Fixed mortgage? Ditch & switch to a low rate deal.

dunstonh

I must admit dunstonh I'm rather surprised at this from you. If you actually read what I wrote about five year fixed rates in the note at the top you'll see this is exactly the point I made.

I am just very wary that this could come back and bite you in an Iceland style. A lot of financial advice comes with judgement calls that may or may not pay off as the best option financially. When it does everything is fine. When it doesnt, you find complaints increase.

Inflation is not dead. There were articles this weekend that suggest inflation could start rising as early as next year to a point that interest rates start to rise. Especially if the recession has bottomed out and signs of growth are starting to re-appear.

What I fear here is that people will pay fees to get out on to trackers and either not realise that collars are in place with many and that they dont see gains as big as they thought and that any gains they will see are just short lived. If that happens and they have paid thousands of pounds to switch mortgage products then it could lead to complaints. Either against you and/or mortgage advisers.

Hence, why I feel that if you went for a fixed, you did so for certainty. Not to get the cheapest price. Getting rid of certainty could be too risky for a limited amount of gain.

Perhaps this is a difference in perception. Advisers see fixed rates as being useful for certainty of monthly payment whereas its possible you see it more for gettting the best deal at that time? (thinking out loud as to why we may have different trains of thought on this - the other reason is that I am known for being overly compliant and doing so has allowed me to avoid pensions mis-selling, endowments mis-selling, no scarps or structured products and no SIPPs, which is the current overuse mis-sale fear)

MarkyMarkD

This is an interesting discussion.

Obviously there are people for whom ditching a fix is the right move. It may be that, whilst they bought the fix for certainty, they are now in a better financial position and they are more prepared to take the rate volatility of a tracker/discount.

But the danger with any "advice" on MSE (and I appreciate that it generally isn't, strictly, advice at all) is that people understand things differently from how they are explained. And rather than taking the advice to go to a broker and get a rational view of whether ditching is right, lots of MSE members will simply ditch their mortgage themselves and buy the first alternative they can find in a best buy table.

None of us, honestly, knows what rates are going to do in the next year or two.

The fairer comparison for many to do, would be to see whether they can save money by ditching their existing fix and replacing it with an equivalent one for the same period. If you can do that, pay your ERC, and save money then that's a no risk change which you should definitely make.

E.g. you took out a 5 year fix 2 years ago. You can save so much by buying a brand new 3 year fix, that it's worth paying the ERC.

Another point which I don't think Martin has considered - but it may be one that dodgy advisers would exploit - is that if you add the ERC to the new mortgage, and pay it over 25 years (or whatever) it's relatively easy to demonstrate that the new mortgage is cheaper in monthly payment terms - even if it's not actually worthwhile to make the switch on a true cost basis.

Indeed, I wonder how much the dodgier advisers have been exploiting that wheeze all along (except with remortgage costs, MEAFs and product fees, rather than ERCs), to get people to remortgage rather than staying with their existing lender?

uzubairu

dunstonh wrote: »

Advisers see fixed rates as being useful for certainty of monthly payment whereas its possible you see it more for gettting the best deal at that time?

When we were looking for a fixed rate in 2006, we wanted the certainty of monthly payments for between 5 and 10 years.
The rate we got at the time was 4.79% and it ceratinly wasn't the cheapest mortgage interest rate at the time, but it gave us peace of mind in that we knew our payments would be very affordable over the term of the fix (new mortgage was more than double the previous), and we wouldn't have to think about what happens if rates rise or one of us wasn't working.

I think in recent times (with rates rising) a lot of people wanted the certainty of monthly payments and expected it to definitely be one of the cheapest options too.
In these volatile times, that hasn't been the case.

I think there are a few important factors to consider, such as LTV (especially for people who bought in the last couple of years, or fixed in the last 6 months), and what happens when rates rise again and you can't get a good deal because your LTV is not attractive to lenders, because house prices haven't shot back up.

MarkyMarkD - Obviously there are people for whom ditching a fix is the right move. It may be that, whilst they bought the fix for certainty, they are now in a better financial position and they are more prepared to take the rate volatility of a tracker/discount.

Good point - but I do think that there are a lot more people who aren't in that position (FTB, high LTV), but will still want to ditch their fix, because they feel they've been "ripped off".

MarkyMarkD

But anyone who feels they've been "ripped off" simply because they bought a fix which was good value at the time, but appears to be less good value because the economic environment has changed, is deluded.

The only time to ascertain if a mortgage product is good value is by comparison to what's available at the time.

Fixes which are now higher than prevailing rates remain just as good value as they once were. But better value might (and I use that word advisedly) be achieved by switching to a different product now, even though it's part-way through the original deal and ERCs may apply.