Scary Tracker Rates BofE + 4.49%

hillcats

Why is it, that many people seem to be taking out tracker mortgages in this present climate and they are "thinking" they have a really good deal?

A family member is currently about to sign a tracker which is Bank of England base rate (0.50%) plus 4.49% and they think this is a good deal? :eek:

I understand they are only FTB and with only a 10% deposit but I have tried to explain, what if the rates go back up and they will eventually and could go back up as fast as they fell and so I suggested they took a fixed rate for 3 years of which the lowest I could find was only at 5.99% with a 90% LTV which being only 1% higher seems to me the better & more secure deal, but NO, I was told the tracker is cheaper (yes, currently maybe) and they are able to afford a 2/3% rise in rates?

Why take this risk?
Am I missing something??
Your comments please???

VIGILANT22

Often people don't listen to family...did you not think of referring them to an adviser!

hillcats

Oh yes, they have been to see an adviser and they seem to trust the word of this person as gospel, because this person said something like "we don't expect rates to rise in the foreseeable future" *SIGH* I really am at my wits end... :mad:

LilacPixie

Trackers scare the pants off of me. I think IF the buyer can afford it if BEBR tops 8% and they want to take the risk of interest rates staying low for the medium term then fair enough but for the rest of us (i.e me) surely its just a risk too far.

TBH I don't like the sound of their adviser. Mine also said they did not expect rates to rise in the short/medium term but then said he also didn't expect them to fall as quick as they did and he would advise security over cost in the majority of circumstances.

beecher2

Quite worrying that an adviser is giving out such advice. Perhaps the product has no ERC and they're hoping for return business when rates go up? Bit of a gamble that they're still at 90% LTV and can still get a deal

I'd just make it clear your opinion and then let them get on with it I suppose.

VIGILANT22

hillcats wrote: »

Oh yes, they have been to see an adviser and they seem to trust the word of this person as gospel, because this person said something like "we don't expect rates to rise in the foreseeable future" *SIGH* I really am at my wits end... :mad:

The adviser may be short sighted!....:)

quote...."I really am at my wits end"....Why stress yourself, allow other people to own their problems...Why don't you suggest they see another adviser, so they have something to compare the first one to.....

Also when they eventually apply for a mortgage, affordability now and in the future has to be considered/demonstrated/assessed.....

mrcow

Why is it a worry - is there a tie in that you haven't mentioned?

I've never fixed my mortgage. And have never regretted it either. I remember when we bought our first house and friends were saying to fix. So glad I didn't listen to them. I would have lost loads of money.

At the end of the day - why is it bothering you. If you're the type of person who likes to fix their mortgage - then go ahead. Fix your mortgage at 6% or whatever it is. Personally, I like the freedom of my +0.69% lifetime tracker. I can switch it anytime I like (not that I want to)

DVardysShadow

mrcow wrote: »

Why is it a worry - is there a tie in that you haven't mentioned?

I've never fixed my mortgage. And have never regretted it either. I remember when we bought our first house and friends were saying to fix. So glad I didn't listen to them. I would have lost loads of money.

At the end of the day - why is it bothering you. If you're the type of person who likes to fix their mortgage - then go ahead. Fix your mortgage at 6% or whatever it is. Personally, I like the freedom of my +0.69% lifetime tracker. I can switch it anytime I like (not that I want to)

I don't think that the issue here is fixing vs tracking. Far from it.

The issue is that as a tracker, the 4.49% difference to BoE is a very large difference. And while it gives a reasonable rate now, if interest rates rise to say 5%, it will begin to look like a very bad deal compared to anything which will be out there at that time.

I would think that the thing to do is to look at the exit penalties for refinancing and to make sure that there is enough equity margin to allow refinancing if values drop.

The most alarming thing to me is that the Advisor is recommending it on the basis that interest rates will hold steady.. I am afraid that Advisors only have a mantra for the day to deal with the perceptions of the day - I don't think they have ever had any special insight into the economy.

mrcow

DVardysShadow wrote: »

if interest rates rise to say 5%, it will begin to look like a very bad deal compared to anything which will be out there at that time.

Which they are not going to go to any time very soon.

It's not a bad deal. As I said, it will depend on any tie-in. The OP hasn't given any details of that.

hillcats

VIGILANT22 wrote: »

The adviser may be short sighted!....:)

quote...."I really am at my wits end"....Why stress yourself, allow other people to own their problems...

Thanks for that, EXACTLY what the wife said also... It really isn't our problem.

mrcow wrote: »

Why is it a worry - is there a tie in that you haven't mentioned?

At the end of the day - why is it bothering you. If you're the type of person who likes to fix their mortgage - then go ahead.

IIRC, its a 2 year deal / tie in.

It WAS bothering me, because I didnt want the family member to be stitched up.

No, I am personally not the type who likes to fix my mortgage, take a peek at my signature, like yourself I am on a tracker, and have been on trackers for 7+ years now, but I have always been happy taking a risk on rates.

I just think it would be a better deal for them with a fixed rate and knowing their exact outgoings for the first couple of years etc...

DVardysShadow wrote: »

I don't think that the issue here is fixing vs tracking. Far from it.

The issue is that as a tracker, the 4.49% difference to BoE is a very large difference. And while it gives a reasonable rate now, if interest rates rise to say 5%, it will begin to look like a very bad deal compared to anything which will be out there at that time.

The most alarming thing to me is that the Advisor is recommending it on the basis that interest rates will hold steady..

Thank You DVS, that is exactly my point, something that others including my family member seem to be missing / happy to dismiss!!

Cheers All for your comments on this... :beer:

HRV

I had this recently. Was advised a tracker by mortgage adviser. I sat there and made her work out my repayments (she didnt want to) if base rate went 5.5%- and, whilst they would happily give me this mortgage, there was no way I could pay repayments of half my salary:eek: if the rates went that high!!!