Advice please regarding Mortgage types and market trends?

THoward

Hi
This may not have a straightforward answer, but I'm looking for advice regarding whether to opt for a fixed rate mortgage or stay SVR. Independant advisors seem anything but independant and I'm unsure what the market will do, interest rates will go up for sure, but by how much and for when (lots of million dollar questions I know) I'd appreciate any assistance / advice here.

I'm currently with First Direct and after coming out of a fixed rate mortgage with them last year I have been on their SVR of 3.75% for a few months. I am now looking to understand if, given the potential for interest rates to now rise, I'm better off getting back into a fixed rate scheme, so as to budget for my repayments.

The rates I've been quoted for a Offset fixed rate vary from 3.59% for 2 years, up to 3.99% for 3 years. These both have £99 set up fees, going for a £999 set up fee brings these down to 3.29% for the 2 year option (which seems to cost me more money overall as the additional monthly costs (for the £99 fee) will not match the £900 extra I'd need to pay for the set up of the lower rate one - maybe this is just down to the specifics of my mortgage??).

I have a LTV of circa 33%, but FD only cater for 65% or below, so I may not be getting best value here (maybe there are companies that'll offer a better rate for 33% LTV?) - (FD will charge me £149 to close my mortgage.)

I could opt for a FirstDiect 5 year repayment at 4.29% or go for a tracker at a much lower rate of around 2.59%. ??????

Therefore, some questions;
- Are First Direct's rates in line with the competition?
- What's the view on how high rates will / could rise this year?
- How risky is sticking with FD's SVR, and waiting for a few months? Or will I miss out on these options now? (this assumes that FD's rates will go up throughout this year as interest rates rise?)
- are there companies who offer better rates for lower LTV figures?
- any other general advice about whether going for a fixed or tracker mortgage makes more sense here.

Thanks in advance
Tim

joepubli

I think both FD rates are pretty good. 5 year 4.29 is difficult to beat. If you need certainty over your payments (eg if rates went up to 6% or more you would really struggle) go for the fixed. If money is not tight go for the 2.59 and maybe invest the difference between 4.29 and 2.59 in a separate account - hopefully you will have some left over in 5 yrs! The rates are going to go up - no one knows when and by how much.

Thrugelmir

How much do you currently owe on your mortgage?

THoward

Thanks for the responses, my current mortgage is repayment and circa £180K. It is also currently offset and (as I understand it) my monthly repayments are interest and repayment combined (as are all repayments?), if I did manage to get the 2.59% tracket rate now, I'd be looking to pay the same amount per month as I do now and effectively pay more of the capital off - which is a good thing.

Thanks for the advice. My further reseach on this is pointing me more towards a tracker and reducing the interest rate from the 3.75& (FD SVR) to the 2.79% on offer for the tracker.

Another question - as my LTV is approx 33% (180k on 550k) are there mortgage companies who'll offer me a better rate based upon this? FD only seem to go as low as 65% and I'm obviously far less of a risk here.

Thanks
Tim

Thrugelmir

The LTV thresholds are more to do with lenders making money than risk. The average borrower is not so profitable once the LTV drops below 65%. At this level they'll primarily attract remortgaging business with only 10 years or so to run on the mortgage,

Personally I would opt for the lifetime tracker and overpay the mortgage.

Interest rates will have risen in 5 years time. You'll still owe a signficant debt. So you feel an impact then.

To reduce your interest bill. Cut your spending elsewhere and reduce your debt as quickly as possible. Far easier than trying to predict rate movements, which are only going one way in the future.

THoward

Oh OK, that makes sense on the LTV, thanks... I think the tracker was only for 2 years and then a move back to the FD SVR - how is this SVR calculated? I assume each provider positions this circa 2-3% or so above the base IR? Thanks

Thrugelmir

HSBC have a life time tracker of base +1.79% .

THoward

OK thanks again, that sounds too good to be true, or am I missing something here? Do most lenders have rates for lifetime trackers in this region, or this exceptional?

Another question and it may be a dumb one, so apologies in advance, what is the benefit of going lifetime over fixed period (say 2 years) for a tracker mortgage?

I assume there's a penalty should you wish to change from the lifetime mortgage (once started), but as long as you finish the 2 year term of the non-lifetime tracker, you'd be moved to the SVR and free to go anywhere? So why is the lifetime rate is a higher percentage? What typically would the penalty for moving away from a lifetime tracker?

Many thanks, your advice is much appreciated, I should at least buy you a virtual drink for you assistance here.

Tim

ellives

THoward wrote: »

OK thanks again, that sounds too good to be true, or am I missing something here? Do most lenders have rates for lifetime trackers in this region, or this exceptional?

Another question and it may be a dumb one, so apologies in advance, what is the benefit of going lifetime over fixed period (say 2 years) for a tracker mortgage?

I assume there's a penalty should you wish to change from the lifetime mortgage (once started), but as long as you finish the 2 year term of the non-lifetime tracker, you'd be moved to the SVR and free to go anywhere? So why is the lifetime rate is a higher percentage? What typically would the penalty for moving away from a lifetime tracker?

Many thanks, your advice is much appreciated, I should at least buy you a virtual drink for you assistance here.

Tim

The lifetime tracker with hsbc has no early exit feel so you can leave at any time. You can also overpay each month and add lump sums. The 2 year has an early exit fee. What happens if rates start going up and in 2 years they are unattractive? With the 2 yr tracker you will exit into this environment. With the lifetime you could choose to go to a fixed rate at any time - i.e. if the rates start to go upwards.

That's my take anyway. I'm remortgaging at the moment and am going for the hsbc lifetime tracker based on the above philosophy.

..and there deal is one of the most attractive tracker rates at the moment and it is fee free before the 6th Feb - so get in there!

https://mortgages.hsbc.co.uk/product/A001001475000000000000000000-lifetime-tracker-standard?source=results

getmore4less

Another question and it may be a dumb one, so apologies in advance, what is the benefit of going lifetime over fixed period (say 2 years) for a tracker mortgage?

It's down to the followon rate that most people just ignore saying thats ok i will remortgage.

Ask yourself what would your cuurent rate be if you had picked the FD lifetime tracker offset rather than the one you did(presumably a fixed/discount) that has the higher follow on rate.


In the current situation look at a lifetime tracker against a fixed with a higher followon.


For exable compare HSBC base+1.79% lifetime tracker against a 5 year fix with FD at 4.29% followon rate 3.69%

So to start the tracker is better, then if rates rise the saving get a bit lower till the tracker goes higher than the fix then you start losing but this is paid by the savings you have allready made to start with, when they run out you start losing money. and then the 5 years is up.

So the SVR and the tracker will have gone up( with decent lenders about the same) so now your tracker is saving you money again over the fix.

"I will remortgage" I here you say but you look around and there is nothing better than the tracker you could have allready have and thta save you for the rest of the life of the mortgage unless a better lifetime tracker comes along(base+0.17% were around for a while) and there are another set of fees to change. (if your finances change you might not be changing anything)

If margins start to fall there may be some deals closes to 2% over base but from the current levels of 3.5-4% over base I am not so sure.

So your tracker
Basicaly you win a bit, might lose a bit if rates rise and them might save again for life( fees for a start)

THoward

Great, many thanks for the info, I'll get on the phone