Tracker downsides ?

jonnyblue

Further to my other posting about fixed rates and specifically the Natwest 5.69% 5 Year fix (£299 fee)

I have been made aware of the First Direct Lifetime Tracker mortgage at 2.09% above base rate (£999 fee). We just qualify for this deal with 80% LTV.

With the natwest fixed rate we would pay £781 p/m, with the First Direct Tracker at current rate we would pay £627 p/m. A huge difference !

Ive figured out that in order to end up paying more than the fixed rate then the BOE base rate would have to increase to about 3.25% so theres plenty of scope there

My biggest worry though, and the bit I really don’t understand about trackers is what would be the implications if the house price fell ? Especially if we were looking at ending the tracker and fixing at a lower rate (which we would if rates started jumping back up)

For example, If the interest rates start increasing then I would probably try and secure a fixed rate mortgage and pay to leave the tracker one (£150 fee). As really I wouldnt want to pay anymore than the 5.69%

If we paid 150k - mortgage of 120k and deposit of 30k originally, and then later tried to fix and the house price had fell to 130k then what is the implication ?

Im guessing we would have to get a fixed rate at 120k (minus what we had paid off), yet our deposit had been reduced to 10k hence a lot lower LTV ? And any money lost in value of the house would initially come out of our deposit ?

Does that sound right ?!? Im just trying to weigh up whether to pay 5.69% now and know that’s what im paying for 5 years or pay less if the rates stay low, yet I don’t understand the full implications of tracker mortgages

Thankyou in advance if anyone has any advice!

Trying_to_be_good

You've hit the nail on the head - to remortgage at a later date, you need to meet the LTV in force for the new deal, and if your house value has fallen, you may not be eligible for the best (or indeed any) deals.

Don't be confused by the term 'deposit' - as soon as you buy, the difference between the house value and the mortgage is your equity. And that shrinks as house prices drop and is in effect your deposit.

dimbo61

BOE rate has gone from 5% to 1% in a matter of months so WHO is too say it will not go up to 7/8% next year or the year after.
DO YOU WANT TO BET YOUR HOUSE ON IT !!!!
5 year fix gives you peace of mind and time to pay some of the debt off and increase the equity in your home.
Check if allowed to overpay as well
Poor LTV and falling housing market YOU do the maths !