Future Bank of England Base rate?

Suzkin

A silly question BUT I'm considering remortgaging to a tracker for the rest of the mortgage's life (I'm currently on a 5 year fixed at 5.55%, and have another 2.5 approx. years of this to go..).

The tracker is 3.89% above Base rate.

My question: okay, so the base rate WILL rise at some point, but when do people think it may go up, and by how much? In the past the movement has been incremental by 0.25%, but I guess it doesn't have to be that way.

Thanks!

poppy10_2

No-one's got a crystal ball I'm afraid; in this climate it's impossible to make such predictions with any accuracy. Just 6 months ago no-one would have believed we'd have rates this low.

If you're 2.5 years into a 5 year fixed deal, chances are you'll have a hefty ERC fee to pay to break it. The tracker at 3.89% above base rate sounds pretty rubbish - that's 5.39% total at the moment, not worth moving your mortgage for. If base rates go back up to 6% you'd be paying an eye-watering 9.89%. I'd stick with what you've got.

Suzkin

Sorry - I forgot, to say the mortgage lender quoted the product at 4.39% (i.e. 3.89% above Base).

It's a small mortgage (about £15k, plus just under £500 penalty), and my thinking was to switch (pay the penalty up front), and then put £6k on the mortgage (as I'd be allowed to overpay however much I want), and then sit tight hoping the rates will remain low for a while...

When I've looked at mortgage calculators, it appears that if I were to do this, I'd be paying less interest on the borrowed amount, overall - even if I do not pay off £6k).

Your thoughts?

poppy10_2

Suzkin wrote: »

Sorry - I forgot, to say the mortgage lender quoted the product at 4.39% (i.e. 3.89% above Base).

Base rate is 1.5% at the moment, so 3.89% above base should be 5.39%

StuartGMC

Suzkin wrote: »

Sorry - I forgot, to say the mortgage lender quoted the product at 4.39% (i.e. 3.89% above Base).

It's a small mortgage (about £15k, plus just under £500 penalty), and my thinking was to switch (pay the penalty up front), and then put £6k on the mortgage (as I'd be allowed to overpay however much I want), and then sit tight hoping the rates will remain low for a while...

When I've looked at mortgage calculators, it appears that if I were to do this, I'd be paying less interest on the borrowed amount, overall - even if I do not pay off £6k).

Your thoughts?

Once you are at these small sums owing, the actual £ difference in interest on different schemes can be small compared to charges.
You owe £15000 at 5.55% i.e. £832 per year interest
and at 4.39% this would be £658.50 saving £173.50 per year
(It cost you £500 to do so, which would take 2.9yrs to recover if you didn't reduce your mortgage at all. But as you will be reducing it, surely it will take longer to recover the charge?)

Penalty of £500 on £15,000 is 3.33% of what you owe.
If you pay in £500 you only have 96.66% left to pay (£804.75 per year interest, which is only £146.25 more per year than the new offer)

If you have £6000 to pay in now, what penalty would this incur?
You would then only have £8500 left to pay or 56.66% of what you owe now and only £471 per year interest at 5.55% (or £373.15 per year at 4.39%)

Remember these are all for the first year only, and the cash amount will decrease as you repay the capital.

(Why pay £6000k in AFTER changing the mortgage anyway (fee applies?) you would do this when changing lenders and will the new lender do the deal for only £9000?)

I think if you look at the actual cash amounts not the interest rate figures you will see there is not much to be gained in switching in real terms, far better to focus on overpaying (without penalty) if you can and pay off the mortgage in 2yrs or so?

HTH a little

Suzkin

Hi there, Thanks v much for your comprehensive analysis: On the current fixed rate at 5.55, I have a redemption penalty of £500 to pay. I am currently overpaying the max. that the deal allows (i.e. each month, 20% of the morgage). I cannot overpay anything more (i.e. I cannot put the £6k on in this deal).

The new deal has no penalties whatsoever - none to overpay, leave, no fees etc. It's with the SAME lender. (I cannot really move, as likes 100s people out there, I'm out of work BUT know I can fund the mortgage from savings).

Suzkin

poppy10 wrote: »

Base rate is 1.5% at the moment, so 3.89% above base should be 5.39%

Thanks, folks: I've checked again and the website says: Base + 2.89% above base for the term

BUT

The lady of the phone told me: 4.39% (i.e. 3.89 above base) -??

ixwood

Don't under estimate the risk involved in trackers. I think a lot of people have and could easily be in a for a shock at some point.

Historically, average rates are 8% ish. If (When IMHO) we have a full blown sterling crisis, rates would rocket overnight. They're currently 18% in Iceland.

Labour governments always end in financial disaster. That's why it took them a generation to get back in again. (I'm in the "they're all useless liars" camp btw, so not really getting political).

Also, as the lowest rates can go is 0% and the highest is unlimited (although in reality probably about 20% or so maybe?), there's a lot more risk to the upside.

And don't be fooled by the current extremely low rates masking what is a pretty terrible product. 3 or 4% above base is a lot. When rates revert to even 4-6%, you're suddenly paying loads on a really terrible rate.

At the end of the day, the worst thing that can happen with a fix is you pay a bit more interest or have to pay a ERC. The worst thing that can happen with a tracker is crippling rates you can't afford and losing your home.

Obviously, that's worst case and no-one knows for sure what will happen, but I think it's wise to take the risk and reward into account.

All IMHO of course and FYI I'm probably biast, as I'm fixed for a long period.