Mortgages - Fixed or Variable

ANTDAVIS

All,

I'm a first time buyer and have placed an offer on a property I like. I've spoken informally with a Financial Advisor in order to obtain a Mortgage in Principal but haven't sat down or discusss things any further with him.

I was just wondering if anyone has any friendly advice out there as to whether given the current economic climate it was better off to look at Variable over Fixed Term mortgages or vice versa.

Thanks

erdd2

No one could really answer this question on such limited information and I am sure if you expand on your financial position, job, dependants etc someone could advise further

ANTDAVIS

Sorry, didn't think i'd need to go into so much detail.

Current bid on the property which is looking 99% like it will be accepted is £137k. I'm a single applicant earning £26k per annum (basic) and have £23k towards the deposit (although the property does need some renovation as is a repossession, therefore would probably be looking at 10% deposit rather than 15%). I also don't have any dependants.

aqueoushumour01

fixed rates have come down quite a bit of late - it wasn't that long ago they were shooting up as people were pricing in higher interest rates coming in fairly soon. This has reversed and people expect rates to stay low for some time (but who knows how long.) A fixed rate will give you certainty over payments as they won't change regardless of what happens to interest rates. It is therefore a good option for those who like to know what they need to pay, know they can afford the payments at the moment and who don't want to worry about what happens to interest rates.

Variable rates are however very low too and you may save money for at least some time if rates do not increase very quickly. On the other hand, if the economy looks like it's improving in the next year or so, we may see rates move upwards swiftly. If that were the case, would you be comfortable paying more each month on the mortgage.

I think it would be reasonable to base your choice on 1. whether you like uncertainty/potential volatility in what you pay each month - fixed may be a better option if you want some certainty in payments, and 2. how much of your income you are paying out in mortgage - the higher this figure is the less you'll have left over at the end of each month if mortgage rates were to increase, and thirdly - the extent to which you wish to 'play' interest rate markets. If you feel you can predict when mortgage rates will change then this may help shape your views.