Fix or stay on SVR?

rodd-y-ler

Our original 2 year fix (4.8%) has come to an end, and we have switched to the Halifax SVR of 4%

Flat was purchased for £153k using a Homebuy scheme, so the mortgage was £100k. The remaining mortgage is now £94k

We plan to ideally sell up in spring 2014, but the only fixed product we can get (due to having a Homebuy mortgage) will run until August 2014.

Our 2 options:

Do nothing and continue with the SVR until spring 2014 and hope for the best

or

Fix at 4.5%, forcing us to either spend an additional year in our flat or ensure that our next place is mortgaged with Halifax again to ensure no early completion fees.

I'm aware that the base rate isn't likely to do anything drastic over the next 2 years, but banks seem to be able to change their SVR willy nilly, so it could just go up in the future if we don't fix.

Fixing means that if we sell when we want to, we HAVE to use Halifax again even if there is better competition, as the early completion fees are very high.

Is there any way to see if a year of lower SVR can offset a year of high SVR to the same level as the fixed rate?

So if the SVR stays at 4% for a year, then goes to 4.5% for 6 months, then 5% for 6 months (all hypothetical), would the actual cost to us over the whole 2 years be comparable to the 4.5% fixed?

We would really rather not be tied in until August 2014 or be forced in to Halifax again for our next place as it probably won't be the most competitive. We are only with them because they were the only one we could get a Homebuy mortgage through back in 2010.

Thanks

harvey115

1st 6 months 4 2nd 6 months 4.5 3rd 6 months 5 4th 6 months 5.5 Average 4.75

Seem like a simple one to check. So if the changes happen as above then you are looking at the average of 2 years.

Banks can move up or down their SVR as it pleases them. They do not have to follow BoE base rate.

harvey115

1st 6 months - 4
2nd 6 months - 4.5
3rd 6 months - 5
4th 6 months - 5.5
Average - 4.75


A bit clearer this time

holly_hobby

Reading your post you seem to have made you own mind up already - thats the banks BMR.

It is rumoured that BOE won't move base until circa 2016 - due to the severity of the recession, I emphasise rumoured .... !!

However, as you are painfully aware a lenders SVR isn't always representative of BOE rates - there are many reasons for this, predominant ones being the purchasing of finance on money markets to fund current deals, recouping loss of interest on those whom are on BOE tracker deal with a small loading or even a negative adjustment, whilst attempting to give something to savers, and also making a profit - just a few of the balls they have to keep in the air, its difficult trading for all !

So how far they rack up their BMR above BOE base is very much dependant on their business model, and the strains on it.

My advice would be if you are unable to abosorb any interest rate higher than the fixed rate on offer over the same term - fix. If you do have some capacity to remain relatively comfortable if their BMR does exceed the fixed rate being dicsussed, within the next 2 yrs, then bearing in mind the other constraints you are trying to work with, I would considering staying on their BMR.

The above is based on the minimial financial info to hand , and is not giving advice, but rather how I would play it, if I were in your situ.

Sure others will be along with comment, to disagree, etc ... take it all on board and make a decision that feels right for you.

Hope this helps

Holly

rodd-y-ler

Thanks guys

Our current household income can see us comfortable up to 5.5%, we just wanted to try and waste as little money on interest as possible over the next 2 years.

If I get the new job I've applied for, it becomes moot as household income will jump up 15%, so the SVR would be completely doable.

Obviously it's all speculation, but how high could the SVR rise to over the next 2 years? Is there a historic log of SVR rates for all the banks over the past few decades?

holly_hobby

It would be useless to apply it in todays ecnonimic situ - the like of which has never been experienced in modern day banking.

Ball park ... a typically historic svr rises tendded to be circa 0.25' ish (rarely much higher than this per increase) - when things are climbing, poss applied around once a qtr. So as a very, very, very crude excercise lets use 0.25% x 8 qtrs ( 2 yrs) = 2.00% overall rise on the current fig. Of course the frequency of increases may exceed qtrly implementation, and the rate may exceed 0.25%, as we have assumed in the above exercise, equally it may not be applied at a rate as high as 0.25% or as frequently as a qtly format.

Its very much a game of guess, but I have given you a general idea on how to evaluate whether to choose betwen a fix and discount/tracker product, which is an approach used when guiding clients whom aren't sure which way to jump, fix if you are risk adverse/cautious and need or want to know that your mge payments won't change over the term, or disc/tracker if you have flexibility payment and budget wise, and a little more of balanced outlook to interest rate movements.

Hope this helps

Holly