Has my F.A sold me a bum deal?

chrispyphillips

Last November I bought a new flat with my OH, and all throughout, had a friend of mone, who is a financial advisor, help me with the whole process of sorting a mortgage/insurance etc out. Whilst i'm gratful for the help, as i'd never have managed on my own, I'm not sure whether his motives were to get me, or him, the best deal.

The long and short of it is that he got me a deal with Alliance & Leicester, for a 'tracker' mortgage, which apparently 'tracks the bank of England base rate' or something or other (as you can see, i have no idea) What i'm concerned about is that with the rise in inflation, my mortgage went up before i'd made my first payment, and looks set to be going up again pretty soon. Now we're really struggling as it is, without it going up even more, but when I spoke to him, he said it would still be the best deal for me!

Now i'm wondering whether we should have gone for a fixed rate mortgage for 2 years to get started off with, or if we can ever change the mortgage to this, or if we are genuinly better off with this 'tracker' mortgage we have!

Does anyone have any *impartial* advise to bestow upon me, as I know if I go back to said F.A, the bottom line will still be the 'I got you the best deal' mantra!

Help would be greatly appreciated.

Martinslovechild

It depends on what basis it was the 'best deal'. Perhaps it was the best deal in terms of total cost over the mortgage term, or perhaps it was the mortgage which offered the lowest up-front costs (application fee etc). There may have been any number of reasons. You'll need to ask him 'why?'.

Personally, I like tracker deals as you benefit from guaranteed rate reductions, should Bank Rate fall (unlike discounted deals which don't always pass on the full rate reduction, if at all). The flip-side of this is that you're guaranteed to pay any increases as well.

Check out the terms of your mortgage - it may be that you can swap to a different lender or even a fixed-rate with A&L. You need to ensure that there's not going to be a 'redemption penalty'. Also be aware that a number of leading fixed-rate deals have already been pulled this week following the recent 'shock' interest-rate rise. However, given your comments regarding affordability, I would act sooner rather than later.

Also - please see my comment below about 'advice'

Robert_Sterling

I do not know whether the deal you were offered was the best possible in your circumstances.
However since you did not pay for the advice it was not really a Financial Adviser who gave you the advice it was your friend if you can see where I am coming from.

dunstonh

Does anyone have any *impartial* advise to bestow upon me, as I know if I go back to said F.A, the bottom line will still be the 'I got you the best deal' mantra!

If you ask for a yellow sweet and get a yellow sweet you cant complain if you realise that you didnt like the yellow sweet after all and would prefer a red sweet.

The mortgage adviser would normally give you an indication of the different types of mortgages available and you would decide which is suitable. He/she would then find the deal to match the type of mortgage you wanted.

The best deal would depend on the type of mortgage you want. If you wanted fixed, he/she should look at fixed. If you wanted a tracker, then he/she should find the tracker.

If interest rates were to drop, the fixed rate could be left behind and the tracker would benefit. No-one can predict future rates accurately. However, in November, the general feeling was that another increase, possibly two would occur in 2007. Some even predicted they could drop in 2007. Since then, things have gone downhill a bit on the inflation front and more rate rises look likely. However, the US data out this week shows another rise may not occur there and could reduce pressure on the UK needing to increase rates further.

meanmachine_2

You went with the tracker because at the time it was the cheapest option.

Why was it the cheapest option? Because there is a risk it can rise (as well as fall).

No doubt, had interest rates gone down you would be buying your friend a drink.

Come on, it isn't difficult. Trackers track up and down, fixes stick.

If interest rates fall during the term of your mortgage you'll benefit.

Maybe you should have done a tiny bit of reading before embarking on such a massive commitment?

Don't blame your friend that you didn't.

Take responsibility.

The_Bear_6

He probably outlined the risks of a tracker too but you probably didn't know what he was talking about. Ignorance is not an excuse unfortunately, with a possible future rise in the pipeline perhaps it would be prudent to see what kind of penalty charges you would be subject to getting a new deal.

jamesd

In a fixed rate mortgage there are extra costs to pay for the locking in of the fixed rate. As a result, there is always a price premium for a fixed rate mortgage and over time, those who buy variable rate mortgages do end up paying less, all other things being equal.

So, if your finances make it easy enough for you to afford the cost of interest rate variations, you probably do gain by having a variable rate mortgage, even if it's temproarily more expensive.

Trying to decide if any particular two or three year period will make a tracker rate better or worse is tough, since that requires predicting the future. A tracker looked likely to be best when you got yours. It's also likely that Alliance & Leicester were offering the best or very close to best deal for a tracker mortgage for you. Your friend seems to have made entirely reasonable suggestions that are producing temporary concern for you.

ossie1_2

As an ex A & L employee in the residential mortgage field ( 20 years ), I can concur that the deal offered would be likely to be one of the best trackers around. Recent tracker deals offered by them in the market have been near the "top of the tree" so this is likely to be a pretty good offerring. Can you confirm the amount over the base rate that you will be paying ( on mortgage offer ). Can you also confirm whther you have penalty charges on the deal ( also indicated on the offer ). This will indicate whether you can do anything about swapping rates without incurring costs.
However, I am concerned if things are getting tight already - rates are still at a low historically and even if the tracker is 0.50% above base rate this is a low rate. If you are struggling, did you overcommit initially. Did your advisor give you best advice based on affordability. What happens if we have another 2 rate rises???
If you can come back with the first 2 answers I will try and help you.

PS - Does Martinslovechild not like people who don't spell everything correctly. Whilst this might frustrate people, poor spelling hasn't yet become a crime.......

dunstonh

PS - Does Martinslovechild not like people who don't spell everything correctly. Whilst this might frustrate people, poor spelling hasn't yet become a crime.......

You spelt adviser wrong

Martinslovechild

ossie1 wrote:

...so this is likely to be a pretty good offerring.

Mmm. Offering is looking a tad dodgy there...

ossie1 wrote:

Can you also confirm whther you have penalty charges...

...and whether is looking decidedly wrong here too...

ossie1 wrote:

PS - Does Martinslovechild not like people who don't spell everything correctly. Whilst this might frustrate people, poor spelling hasn't yet become a crime.......

It deserves the death penalty.

steveeeee

jamesd wrote:

In a fixed rate mortgage there are extra costs to pay for the locking in of the fixed rate. As a result, there is always a price premium for a fixed rate mortgage and over time, those who buy variable rate mortgages do end up paying less, all other things being equal.

True indeed. We went for a five year fixed rate (5.29%) back in May 2004 when the base rate was about 4.5%. We chose a fixed rate mortgage mostly to help with our budgeting as the payments would be the same each month, and partly to hedge against future base rate rises since the base rate seemed to hit a low ebb in mid/late-2003 and looked like it was on the way back up. I've been eagerly watching the base interest rate creep up since then, and will definitely crack open a cold one when it hits 5.5%. :beer: I only hope they come back down again by 2009!