Coming to end of 2 year fix ...

snezhinskproject

Slightly odd one here:

I got my property in June 2010. Mortgage of £252K with Woolwich through L&C on a 2 year fix at 2.98%, post-fix Barclays base rate plus a percentage.

Recently Woolwich wrote to me telling me that my fix was coming to an end, and my rate would be going up to 3.49% or 3.99% (I can't remember which and am trying to dig out the letter).

L&C then contacted me about a new deal. Turns out the best new deal is a Woolwich retention-only deal of 2.99% for 2 years on my now £238K (have been overpaying), no fees to switch over, same terms etc. But after the 2 year fix the rate goes to Barclays base rate plus 3.39% (currently 3.89%) which sounded a little high.

So I went back to my original paperwork and realised that on my current mortgage, after the two year fix the rate is actually Barclays base rate plus 1.99% (i.e. currently 2.49%). I.e. less than my current 2.98% fix or the 2.99% new fix on offer.

So what I am wondering is (a) why Woolwich were writing to me to tell me that my rate would go up after my 2 year fix, (b) whether it is an issue that L&C haven't clocked that my rate should actually be about to go down (albeit that is totally dependent on base rate in future) and are recommending a new fix without mentioning it. Suspect resolution involves me contacting Woolwich to confirmt he position.

Then there is a (c), if I am right then I am thinking of just remaining on my current deal and its post-fix variable rate and betting that the base rates won't rise more (or much more) than 0.5% over the next 2 years. That sounds like the usual question of whether one prefers certainty or risk and I'm not asking what will happen to rates! However, is there anything else I need to factor into the assessment? I see three risks if rates rise: firstly my rate will go up (duh), secondly I would obviously no longer be able to get a fixed rate at 2.99%, and thirdly presumably I would never get a fee-free fix like the one I am being offered now?

Scenario 1: base rate stays at 0.5% for next 2 years and so my rate is 2.49%: by comparison to the 2.99% offer I benefit by (back of envelope) £1,440 over the two years.

Scenario 2: base rate goes up tomorrow by 1.0% and so my rate is 3.49%: I lose out £1,440 over two years vs the 2.99% offer. But it's probably not enough to make me get a new fixed deal and incur fees etc.

Scenario 3: base rate goes up in a year by 1.0% and so my average rate over the two years is 2.99%: I break even against the offer.

Scenario 4: At some point in the next two years base rate goes up by more than 1.0%. If it is in a year's time and rates go up by 2.0% I will have lost out vs the offer by £1,400, plus I will probably need to get a new fixed deal and will incur say another £1,000 on a fee for that new deal.

Is the fact that it is Barclays not BoE base rate a factor in this? I.e. are the two likely to diverge? Since 2007 they have tracked each other save that a couple of times the Barclays rate has taken a month to catch up with BoE rate cuts.

Many thanks.

The_J

The 2.99% rate is very good but that's because they are trying to get people off the better BBBR trackers.

BBBR is unlikely to diverge from BOEBR. But not impossible.

No idea why Woolwich incorrectly told you that you would be reverting to a rate. You seem to have all the info now to make a decision.

dimbo61

Check with your lender by ringing the mortgage centre and giving your mortgage account number!
Than if you are on the BBBR at 2.49% ask for your mortgage payments to remain static and overpay whatever you can each month.
Pray that BOE rates stay low ( like I do ! )

snezhinskproject

Thanks, I confirmed the BBBR plus 1.99% rate today. I will stay on it and as you say pray for rates to remain low while paying the same amount as I have already been doing to date.

dimbo61

Read in one of the papers today that rates may stay at 0.5% until 2017 but please take that with a pinch of salt!