Low initial rate or low revert rate - what would you do?

westonh

Hi all,

First time buyer here. I'm working with a broker to get a mortgage and I'm trying to choose between 2 favourites, both are 2-year fixed term.

The first option, Nationwide BS, has a much more attractive SVR than the other (see below), but I know I won't see that rate for 2 years, and it may change.

The second option, Accord, has a slightly lower initial rate. My broker is recommending this one since it works out cheaper over the first 2 years. However because my mortgage is 35 years I am wondering if it's better to go for the one with the better-looking SVR and swallow a slightly higher monthly rate at the beginning (difference is about £8/month).

Accord: Initial rate 1.58%, revert rate 5.34%
Nationwide BS: Initial rate 1.64%, revert rate 3.74%
(Fees are the same for both)

My questions are,
1) is it wrong to prioritise SVR at the beginning, given that I could remortgage to get a better deal later?
2) if I go for the better SVR mortgage, what's the probability that it will still have the best SVR in 2 years' time? In your experience, how significantly do SVRs change over 2 years?

Thanks in advance.

pjcox2005

When we remortgage, we always go for the lowest SVR for that time, rather than future rates.


That has been at a time when we considered rates were unlikely to rise which has been the case so we've seen a benefit but potentially moving to a different landscape soon.


It was also based on premise of higher mortgage now than in future and that an increased rate wouldn't have a significant impact on us so we can take that risk.

Brighty

Go for the lower rate now, never sit on the SVR, just remortgage in 2 years, either to a new lender or just a new fix deal with your current lender. SVR's are usually expensive, easily beaten by fixed deals. The only time you might be stuck on an SVR, is if you have a high LTV and then house prices crash, leaving you in negative equity and unable to remortgage. What's your LTV?

Brighty

That nationwide 2yr fix at 1.64%, that's has a £999 fee doesn't it? I assume you must be borrowing up over £240k to make that worthwhile compared to the 2.04% no fee option?

kingstreet

We've managed to do not one case with Accord in the last five years.

When we explain the possibility of becoming a mortgage prisoner through no fault of your own and being reliant on Nationwide or Accord to give you the best customer retention product, my money is always on Nationwide.

The alternative is standard variable rate.

jamesperrett

As a housebuyer (rather than a mortgage broker) I would feel more comfortable going with Nationwide as you can never exactly predict the future and there may be reasons why you won't be able to switch in 2 years time.

Personally I would also feel more comfortable going for a longer deal rather than having to switch every 2 years but that's just my own personal choice.

westonh

Thanks @Brighty,

"The only time you might be stuck on an SVR, is if you have a high LTV and then house prices crash, leaving you in negative equity and unable to remortgage. What's your LTV?"

LTV is 83% - does that change your view?

And yes, the arrangement fee for that one is £999, we're borrowing over 240k.

westonh

@kingstreet
"We've managed to do not one case with Accord in the last five years."

Sorry I'm not clear on what you mean - what do you put that down to? In terms of customer service, you'd generally recommend Nationwide?

kingstreet

When we give people the choice you are making here, they choose Nationwide. They don't feel it's sensible to make the first two or so years of their mortgage so much more important than the other 23 - 33 etc.

getmore4less

Brighty wrote: »

That nationwide 2yr fix at 1.64%, that's has a £999 fee doesn't it? I assume you must be borrowing up over £240k to make that worthwhile compared to the 2.04% no fee option?

Love to see your calculations for that £240k?

2y fix with 2.04% £0 fee V 1.64% £999 fee

breakeven

Interest only around £127k
£127,000 @ 2.04% £216pm £126,997
£127,999 @ 1.64% £216pm £126,998

25y term around £131K
£131,000 @ 2.04% £558pm £122,794
£131,999 @ 1.64% £558pm £122,793

shorter the term the higher the break even gets.

10y term
£139,000 @ 2.04% £1282pm £113,407
£139,999 @ 1.64% £1282pm £113,408