Co-Op 5 yr Fixed or Capped Tracker vs Abbey 4 yr Fixed

sallycanwait

I am looking for a bit of advice from someone who understands this. We are FTBs with £72k deposit for a £157k house looking to borrow £85k.

My mortgage broker has suggested that the best deal we can get is with Abbey's 4 year fixed rate mortgage at 5.09%. There is a fee of £995 but the valuation is free and they offer £250 cashback on completion.

However we were looking at the Co-Op's deals.

Either the 5 year fixed rate mortgage at 4.99% - same fee and valuation cost of £310
or
the 5 year capped tracker currently at 2.99% but capped at 5.99% - fees and valuation costs as for the fixed rate.

From my calculations, the total costs for each mortgage would be as follows:
Abbey - £24793 over 4 years or £6198.25 pa
Co-Op Fixed - £31065 over 5 years or £6213 pa
Co-Op Tracker - (assuming a 1% increase each year with final 2 years at highest rate) £30585 over 5 years or £6117 pa

on paper it seems like a no brainer - the tracker wins hands down. But of course, rates could rise more quickly and we could find ourselves on the highest rate for most of the term. But that's worst case scenario surely. And even going on rates rising within the 1st year so we're on 4.99% for most of it and then 5.99% afterwards, it only looks like around £600 more pa than the fixed rate. And if we overpay each month while rates remain low, this surely makes it worth the risk?

My mortgage broker seems to think the Abbey is the best deal - and at a £15 pa saving, it does sound right (he was against the tracker completely for some reason). But if rates have risen to 6.5%+ for the final year, the Abbey deal is no longer so good.

Can anyone help me decide which way to go. Got to sort this today if possible. And should I go direct to the Co-Op or through the broker (he mentioned a small charge as our loan won't bring him much in).

Thanks!

Jacka87

I am intrigued, I have been looking at fixing but holding off whilst milking my currently low rate. However I am nervous as to when is teh rigth time to jump. The capped tracker option sounds like it comes with a best of both worlds, removing the gamble of a tracker whilst meaning you dont need to worry about wasted money if rates dont rise that much considering the high cost of fixing right now!

I havent done the numbers for my situation yet but based on your situation I would prob go with capped tracker. Are you aware of any other capped trackers out there. Also are you aware of how strict the coop are at lending as I am worried that some banks may not lend in my circumstances, HSBC for example will not lend me enough in terms of salary multiples to remortgage at the moment.

ultramagnetic_commuter

I've been considering the capped tracker and decided against it (although my mortgage is going to be bigger than yours). What worries me is that I think, realistically, I'd be up to 5.99% for at least 2 years (maybe 3). Despite early term savings, that will 'feel' expensive.

AFAIK the Co-op deals are direct only. Hence why broker is talking about a fee for that one and dare I say why he is leading you to the Abbey deal (which is a higher rate for a shorter term than the Co-op 5yr fix so I don't see how it's better).

It's all about opinions, risk etc. I may regret fixing for 5 years if rates stay low for 4 but I don't fancy the risk.

sallycanwait

Ok, have done some more calculations (and don't quote me on these cos I'm not good with numbers at all!)

Assuming at a worst case scenario that 1 month into our mortgage the base rates started increasing at either 0.5% or 1% increments up to the cap, this is how I think it would work out.

At 0.5% we would have 7 months till the cap is reached which works out as £2541 more over the full 5 year term (including fees) than the fixed rate would be. And while rates remained low, we could overpay to offset this figure.

Not so good would be if rates increased by 1% each month (is this actually likely though?). Over the term we would end up paying £2767 more including fees. This makes it seem more of a gamble.

And obviously this is all assuming that rates go up the first month we have the mortgage. Hopefully they won't and they won't go up monthly even if they do. If so, the figures decrease accordingly.

This certainly makes it look more attractive. Does this sound right?

Jacka87

I personally feel that bank rates will rise by 0.5% incriments when they start to rise however it could even be 0.25% incriments for a period or go up by 0.5% then stay there for couple of months and step up again. It does not make sense to raise rates too quickly as it can cause the economy to fall back on its progress.

I am also aware of some people saying that the bank of England have predicted the base rate to reach 4% by 2012, so thats 3 years and we are talking about 3.5% increase, so maybe 1.25% a year which is moving it up by half percentage points every 5 months or something.

I know that we cant predict what will happen but I think the tracker will have the benifit at first and feel that it will stay low long enough that savings can be made over the term.

Thats why i think I am now going to favour a capped tracker, assuming I can find a provider.