Why are Trackers so high?

hillcats

We have an Intelligent Finance lifetime tracker (No longer available) detailed below taken out in 2007. We changed from a Woolwich tracker mortgage that was BofE plus 0.75% so even after our initial period of 3 years whereby we dropped to 0.19% above BofE we then reverted to 0.62% above base which is still less than our rate before.

Win Win for us, and never likely to change, more chance of clearing mortgage tbh...

Jonbvn

hshen wrote: »

This is the time to de-leverage before base rate go back up.

No it's not! Now is the time to save/invest in something that pays a higher return than a low interest rate mortgage.

The time to de-leverage is when mortgage rates are higher than saving/investment returns.

Jonbvn

hillcats wrote: »

We have an Intelligent Finance lifetime tracker (No longer available) detailed below taken out in 2007. We changed from a Woolwich tracker mortgage that was BofE plus 0.75% so even after our initial period of 3 years whereby we dropped to 0.19% above BofE we then reverted to 0.62% above base which is still less than our rate before.

Why would you offset at 1.12% when you can get a much better (3 times) return on savings elsewhere? E.g. LTSB classic vantage pays 4% AER.

dunstonh

No it's not! Now is the time to save/invest in something that pays a higher return than a low interest rate mortgage.

To be honest, i think its time to do both. I'm maxing out the ISAs, have increased my pension contributions and overpaying on the mortgage. Making hay whilst I can.

hshen

Gorgeous_George wrote: »

In 2004 I took a lifetime base rate tracker with a 0.74% margin above BofE base rate. I guess that must have been during the credit binge that you refer to.

Whether or not base rates will remain low for the next 1/3/5/10 years is anybody's guess. I'm not sure why you refer to de-leveraging however I do think that we all should have a plan to mitigate any movements in base rates. My plan does not include overpaying a loan with a 1.24% interest rate.

GG

Just to clarify when I say it's time to de-leverage I meant for those of us who didn't manage to get the amazing low rates during the 'good' times.

I.e. If you just got a mortgage like myself in these uncertain times.

silverfoxuk

Gorgeous_George wrote: »

The quick answer is that I wouldn't switch any borrowing away from Nationwide's 2.5% BMR unless you want the security of a fixed rate.

The longer answer requires more data such as how long you have left on each mortgage, how long the new mortgage would be for and the ERCs of each mortgage.

GG

We're in a similar position to another poster, but with a potential redundancy looming hence considering the security of a fix. In particular the First Direct 5yr 3.89% repayment.

We're on the Nationwide BMR so 2.5% (BOEBR + 2%). LTV currently 38% (based on a property value of £275,000 and an outstanding balance of £104,150 over 17 years).

Me & the wife are joint owners I am currently earning £40k pa and wife earns £15k part-time but she was told before Christmas that her firm plan to make one third of workforce redundant in first half of 2011 - she will know by April if she is one of those to be made redundant. So, wife could be out of work for some months and our income might drop during this time (we have savings in bank of 6 months joint income and wife will get redundancy pay & has been with company for 15 years). We have a son of 3.5 yrs old so outgoings to cover and don't want too many surprises.

Is it a reasonable choice to give up the current 2.5% (monthly mortgage is £622) to go onto 3.89% (monthly payment £699) - so the current monthly cost of the fix is effectively £77 extra per month, initially, or say £900 approx a year assuming BOE base rate stays at 0.5%

We are quite attracted to the 5 yr fix just for the security of knowing we'll never pay more than £699 per month for the next 5 yrs. We could of course wait till April, see if my wife is or isn't getting made redundant. Downside of waiting might be a slight upwards move in BOE base rate and the end of the 3.89% fix.

My feeling is that 3.89% for a 5 year fix is pretty good when viewed historically. Whether that means anything today is anyone's guess (eg Japan).

Any other thoughts from MSE'ers re our particular situation and if fixing now is mad, or a reasonable thing to do?

Gorgeous_George

silverfoxuk wrote: »

We're in a similar position to another poster, but with a potential redundancy looming hence considering the security of a fix. In particular the First Direct 5yr 3.89% repayment...

I understand the desire for a fixed rate may be greater than your desire to enjoy Nationwide's excellent BMR. It's a close call because FD's 3.89% fix with low fees is also an excellent product.

If your wife still works in the insurance industry, is she likely to find another job faily quickly? If not, the fix becomes even more desirable.

Personally, I don't see rates rising any time soon. will they hit 2% in the course of this Parliament? with Ant n Dec in No 10 and Gideon Osborne living next door it's anybody's guess. I just can't see it - in fact i think the next move may be downwards. WARNING - it's not often that I'm right.

In summary, I think both products are great. Security is found in a fixed rate. The gambler may stick with Nationwide's BMR.

GG

Martin_T_3

"We're in a similar position to another poster, but with a potential redundancy looming hence considering the security of a fix. In particular the First Direct 5yr 3.89% repayment..."

You can book the First direct fix and keep the rate for 6 months before completing. The fee is only £99. In the mean time, you can keep your existing rate.

An alternative would be to move to the HSBC lifetime tracker at 2.29% Which would save a little money on your current rate.

Jonbvn

dunstonh wrote: »

To be honest, i think its time to do both. I'm maxing out the ISAs, have increased my pension contributions and overpaying on the mortgage. Making hay whilst I can.

I think it depends on the T&C's of your mortgage. In our case, should circumstances conspire against us such that our mtg rate >> savings rate, we can transfer any amount from savings into the mtg without penalty.

Conrad

Why do lenders have a large spread between new tracker rates and the base rate - once your'e an OAP and reliant on savings you will be happy your Bank operates such a policy in order to make your savings rate higher than it would otherwise be.

Secondly lenders capital fell dramatically due to reduced values of the assets that back thier lending, most especially thosde like RBS exposed to US property values. In response they have to increase thier capital as fast as possible by charging higher mortgage rates OTHERWISE THEY CANNOT LEND ANY FURTHER.

Lastly the FSA insists lenders put aside greater capital so again one way to increase / replenish capital is too charge through mortgage rates.