Follow on rate - significant?

brizza

Hello,

First buyer, slowly moving forward to taking the plunge with our first property, so be gentle...

When comparing deals at the moment, I am more or less ignoring the follow on rate. Am I wrong?

I'm doing this firstly on the basis that we will almost certainly remortgage once our fixed period has ended. But more importantly (as I see it) because as far as I can see, most follow on rates seem to be their SVR, which it appears that lenders are able to change these follow on rates as and when they desire.

Is there more subtly to it than this, am I missing something important?

For example -

Chelsea BS - 3.69% for 2 years with a follow on of 5.79%
Yorkshire BS - 3.99% for 2 years with a follow on of 4.99%

If the follow on rates were contractually locked in, then the YBS would be a nice risk averse deal, but in reality we have no idea where rates will sit in 2 years, so their rate may have shifted to somewhere else by then. In which case I may as well take the 0.3% benefit with CBS for the timebeing?

I can understand that the Post Office deal where you revert to 3.99% + Base is at least based on something that the lender can't manipulate, but in general terms is my logic sound?

Thanks in advance.

lee111s

You'd be wise to look at remortgaging in two years. Are there any products out there with a longer fix that you can afford?

kingstreet

The follow-on rate is important if your circumstances change and you find you can't remortgage. Chelsea and YBS are the same lender, but with different rates...

PO is Bank of Ireland UK in disguise. Study the terms and conditions very carefully to ensure you are getting what you think you are...

lee111s

What's the purchase price and what's your deposit?

motch

5 year fixed might be best if you have a good % deposit.

brizza

kingstreet wrote: »

The follow-on rate is important if your circumstances change and you find you can't remortgage. Chelsea and YBS are the same lender, but with different rates...

Sorry, I've probably not made myself clear enough. I appreciate the risk of being stuck unable to remortgage, I probably should have left that out of my initial post entirely. What I am more concerned with is...

If I am reading correctly then the follow on rate is something which can be changed at the lender's discretion (unless it's specifically X% above BOE base rate).

So although right now mortgage A may have a worse follow on rate than mortgage B, that in itself doesn't provide me with any guarantee it will still be the case 2/3/5 years into the future?

StuC75

The follow on rate is only important if you forsee any problem getting away from that lender.

This can be for a number of reasons relating to employment status \ earnings - if made redundant or credit file gets trashed in the meantime ~ chances of remortgaging elsewhere lessen. Property valuation in the future - if lower will affect LTV rate and possibility to go elsewhere (negative equity - your current ltv is high)..

grey_gym_sock

if you want guarantees, perhaps you should be looking at 5-year deals, rather than 2-year.

SVRs can change, though they tend to move relatively slowly. presumably the lenders with higher SVRs are themselves under more financial pressure, or would prefer for some of their borrowers to remortgage away to another lender. their SVRs are likely to stay higher while these circumstances continue. but circumstances can change eventually.

since yorkshire and chelsea are the same institution, presumably their SVRs will converge at some point. dunno when. they could be deliberately charging more for chelsea, because it was in some trouble when yorkshire took it over.

kingstreet

brizza wrote: »

If I am reading correctly then the follow on rate is something which can be changed at the lender's discretion (unless it's specifically X% above BOE base rate).

So although right now mortgage A may have a worse follow on rate than mortgage B, that in itself doesn't provide me with any guarantee it will still be the case 2/3/5 years into the future?

Like I said, if you read the BoI thread on the current page, you will see a "BoE +" product where the differential is being changed, so whatever you think you are getting, check it as certain as you think!