Stay with Nationwide BMR mortgage or move to fixed?

photo_guy

Like many others, I am wondering whether to move to a fixed rate mortgage or stay on my current variable rate.

I was on a Nationwide fixed rate mortgage until September last year when it ended and I went onto Nationwide's Base Mortgage Rate (BMR).

My outstanding balance is around £64,000 and I have just under 19 years left on the term.

As I understand it, Nationwiide's BMR is guaranteed never to go above 2% above Bank of England rates so I am currently paying 2.5% interest (Nationwide's Standard Variable Rate is currently 3.99%).

The mortgage I have came with a range of flexible terms such as underpayments and borrow back (to the value of any overpayments I have made). If I moved to another mortgage, I would loose many of those flexible terms.

I have been overpaying my mortgage on a regular basis for the past two years and have reduced the term by 2 years.

My thoughts are as follows:

• I believe it would be very unlikely that the Bank of England would not put up interest rates by more than 0.25% per month.
• Although it is probably likely they will put up interest rates to kerb inflation in the next few months, they would not put them up too quickly as it would risk putting the economy into reverse, so I doubt they put them up by more than 0.5% this year and maybe another 1% next year, (would be interesting to hear other people's views).
  
• I have been looking at switching to a fixed rate mortgage:
  * Nationwide have a 2yr fixed rate for 3.89% (no fees as they're not worth it in the repayments I would make over 2 yrs).
  The problem with this is that it will probably take a year or so for interest rates to go up by 1% so I'd be paying more straight away if I switched now.
  I figure that over two years, it would not be worth switching (unless interest rates rose sharply which I thing is unlikely).
  * Nationwide's 5yr fixed rate is 4.69% (no fees) or 3.99% with £999 fee (I haven't calculated whether the fees would be worth it).
  Over 5 years, the view is a little more unclear as it would obviously depend how fast interest rates rose.
  There is the possibility they would rise at 1% a year for the next 5 years so I would be paying 7.5% on the Nationwide BMR in 5 years time.
  On the other hand, the interest rates on a 5yr fixed mortgage are over 2% more than I'm paying now so I would initially be paying less if I stayed on the BMR which might offset some of the additional amount I would be paying in a few years.

If I stay with the BMR & interest rates rise to the point where I am struggling to pay the monthly amount, I can change the way overpayments are handled so instead of reducing the term, I reduce the monthly repayments by extending the term by whatever amount brings down the repayments back to an affordable level. I could also borrow back my overpayments should the need arise.

[Edit] My mortgage advisor is also on the BMR and has decided to stay on it for now.

Sorry for the long post.
I'd be interested to hear other people's thoughts about this.

flashg67

I tend to agree (on a none professional basis) with photo-guy - I'm in a similar position but slightly behind you - about to finish a fixed deal with Nationwide that I took out just before interest rates dropped, so I feel I've been overpaying for the last 3 years already!

My thought was to go back to the BMR and the lower payment (or even overpay a bit as I'm now used to making the higher payment on my current deal). If rates start rising, I'd then look for a another fix.

The problem with that is that Martin MSE and others are already saying that fixed deals are rising, even before any rate rises. This makes me think that getting a decent fixed rate further down the line will be even harder to get and more expensive than those available now?

As always, it's a choice between the security of a fixed rate against the potential savings to be had in gambling on future rates. I gambled last time on a fixed rate, and lost - perhaps I should avoid the advice of my mortgage-advisor brother (or at least avoid asking him when he's on a night out on the beer anyway!)

My gut feeling for my situation is to go onto the BMR, which in my case will half my payments. I'll try to make some overpayments, so reducing the overall debt. Hopefully if rates do then rise, my payments will still be lower, as the total debt will be lower.

Like photo-guy, I'd be interested in other member's thoughts?

TrickyDicky101

I came off a Nationwide fix last August and am now on their BMR. I have chosen not to fix again as I am making significant overpayments each month and reducing the term with each one (now down to 14yrs approx). As the term reduces, so the capital proportion of each month's payment increases which means you are 'insulated' to a degree from increases in interest rates. For longer terms such as photo_guy has, interest rate movements have a commensurately larger impact on the monthly payment. I agree with p_g's thinking though - if rates do rise *I* don't expect them to rise too far too fast. However, I won't be getting another fix no matter what they do...

spirit

I'm watching replies to your question OP as I am in a similar position.

I've been sitting on their BMR for 2 years now and my outstanding mortgage is £47k. However, I can't decide whether to downsize to a 2 bed house and have no mortgage at all or stay here.

flashg67

spirit wrote: »

I'm watching replies to your question OP as I am in a similar position.

I've been sitting on their BMR for 2 years now and my outstanding mortgage is £47k. However, I can't decide whether to downsize to a 2 bed house and have no mortgage at all or stay here.

I suppose that depends on whether you think you'll move again and still be in a position to up your mortgage if you do decide to move.
47k is no small beer, but it's not a huge amount nowadays, as long as you can afford the repayments.

My (now retired) neighbours did this - bought a comfortable 2 bed in a decent area. I now look on in envy at the new car on the drive and the regular holidays they take!

I suppose my time will come and I shouldn't wish my life away!

Meeper

I would stay on the BMR but make payments as if I was on a 5% rate.

dimbo61

Totally agree with meeper If you are on a fixed rate deal which is coming to an end or are now on the BMR then you need to save /overpay each month in order to clear the mortgage asap
If you only pay 2.5% on your mortgage then its going to hurt when rates do rise so make hay while the sun shines and overpay
If you need the security of a fix think long term 3/5 years and again overpay
The sooner its paid off the more interest you save
I reduced our mortgage by 12 years and its saved us £50,000 in interest

spirit

flashg67 wrote: »

I suppose that depends on whether you think you'll move again and still be in a position to up your mortgage if you do decide to move.
47k is no small beer, but it's not a huge amount nowadays, as long as you can afford the repayments.

My (now retired) neighbours did this - bought a comfortable 2 bed in a decent area. I now look on in envy at the new car on the drive and the regular holidays they take!

I suppose my time will come and I shouldn't wish my life away!

I downsized (price wise) almost exactly a year ago by buying a fixer upper. By doing so I dropped my mortgage by £28k down to £50k. the mortgage included the money I needed to fix this up.

This house is all done now and i'm thinking of various options. I have today had an offer on this house of £35k more than I paid for it. (I bought it for £180k) but this offer is £10k less than it is on the market for. I've only just gone on the market. So I don't know now what to do. Realistically I'd need to buy for around £170k to make it worth my while downsizing. There's a 2 bed house opposite me went up for sale just after Christmas. It was on for £174k and went under offer in 2 weeks. That's the sort of house I'd like size and price wise. I'd be able to have the new car and my laser lipo surgery too :eek:

I'm in my early fifties now and DD has been through uni and has her own place now, DS is going to uni in Sept so I don't need a 3 bed. I hadn't planned on moving again quite so soon but I would like a larger garden and a smaller mortgage really.

This is quite an expensive area, one of the alternatives is to change my area but then I'd need to get a job there.

pablo1827

Not meaning to gloat but Oct 09 I was coming off a fixed rate with nationwide and decided to go for another one.Went into the branch to arrange one and the mortgage adviser told me that I would have to wait until my present fix was finished.As I only had I mth to go and she wouldnt give me the rate that I saw for new applicants I went home with my tail between my legs and thought that i had missed out.Lo and behold it was the best thing that's ever happened to me regarding mortgages, and I have been able to overpay since then by being on their BMR

darkcloudi

Im in the same position too. Overpaying and enjoying the 2.5% BMR

I currently have a First Direct mortgage booked at 4.29% over 5 years (75% LTV), and its currently going through the mortgage application as I am awaiting a survey to be done. I guess the main reason I took it was to see what the banks value my house since it only required a £99 booking fee and included a free survey and the legal fees. If the survey does come out as what I want to do the remortgage is going to happen on 5th July (possibly going to delay this even further to 15th July) however if the bank of england rates stay the same at 0.5% I might pull out the FD offer, as the rate needs to go up by 2% for me to benefit from the new rate, however over 5 years the First Direct rate looks good, but i'm unsure what to do

dimbo61

darkcloudi that depends on you and income,family,savings,job etc which no one else knows so its your call
good rate for a 5 year fix with an LTV of 75% but try and overpay each month if you can