Which is the best mortgage product?

moneylover

Hi

I’ve just had an offer accepted on a flat and have spent this afternoon trying to work out what is the best mortgage product to suit my needs. No easy task!

Having spoken to a couple of Brokers and scoured the websites I have narrowed it down to two products and I would be grateful for any opinions/views people may have on this board. There seems to be some pretty clued up people here!

Essentially I think it’s a choice for me between the following -

· a five year fixed with Britannia Building Society at 5.39% with a £999.00 arrangement fee or
· a tracker of 0.05% above Bank of England Base Rate (so currently 5.8%) again with Britannia with an arrangement fee of £499. The key thing about this product for me is there is no early redemption penalty (I know you can get more competitive trackers but not to my knowledge without any redemption penalties).

In case its of any use to anyone, these products can be found here (5 year fix)
http://www.britannia.co.uk/mortgage/fixed/5_year/index.html

and here (2 year tracker)
http://www.britannia.co.uk/mortgage/tracker/2_year_discount/index.html

I’m attracted to the two year tracker for one main reason – I think interest rates may have peaked. If my view is right, and of course it could be horribly wrong, this product will get cheaper as interest rates come down (rivalling the current best fixes on the market) and will allow me during the term of the product to either switch to a good fix which has come on to the market (with no penalty) or continue to ride falling interest rates.

I also like the idea of the tracker because I fear we may be at the top of the market (just as I buy!). If property crashes in value by 20% I think the Bank of England will drop interest rates to head of a full scale recession. So in a way I see a tracker as a minor hedge or at least some compensation against this risk.

If I’m wrong and interest rates start to rise my reasoning is that I could jump into a fixed product at that point, although I appreciate it won’t be as competitive as now.

Obviously the attraction of the 5 year fix with the Britannia is the certainty and the lack of surprises. However, it would of course be very frustrating to find myself paying over the odds over 5 years especially if my flat has dropped in value too. However, maybe I’m being to clever for my own good and should just fix?

What do people reckon? I appreciate the obvious answer is it depends on what happens to interst rates, but am I missing something else or something obvious? Are there mistakes in my logic or better products out there?!

Cheers for any input as my brain is fried!

Mike

P.S
I appreciate I could end up having to pay two arrangement fees.

P.P.S

Other products I have considered are the two year fix with giraffe (5.68% with no arrangement fee)

http://www.giraffemoney.co.uk/mortgage_product_details-124.htm

and the Nationwide lifetime tracker of 0.24% above base rate (so currently 5.99%) which has no arrangement fee.

http://www.nationwide.co.uk/mortgage/homebuyers/tracker_rates.htm

Qual123

I think you have answered the question yourself! There is not must in it as far as the products go but i would say that 5 years is a long time to tie in in the current market. My guess is intrest rates will go donw a little soon which supports the tracker. if im wrong them you are only tied in for 2 years and will not lose out too much.

MarkyMarkD

Moneylover

I honestly can't believe that the best products in both of two completely different product categories happen to be offered by the Britannia.

Aren't you being a bit blinkered in only asking for advice in choosing only between these two?

arfster

Looked around myself recently, and as far as fixed mortgages go the Brittania offering looks pretty nice.

Don't think I much fancy that Brittania discount one though. Even if interest rates fall (not guaranteed given that growth and inflationary pressures are still in the economy), it'll jump up to base+1.5% in 2yrs. Unless your mortgage is tiny the low fee isn't really a major consideration either.

Personally if I was to go with a tracker it'd be a lifetime BoE base+0.25% like that Nationwide one you mention.

The consideration of fixed rates probably is more dependant on how able you are to absorb increases. Can you manage if things go unpredictable and it goes up to 8-9% for a while? Seems unlikely, but people thought so 20 years ago, and look what happened - let's face it, at the end of the day Britain isn't a low interest rate economy by tradition. Not trying to scaremonger, but over 5 years you need to consider that financial scenario as well as that of a middling drop in interest rates.

MarkyMarkD

arfster - it's Britannia a bit like it's Britain not Brittain.