Nationwide Base Rate Mortgage - Worth the risk?

knumb1

Hi there,

Please help! My current Nationwide deal is coming to an end in Feb and I have been looking around and it seems that in our situation, Nationwide currently offer the best deal I can find to get another fixed deal. The interesting thing is, as I have been looking into it, if I don't choose a deal we will drop onto Nationwide's old "Base Rate Mortgage". This isn't offered any more, but is a tracker, so is it worth the risk?

I know that there are no certainties, but I was wondering if anyone could provide an opinion about what they think is best? This is the first time we have had to re mortgage (as the deal is ending) and wondered if the Base Rate Mortgage is too good an opportunity to turn down?

The fixed deal I am thinking of going for is: 5 year fixed at 4.29%. This is quite a bit lower than the current deal we are fixed with and they are offering £400 cash back.

The Base Rate Mortgage is Guaranteed not to be more than 2% above Bank of England base rate. I know that in the short term the Base Rate is better, but is it worth the risk with interest rate rises etc?

I'm a little confused and if anyone out there could help me out, it would be much appreciated

I didn't want to make this post too long, but if you would like more information, let me know and I will post what I can.

Thanks.

opinions4u

You're asking people to predict base rate movements over 5 years.

I reckon of those that played that game in 2006 nobody predicted 0.5% would be the rate at the end of 2011.

I'd probably take a punt on the 2.5% and overpay based on my current payments ... getting the debt lower and allowing me to adjust to rate rises more easily if they arrive.

But a 4.29% fix for 5 years sounds like a fairly decent deal and gives you peace of mind, although you lose the 2% tracker option at the end of it.

I can't give you an answer - at least not until 2016/17. I hope your decision is the right one! Good luck with it .

Thrugelmir

knumb1 wrote: »

The Base Rate Mortgage is Guaranteed not to be more than 2% above Bank of England base rate. I know that in the short term the Base Rate is better, but is it worth the risk with interest rate rises etc?

If base rate rises then so will fixed rates in the future. Base rate would have to rise by 2% for you to be better off with a 4% plus fix.

Rather than worry about interest rates. Concentrate on paying down the debt. As the less you owe the less the interest charged will be and the lower the impact of rises in the future.

Maintain your repayments at the current level, if possible make overpayments as well. Then watch your mortgage balance reduce. Mortgage interest is charged monthly so every extra payment, means more capital repaid the following month.

Once you leave the base +2% rate you'll won't get it back again with the NW.

Rice1865

Current market indicators of base rate movements show that the BMR would require lower payments over the next 5 years than the fixed product. I estimate by some £3,500 over the 5 years for a 20 year mortgage for £100,000 for example even after allowing for the cash back.

This could be saved, overpaid etc. as mentioned in previous posts.

Personally I like the idea of the BMR (while it is competitive) as the rate cannot be changed by commercial considerations at Nationwide.

For these two reasons I would go with the BMR. However, if certainty in payment is important to you fixing becomes more attractive.

property.advert

The variance between the two is too large to go fixed IMHO.

With linear progression throughout 5 years, the mortgage rate would have to rise from 0.5% now to 6.08% just to break even (ignoring the £400 and inflation). Thus, to lose out, rates would have to rise more sharply in the first few years or go higher than 6% by the end of 5 years.

Using the saved funds to pay down the capital in the beginning favours the base plus 2% option even more.

knumb1

Hi,

Thanks for all the replies

My idea, if I did go to the Base Rate Mortgage, was to pay the same amount as I currently do on the fixed deal that is coming to an end.

My concerns with it were:

- Currently the fixed rate is at 4.29% when the base rate is 0.5%. If the rate goes up in the next few months and we need to fix, at what percentage will the fixed rates be then?

- I am happy to overpay the mortgage if I am on the Base Rate, but if the interest rates do rise soon, then it will cancel out the benefit to not switching to the fixed rate.

My main concern is if the rates go astronomical like 8/9/10% which obviously would be a major worry!

One thing in my mind is that maybe I am going onto the tracker a bit too late in that the rates have been so low for so long, surely it must rise soon? _pale_

savingqueen

We have been on the Nationwide's BR for a couple of years now. We took a FTB cheapy deal 9 years ago, when that run out we changed to a no fee deal still with NW and when that ran out, didn't do anything and automatically went onto BR.

I shopped around at the time as much as I could and NW BR was the best deal (and no fee again.) I estimated base rates would be low for some years as seems to be the case. We are actually paying a tiny bit less now than with our original low cost starter mortgage. NW bombarded us with offers to change to various deals in the leadup and just after our old deal ran out which led me to think they didn't want us on BR.

One thing I did when weighing it up was look at the cost of the mortgage fees for the deals and divide by number of months deal lasted and add this extra cost to mthly mortage payments. For us with a small mortgage, even if rates had risen a fair bit, it would have still been cheaper to stick with BR.

We are not overpaying as we don't have much of a buffer in way of savings and been trying to save a little but I am going to both save a little and overpay as much as possible from next month as one day those rates will rise and want to make sure we can still meet mortage payments then.

sorry no stats to back up post. good luck with your decision and as others have said, main thing is to sort out all your finances and if you can overpay.

opinions4u

http://www.bbc.co.uk/news/business-16361047

The poll also found that most economists expect UK interest rates to remain at 0.5% throughout next year.

A useful link above. Not that economists always get their predictions right, but I can't see anything in the next 12 months that will increase BBR.

My main concern is if the rates go astronomical like 8/9/10% which obviously would be a major worry!

Anybody with a mortgage should budget for a 10% interest rate. How were you to know, when you bought the house, that interest rates wouldn't be 10% today? If they had been, are you saying you couldn't have coped?

It's a serious point. It's now aound 20 years since many of us paid mortgage rates of 15.4%. Always budget for the worst.

koexelek

the fact that Nationwide will try to move heaven and earth to try to get people to move off of their 2.5% SVR tells you what a good deal it is

It's costing them millions every year:D

knumb1

Hi everyone,

I really appreciate all the help and information you have given me on this subject.

I think that it has helped me decide too. I think I am going to let my mortgage go onto the Nationwide Base Rate Mortgage. I am hoping to overpay by paying the same amount we currently pay now for our mortgage. So hopefully, if the rates do change etc. and even if the fixed rate is higher, hopefully we will own less at that point and still get a decent rate.

From what I have read too, when we drop onto the Base Rate Mortgage, we can fix at anytime - we just can't ever go back onto the Base Rate.

Thanks again, it has been really appreciated.