Fix for 2 years or Tracker?

Thrugelmir

Ms_Sophia wrote: »

That's right, there is a product fee. However as far as I can see a majority of products for FTB seem to be coming with a hefty product fee of £1000-£1500.

Product fees aren't restricted to FTB's.

Have you looked at HSBC\FD for a mortgage?

Ms_Sophia

Yes, I have. HSBC seem to have quite high rates.
Did want to get a mortgage with FD but they said couldn't give it to us as we don't have UK passports Having 40% deposit and wanting to put our savings into their offset account didn't help...

sebtomato

You would need to consider how quickly the base rate is likely to move, to exceed an average of 2.89% over the next two years. Fixing for two years is only interesting if the average tracker rate exceeds 2.89% over two years, and I think it is unlikely to be the case. Even if your tracker rate was reaching 2.89% in two years time, it does not mean you would have paid that rate over the period.

The point of fixing is to pay a premium for a cap, but two years is just too short.

On the basis that we start at 0.5% (and that no BR increase is expected at least for 3 months given the current economic conditions), and your tracker is 2.04%, interest rates would need to increase quite significantly in a short time to achieve an average of more than 2.89% over the next two years.

Ms_Sophia

Thanks sebtomato. This is exactly my thinking. The big question of course remains how quickly and how often the base rate will be increasing. I've modeled a scenario based on my estimate that the base rate will increase in 3 months time by 0.5%, and then will be increasing every 6 months by another 0.5%. In this case the average weighted % will be 2.89% (funnily enough, it came to exactly 2.89%, i.e. the same as the fixed rate I was comparing it to ).

Of course, this is just my estimate. But based on it I am now inclined to go for a tracker. The reason is that it may grow as per my estimate but it may as well grow slower, and in such case the tracker will mean less interest. But if it grows faster and/or my larger increments then I know I will be able to pay more.

hcb42

2.89 is a cheap fix..

sebtomato

Ms_Sophia wrote: »

I've modeled a scenario based on my estimate that the base rate will increase in 3 months time by 0.5%, and then will be increasing every 6 months by another 0.5%. In this case the average weighted % will be 2.89% (funnily enough, it came to exactly 2.89%, i.e. the same as the fixed rate I was comparing it to )

Your scenario is probably pessimistic: it has been left to 0.5% for I think 24 months, so a raise would be done very slowly, to see if it does not have a negative impact on the property market and growth.

Inflation is very high, but has been high for some time, so if they had wanted to curb inflation by increase interest rates, then they would have done it by now. The BoE thinking is that inflation will drop by itself, so they will stay put (else they just admit they were wrong for a while).

I think they would raise it by 0.25% every few months, unless there are some strong signs of economic recovery.