FTB Should I fix or SVR?

lookcloser

As all first time poster say "please be gentle" although be brutally honestly if you like!

Really just wanted to get everyones opinion on the decision we've got to make....

We're FTB with a 15% desposit and had an offer accepted on a property worth £185000. With our mortgage advisor the best fixed deal we could find was a 4 year fix with Abbey at 5.99% costing us just over £900 a months.....but doing some of my own research I have found a deal with Britannia (through a company called 'Share to Buy' who offer mortgages to graduates)....with them we can get a SVR mortgage at 4.29% costing £730 a month. Plus there's no arrangement fees (or any fees whatsoever) with the Britannia/Share to Buy deal.

We originally wanted a fixed deal for added security and we can afford the £900 a month fine but saving £170 a month is just so so tempting! I understand the SVR won't stay that low for ever but as there is no tie in period we can move whenever we like....although I guess once the BOE rates goes up then all the mortgage rates will increase very quickly.

What do you guys think? We're just so torn. Are we just being stupid?!?

sheddy7

Difficult one that, I had exactly the same thoughts when choosing a mortgage although we were looking at a 90% FTB deals.

I'm no expert by any means, so do take this with a pinch of salt, but one thing I would say is that if you go with the Britannia tracker then overpay it as much as you can. This way you can get your LTV down to 80% or lower very quickly and be able to get a better fix rate when interest rates start to rise.

Another thing to keep in mind however is that even though Britannia won't charge you when you switch you will most likely have to pay start up fees for the new mortgage plus additional valuation and solicitor fees.

jamestap

The same deal is available direct with Abbey at 0.15% less - 5.84% fixed over 4 years with a 15% deposit.

I've just taken their 3-year fix at 5.49% with a 15% deposit and have to say they were a joy to deal with - 8 days from application (direct by phone) through to full offer - fantastic!!

James

LeeSouthEast

Personally, I do not see rates increasing for another 2 years (beyond 1% of where they are now). I can see the next government encouraging inflation to get the 'real' cost of the national debt down.

Personally, I'd go for a tracker then re-assess in 12 months.

Disclaimer: I'm not an expert. Actually, I'm not even an amateur. I've never had a mortgage. I do like to think I'm slightly better than the man down t'pub at economics though.

Cannon_Fodder

Inflation has already turned upwards. It might be temporary, but reinstating VAT to 17.5% and reinstating the Stamp Duty threshold will be new factors to influence prices upwards.

Other countries being out of recession are using commodities, hence oil and gold going up...further impacting inflation. Their currencies will be looking very attractive, after moving into recovery earlier than the UK, and to prop up Sterling interest rate changes may prove unavoidable.

Growth is supposed to be approaching 3% in 2011, and that on its own will be inflationary. 2010 could well see the hatchet wielded on public sector jobs, but by 2011 the private sector might be recovered enough to resume wage inflation, too.

Maybe it will take a year to be reflected in interest rates, at least because it'll take 2 months for the Conservatives to have their emergency budget after the election, but I think it is very ambitious to think that 2 full years will pass without substantial rate changes.

Unless the BoE, Treasury and Chancellor are all wrong on their forecasts. Not impossible, of course !!

The problem with waiting, is that by the time it is the obvious moment to switch, the fixed rate deals will then be priced accordingly...will it be obvious and too late when the election result is known? Can you get 9 months savings out of it, before switching to fix?

It is a coin-toss moment, methinks.

Smartie24

I'm on a SVR currently as my fixed term ended and there were no enticing fixed offers around. I'm reaping the benefits by being able to overpay as much as I like (or just pay the basic if I want some extra for Christmas!) and having the option to make another fixed arrangement at a time I think is right (although that's a whole separate discussion!).

Go for the SVR, but overpay to bring it up to £900/month, or whatever you can afford. I've done a quick sum for you in my own mortgage spreadsheet (can't guarantee the accuracy, but seems to be correct for tracking my mortgage over the last 3 years):

On the 5.99 offer, paying £900/month, in 12 months you will have paid off ~£1300 of the capital on your mortgage (I know, it's depressing...)

On the 4.29 offer, paying £900/month (by choosing to overpay), in 12 months you will have paid off ~£3800 of the capital.

Even if there are hints in 6 months time that interest rates might be going up and you decide to fix, I believe you will still have gained overall.

Smartie24

P.S. Being also a newbie, this is just my opinion. Others may disagree, as obviously this is a more risky strategy than taking the fixed rate.

I haven't mentioned arrangement fees, as you'll have to pay this at some point when you decide to fix. Valuation fees will have to be paid again if you decide to fix with a different lender.

kinglewis

So a rate increase of 1.7% increases your payments by £170.00.. so what if rates go up by 4.0%?? Taking us to 4.5%... your payments would probably be in the region of £1130.00. Would this still be affordable for you?

I understand that everyone can jump onto a fixed rate when they start to rise but the banks are always one step ahead of the average joe and will increase fixed rate products at even a sniff that boe or libor rates are going up.

http://moneyworld.com/bank-base-rates.htm

Have a look at the history of rates may help you decide (back to our last recession around 1991 makes for interesting reading)... now is a fantastic time to fix in my opinion.

If however you can comfortably afford the movements upwards (it can clearly only go one way).. go for the tracker!!

Hugbubble

kinglewis wrote: »

http://moneyworld.com/bank-base-rates.htm

Have a look at the history of rates may help you decide (back to our last recession around 1991 makes for interesting reading)... now is a fantastic time to fix in my opinion.

In that list, interest rates stayed high for a considerable period. Does that mean you would advocate a 10 year fix rather than 5year?

I've got to remortgage in the next few months and RBS are offering 4.89% for 5 years or 5.59% for 10 years, both £199 fees (for existing customers)....I can't decide...

lookcloser

Thanks for everyone's input and advise, it really is much appreciated.....although admittedly it's still a very tough choice.

For obvious reasons I am leaning towards the SVR deal but it is indeed risky especially as once the BoE rate goes up as will fixed rates....although with no tie in this is obviously much more attractive than if we were tied into a tracker for a couple of years and there was nothing we could do about it but watch the rates increase.

We definitely will overpay as much as we can if we went for the 'better' rate...thanks Smartie24 for the calculations, that really is a real eye opener!

And yes kinglewis, if rates were to go up by 4.0% then we could just about afford the repayments (just about) although the chances of this sort of increase is extremely unlikely in one month as looking at the figures the biggest jump in one month since 1985 is 2.0% and I can imagine how popular the Torries (if they get in of course!) would be if that happened. Although I understand this isn't impossible.

My other thought (and yes, it is an optimistic thought) is that fixed rate deals do seem to be getting better and better....for instance the 4 year Abbey deal is much better than it was say 6 months ago.....does anyone think that deals will get much better in the next 6-12 months? (obviously on the assumption that the BoE rate doesn't go up or very little). If mortgage rates increase again all it will do is to put off FTBs which is exactly what the Government don't want.

Thrugelmir

lookcloser wrote: »

Thanks for everyone's input and advise, it really is much appreciated.....although admittedly it's still a very tough choice.

For obvious reasons I am leaning towards the SVR deal but it is indeed risky especially as once the BoE rate goes up as will fixed rates....although with no tie in this is obviously much more attractive than if we were tied into a tracker for a couple of years and there was nothing we could do about it but watch the rates increase.

We definitely will overpay as much as we can if we went for the 'better' rate...thanks Smartie24 for the calculations, that really is a real eye opener!

And yes kinglewis, if rates were to go up by 4.0% then we could just about afford the repayments (just about) although the chances of this sort of increase is extremely unlikely in one month as looking at the figures the biggest jump in one month since 1985 is 2.0% and I can imagine how popular the Torries (if they get in of course!) would be if that happened. Although I understand this isn't impossible.

My other thought (and yes, it is an optimistic thought) is that fixed rate deals do seem to be getting better and better....for instance the 4 year Abbey deal is much better than it was say 6 months ago.....does anyone think that deals will get much better in the next 6-12 months? (obviously on the assumption that the BoE rate doesn't go up or very little). If mortgage rates increase again all it will do is to put off FTBs which is exactly what the Government don't want.

Interest rates will be determined by factors outside of the control of the Government. Who ever is voted into power has difficult issues to contend with. The Government has wider concerns than those of FTB's.

Rates are at a historical low. So if you opt for the SVR option. Pay down as much debt as quickly as you can. Rates in general will only head one way in the future. The way to achieve a lower mortgage rate in the future is too have a better LTV.