Discount or tracker - HSBC

michaels

Having been stung on my last discount I am planning to go for a tracker on remortgage but currently I can get a 0.5% cheaper rate on a discount.

There is a theory that as interest rates return to more normal levels svr over base rate premiums will also start to fall (currently they are high because savers are demanding rates above boe rather than below at the moment and the gap between boe and low interest accounts (like current accounts) is squeezed with low boe.

This would suggest a discount might be a better rate. However if boe remains low for an extended period and mortgage funds availability becomes squeezed (no more special liquidity scheme etc) then I guess the svr to base gap could increase.

Anyone care to venture a forecast?

Peelerfart

HSBC ? - you ?


:rotfl:

Gorgeous_George

I forecast that the tracker train left some time ago (my seat is in First Class but I bought my ticket early).

Are you happier with the way HSBC treat their customers than when you typed your signature? What changed?

All in all, I would fix for ten years but neither two nor three. Trackers are only good if you can afford to take the (small) risk of base rates rising rapidly.

There's too much V in SVR for my liking.

GG

michaels

I guess that is really the question - I am happy to avoid fix as I like the flexibility of overpayments and short term fixes are not good value imho.

So svr includes v and in recent history that has been a loser (unless on a capped svr product) but this means that going forward there is a chance that the svr - boe gap might unwind as boe retruns to nomal.

EG base at 0.5% now svr = 3.94, svr discount 1.99 tracker = 2.39
Suppose base back to 5% do people see svr at 8.44% or may be something closer to historic svr margin of 1 to 2 percent? Assuming base rate normalisation suggests economy and banking system more normal.

Further thought am looking at a 2 year time horizon so even if the link between boe and svr margin does exist at what level of boe will it start to unwind - over 3%?

hillcats

Gorgeous_George wrote:

I forecast that the tracker train left some time ago (my seat is in First Class but I bought my ticket early).

I have to agree with GG, I'm also on my 2nd tracker deal (Detailed below, and again purchased some time ago) which puts me safely on the tracker train, but I am not sure if it really is the right thing for people to join nowadays, a family member of mine has recently taken out a tracker of 4.49% above base and they *THINK* this is a good deal, or they did until I told them about my tracker deal.

Interest rates will rise, the thing is nobody knows when or by how much and how fast, but the BofE rates can raise just a fast as they lowered them, so beware.

One last piece of advice, I think is worth noting:
If you are going to take a tracker (or anything linked in any way) make sure it is tied to the BofE base rate and NOT the lenders base rate, as they can up their own base rate every day if they so wished, just as they like...

Thrugelmir

michaels wrote: »

There is a theory that as interest rates return to more normal levels svr over base rate premiums will also start to fall (currently they are high because savers are demanding rates above boe rather than below at the moment and the gap between boe and low interest accounts (like current accounts) is squeezed with low boe.

Not a theorey I'd consider in the medium term.

Savers aren't demanding higher rates. Lenders need to raise funds and are therefore competing with each other.

Mortgage rates are likely to return to a more historic 2% to 2.5% above base in the future. Increased FSA levies are adding around .25% to the cost of borrowed money.

Pincher

After all fuss about the Skipton SVR hike, and you are still going for an SVR? What happens when the discount ends? The tracker is for the full term of the mortgage. Any money you saved through the 0.4% difference will go on remortgage fee, or you will be on a higher SVR.

kaych

We actually talked to a HSBC mortgage manager yesterday. He recommended that we take the tracker deal (currently 1.99% above boe rate), he didn't recommend the SVR and not so much the fixed either. As the fixed is around 1% higher than the tracker right now and it would cost around £80 more a month for us if we took fixed instead of tracker. He mentioned that there were talks that the BoE rate is unlikely to rise until dec, even if it does rise soon, it would go up by 0.25% increment.
so if we put off the £80 saved each month by having the tracker, we can cover any future rise in a short period of time. Also because this tracker deal has no early repayment charge or other restrictions, we can change to a fixed any time we want, the only thing would be that we will have to pay another booking fee.

jamesperrett

I'm not a financial advisor but I'd say take the tracker and overpay your 80 quid (or at least put it in a savings account that pays more than 2.49% after tax). Rates can only go up but 1.99% over base rate isn't a ludicrous amount to pay, even with rates up to their more normal levels.

Check all the details though - and think about the effect of any fees on the actual amount you pay.

Cheers

James.