1st time buyer - Need advise on whether to go for Fixed to Tracker

reddyman

Hi All,

Looking for some advise on which mortgage to go for. Looking for a house in the £300,000 range. We have £150,000 in cash, so require a mortgage for about £150,000 depending on the final value of the property.

However we are not sure whether to go for a fixed rate deal or a tracker mortgage.

As we have a large deposit would it be better to go for a tracker as we will be able to get a better rate? If we do what kind of fee's shall we expect to pay and do we have to keep re-arranging every couple of years with more fee's re-occurring in the process?

If so is it better to go for a fixed rate 5 year deal so we have piece of mind for 5 years. I believe the rate will be higher, but we do have piece of mind.

Or does it not really matter and fixed and tracker work out the same over the long run?

Many thanks

Caracul

I'm a first time buyer too, but thought I'd try and give you a quick answer. Historically, having a tracker has always worked out cheaper than a fixed mortgage - dependant on what deal you can get. I believe that this is still the case, although a few trackers have got a large amount added onto the base rate.

In your case, with a 50% deposit, I believe that a tracker would probably be better for the foreseeable future, and you'd be able to get a rate of 2.59% compared to 4.94% for a five year fixed (from a quick check of the thisismoney tables).

The base rate would have to increase by 2.5% percent before you are even paying the same money. It is a bit of a gamble, because who knows what will happen in the future, and thats why some people do go for a fixed, because it gives them the security of knowing that your monthly payments would be set.

In terms of todays mortgages with the above figures,

Tracker = 678GBP
Fixed = 864GBP

both based on interest and repayment, and both over 25years. Do you want to pay less or to have security in knowing the exact payment each month?

herbiesjp

The only way you can decide on this is by looking at your monthly budget/affordability.

You need to see how interest rate increases would affect the mortgage payment.

You would then need to see how this would affect your monthly disposable income.

If you see that a mortgage increase would take you close to your income limit a fixed would be the best way to go.

If however you have a lot of leeway in your disposable income, and you like to take the risk of rates increasing, then a tracker could be the option for you.

reddyman

Hi Caracul and herbiesjp. Thanks for your response.

If I do decide to go for a tracker, will it be for a specific term? A lot of the products have 2 year terms for a tracker. What happens when that expires? I dont want to be paying another fee for another tracker.

Or is this where a lifetime tracker comes in? I'm assuming lifetime tracker means that you can stay on a tracker for the full term (25 years) without having to pay rearrangment fees? If this is the case then I'm sure they will charge a higher rate for this privilledge...Is that correct?

Also what happens if after a few years rate start increasing and I believe that they will continue to rise, so do not want to stay on a life time tracker. Will there be a fee for breaking the tracker?

Our combined net salary is about 55k per year and our monthly expenditures are pretty low.

Caracul

reddyman, in terms of the tracker I quoted, its a lifetime one. I believe (but am not sure as I haven't looked too closely) that the trackers you are talking about that last for only a few years are ones with discounted/bonus rates which then revert to another tracker rate.

This is the link to the website that offers tables to all the papers etc:

http://www.moneysupermarket.com/mortgages/

have a browse - take a look at how long each one lasts for and click on apply/more information to look at if there are termination costs etc...