most SVRs are pretty low right now) and then look for a fix. You may be able to find a good 5-yr fix - or a cheaper 2-yr fix - a few months from now, if the base rate comes down again.