Choice of mortgage

rjgb

Hi,

My wife and I are looking at buying a house and will require a mortgage. We are lucky enough to have a 20% deposit for the property we like, and can afford payments of up to about £1500pcm, while still allowing for saving about £1500pcm for holidays, house improvements, etc. We'd be interested in making overpayments to reduce the debt, but also want to live a little now that we've spent 3 years saving up a deposit!

Looking at the current range of mortgages available based on our criteria,, it seems that a mortgage with an initial 2 or 3 year period with a rate fixed at around 5%, then dropping to a variable rate of 1.5-2.5% above base rate, is the best on offer. Variable rate mortgages are currently 4.6% upwards. None of these rates look spectacularly good, when compared with the 2% rate our friends with a historic tracker are currently enjoying!

In our situation, is it purely a no-brainer to go for one of the fixed rate deals, and then look at switching after 2 or 3 years, if rates lower than 1.5-2.5% above base rate are then available?

In that case, why do all the other mortgage companies offer more uncompetitive products? Who is going to want to take one of their products?!

I welcome any positive comments.

Thanks.

Conrad

Remortgage business is historically low as people are opting to sit on the variable rate and adopt a wait and see atitude.

No such thing as a no brainer in mortgages as each person is an indivdual with thier own needs and expectations. Some will fix for 10 years, others will take a chance on a 2 year deal and then review.

This sentiment that deals are uncompetetive is wide of the mark. Historically an 80% fixed rate of 5% is pretty good.
Just because the Bank of England rate is low is of no relevance when it comes to setting mortgagerates because those rates take many factors into account such as the rate that can be paid to savers (little old ladies entirely reliant on savings interest).
We shoudl always consider all sides of an argument. For a Bank to offer you 3.5% fixed, means it must offer its little old lady savers a very low return. Remember there is a funding shortage right now as the wholesale markets have gone and Government money is used for vital (regulation lead) reserves against bad debt provision and also to clear up the toxic balance sheets.

rjgb

Conrad wrote: »

Remember there is a funding shortage right now as the wholesale markets have gone and Government money is used for vital (regulation lead) reserves against bad debt provision and also to clear up the toxic balance sheets.

I'd be interested to hear your opinion as to how the banks are reacting and will in the future react to this funding shortage.

One option is to raise savings rates, to encourage people to save and put money in the banks' coffers. Another option is to keep mortgage rates low(ish), to encourage people to take out mortgages and pay the bank the interest.

I'd guess that raising mortgage rates would bring in less cash than lowering them, since fewer people would subscribe to their products (even though those who do subscribe end up personally paying more). Though perhaps that's just what I want to hear!

dimbo61

I have an offset mortgage with YBS which is fixed for 5 years and have been very happy with my decision.
They are offering 4.99% fixed for 5 years with a 25% DEPOSIT!
As you are able to save £1500 a month which is the same as you are expecting to pay each month in mortgage payments this type of mortgage may well suit you.
The BOE is 0.5% and the only way is UP
Long term security of knowing your mortgage costs for the next 5 years and even the papers are starting to understand the benefits of offset mortgages.
GOOD LUCK