first time buyers fix or tracker?

paulkaty

Hi, my boyfriend and i are looking to buy a house of £200,000. we have a deposit of £65,000 and have put £5000 aside for solicitor fees etc. We have been offered a tracker at 2.94% and a 10yr fixed for 5.89%. We have no credit card bills or any debt to pay off. Between us we have 37k income a year.
Should we do the tracker and overpay as much as we can in the next couple of years, or fix it to be safe in the long run? Anyone have any advice?

herbiesjp

That is a huge difference in what you are looking at

From a tracker - How long are you tied into this deal?

And a 10 year fixed rate - why 10 years?

Whilst the tracker will obviously be lower, interest rates will definitely go back up - so the tracking margin on this deal is very important,a long with how long you are tied in for.

If your monthly budget will be tight, then fixing the deal would be good, but I wonder why 10 years - have you looked at 5 year options?

hostman

How much over the base rate is the tracker? I assume something like base rate + 2.44%?

Interest rates aren't going to stay as slow as they are forever, but realistically they will be low for the next two years, but we may see the first increase in base rate next year, all depends on the next two quarters of growth. Rates will need to go up by 3% before you're worst off on the tracker.

All a balance of probability. I missed the tracker boat last summer, I opted for a fix, when at the time trackers were good value, with very low base rate differential and we all know what then happened ... BoE cut rates to record lows and I'm stuck on a sodding fix!

So its a gamble either way.

House prices may fall further and your equity eroded and then base rate shoots up. So you could end up stuck on a high tracker, with reduced equity meaning you're unable to remortgage for a more favourable fix.

Cannon_Fodder

Assuming a 25-yr mortgage, you'd be able to overpay by approx £230 a month, or £2,760 a year, on the tracker. I've assumed the fees are the same.

I suspect you will feel the need to change after the election, maybe not straight away but probably before two years savings have been made.

If an ERC applies, perhaps of 1%, that would be £1,300ish of overpaying immediately negated.

So you'd be up by between £1.5k and £4k, depending on how long you held out for, but by definition you recognising the time was right to Fix would be when the Fixed deals available will already have become less attractive - that's a decent 10-yr fix - so the other 8 years will likely eat into those overpayments.

What about considering a 5-yr fix, there are still some around under 5%. A sort of half-way house, some protection from the next couple of years of uncertainty, not quite so expensive, so a bit of overpaying...

paulkaty

Thanks for replies!
we have looked at five year fixes but they seem to be of a similar rate to the 10yr fixed rates, we thought maybe taking a 10yr fix we would be better off, maybe not in the first 5 yrs but maybe after this, in the long run. We would be on a very tight budget and having the security of knowing you can afford to stay in your house for the next ten years appeals to me, and it does allow us to overpay £499 a month although i doubt if we could afford to overpay for a while! but would also really like to be able to pay off more quickly by going on the lifetime tracker, but am worried about the long term with this one. Also hsbc 2 yr discount rate we have thoght about.

herbiesjp

You can get sub 5%, 5 year fixed rates

dimbo61

Have you looked at first direct 3 year fixed OFFSET ! at 4.24% 60% LTV
Good rate and ability to save into offset account
I love offset mortgages
NO I dont work for FD
I have my mortgage with Yorkshire BS

paulkaty

dimbo61 wrote: »

Have you looked at first direct 3 year fixed OFFSET ! at 4.24% 60% LTV
Good rate and ability to save into offset account
I love offset mortgages
NO I dont work for FD
I have my mortgage with Yorkshire BS

Thanks i will have a look but we dont quite fit into the 60%LTV, we fit under the 75%LTV bracket