Will 2023 be a good time to get a discount mortgage?

km0193

Like many others, my FR ends in May next year. I can begin to remortgage from 1st January and I therefore do not see value in paying my ERC (£6,000) which leaves my in a really bad spot as I could be 'fixing' near the top of the market in terms of forecasted interest rates. 

This has led me to think that taking out a discount mortgage may be a better strategy. Of course this would be a gamble (as interest rates could continue to rise) , however if I believe that rates hare close to peaking then surely this would be a better strategy as opposed to locking in one of the highest fixed rates. 

Does anyone have any thoughts/wisdom on these under utilised products?

tdawber

im of the same mindset

Aberdeenangarse

A month ago markets were predicting rates peaking at 4% next May. Now,  a month later they’re predicting  6% Where we go from here nobody knows.

Cheesy77

Aberdeenangarse said:

A month ago markets were predicting rates peaking at 4% next May. Now,  a month later they’re predicting  6% Where we go from here nobody knows.

Agreed. A lot can and will change, its moving by the hour at the minute. A lot of panic but hopefully it'll settle.

My personal view is the interest rates will go quite high in 2023 but will also fall again relatively quickly. No not to the rates we've seen over the past 14 years but certainly won't stay at 5-6% base rate for that long imo. 

Its worth considering a discount or variable rate yes, but you'll need to see how it plays out closer to the time. 

IAMIAM

YES. Get a discounted with a minimal erc fee (0-1%). I would rather pay 2% to a small building society for a year or two than fix with a mainstream lender for 3-5 years at 6%!

K_S

@km0193 Given the current market conditions, as a broker I would recommend a discounted variable product only to a very small subset of clients that I'm confident can cope with a dramatic jump in rates and fully understand the risks. 

As a regulated broker, anything else is too risky for me to take liability for the advice as discount products track a lender's (usually smaller lenders that are heavily impacted by volatility in the capital markets) SVR which can be varied at will and have an ERC to exit. Tracker products are less risky, at least you are tracking the BOE rate and are ERC free so the client can always remortgage away to a fix without a penalty if they want to.

This is not to say that the product may/may-not be right for you, but just thought I'd give a broker's perspective

km0193 said:

Like many others, my FR ends in May next year. I can begin to remortgage from 1st January and I therefore do not see value in paying my ERC (£6,000) which leaves my in a really bad spot as I could be 'fixing' near the top of the market in terms of forecasted interest rates. 

This has led me to think that taking out a discount mortgage may be a better strategy. Of course this would be a gamble (as interest rates could continue to rise) , however if I believe that rates hare close to peaking then surely this would be a better strategy as opposed to locking in one of the highest fixed rates. 

Does anyone have any thoughts/wisdom on these under utilised products?

km0193

K_S said:

@km0193 Given the current market conditions, as a broker I would recommend a discounted variable product only to a very small subset of clients that I'm confident can cope with a dramatic jump in rates and fully understand the risks. 

As a regulated broker, anything else is too risky for me to take liability for the advice as discount products track a lender's (usually smaller lenders that are heavily impacted by volatility in the capital markets) SVR which can be varied at will and have an ERC to exit. Tracker products are less risky, at least you are tracking the BOE rate and are ERC free so the client can always remortgage away to a fix without a penalty if they want to.

This is not to say that the product may/may-not be right for you, but just thought I'd give a broker's perspective

km0193 said:

Like many others, my FR ends in May next year. I can begin to remortgage from 1st January and I therefore do not see value in paying my ERC (£6,000) which leaves my in a really bad spot as I could be 'fixing' near the top of the market in terms of forecasted interest rates. 

This has led me to think that taking out a discount mortgage may be a better strategy. Of course this would be a gamble (as interest rates could continue to rise) , however if I believe that rates hare close to peaking then surely this would be a better strategy as opposed to locking in one of the highest fixed rates. 

Does anyone have any thoughts/wisdom on these under utilised products?

Thanks K_S. 

I am a Financial Planner (Associate level) so have a reasonable understanding on risk profiling, budgeting and economics.

I was just not too sure why they are not being discussed more on these forums, however I believe you have answered this question by saying that they are not really recommended by brokers (for your stated reasons). 

I presume I do not have to go through a broker if I wanted to go don this route? Is there anywhere I could go to see the historical changes in SVRs in relation to BOE interest rates? I would be interesting to see how they typically move in relation to the base rate. 

I am heavily leaning to a variable rate when remortgaging, whether that is a tracker or discount remains to be seen. 

K_S

@km0193 Sorry if I gave that impression but what I said was just my general opinion about discount products, not necessarily an industry-wide approach or one that is shared by all brokers.

As an independent one-person band, I am quite risk-averse when it comes to regulatory requirements around the advice I provide. And when it comes to discount products vs trackers vs fixed, usually the only reason why a client leans towards a discount is because it offers a very attractive rate at that point in time.

I do make recommendations for discount products - sometimes because that's literally the only option for the buyer (there are quite a few smaller lenders that have defaulted to only offering discount products in the past few months due to the market turmoil) and/or it's a good option for them.

Other than those lenders offering discount products that are broker-only, you can indeed apply direct if you wish to.

km0193 said:

K_S said:

@km0193 Given the current market conditions, as a broker I would recommend a discounted variable product only to a very small subset of clients that I'm confident can cope with a dramatic jump in rates and fully understand the risks. 

As a regulated broker, anything else is too risky for me to take liability for the advice as discount products track a lender's (usually smaller lenders that are heavily impacted by volatility in the capital markets) SVR which can be varied at will and have an ERC to exit. Tracker products are less risky, at least you are tracking the BOE rate and are ERC free so the client can always remortgage away to a fix without a penalty if they want to.

This is not to say that the product may/may-not be right for you, but just thought I'd give a broker's perspective

km0193 said:

Like many others, my FR ends in May next year. I can begin to remortgage from 1st January and I therefore do not see value in paying my ERC (£6,000) which leaves my in a really bad spot as I could be 'fixing' near the top of the market in terms of forecasted interest rates. 

This has led me to think that taking out a discount mortgage may be a better strategy. Of course this would be a gamble (as interest rates could continue to rise) , however if I believe that rates hare close to peaking then surely this would be a better strategy as opposed to locking in one of the highest fixed rates. 

Does anyone have any thoughts/wisdom on these under utilised products?

Thanks K_S. 

I am a Financial Planner (Associate level) so have a reasonable understanding on risk profiling, budgeting and economics.

I was just not too sure why they are not being discussed more on these forums, however I believe you have answered this question by saying that they are not really recommended by brokers (for your stated reasons). 

I presume I do not have to go through a broker if I wanted to go don this route? Is there anywhere I could go to see the historical changes in SVRs in relation to BOE interest rates? I would be interesting to see how they typically move in relation to the base rate. 

I am heavily leaning to a variable rate when remortgaging, whether that is a tracker or discount remains to be seen. 

km0193

K_S said:

@km0193 Sorry if I gave that impression but what I said was just my general opinion about discount products, not necessarily an industry-wide approach or one that is shared by all brokers.

As an independent one-person band, I am quite risk-averse when it comes to regulatory requirements around the advice I provide. And when it comes to discount products vs trackers vs fixed, usually the only reason why a client leans towards a discount is because it offers a very attractive rate at that point in time.

I do make recommendations for discount products - sometimes because that's literally the only option for the buyer (there are quite a few smaller lenders that have defaulted to only offering discount products in the past few months due to the market turmoil) and/or it's a good option for them.

Other than those lenders offering discount products that are broker-only, you can indeed apply direct if you wish to.

km0193 said:

K_S said:

@km0193 Given the current market conditions, as a broker I would recommend a discounted variable product only to a very small subset of clients that I'm confident can cope with a dramatic jump in rates and fully understand the risks. 

As a regulated broker, anything else is too risky for me to take liability for the advice as discount products track a lender's (usually smaller lenders that are heavily impacted by volatility in the capital markets) SVR which can be varied at will and have an ERC to exit. Tracker products are less risky, at least you are tracking the BOE rate and are ERC free so the client can always remortgage away to a fix without a penalty if they want to.

This is not to say that the product may/may-not be right for you, but just thought I'd give a broker's perspective

km0193 said:

Like many others, my FR ends in May next year. I can begin to remortgage from 1st January and I therefore do not see value in paying my ERC (£6,000) which leaves my in a really bad spot as I could be 'fixing' near the top of the market in terms of forecasted interest rates. 

This has led me to think that taking out a discount mortgage may be a better strategy. Of course this would be a gamble (as interest rates could continue to rise) , however if I believe that rates hare close to peaking then surely this would be a better strategy as opposed to locking in one of the highest fixed rates. 

Does anyone have any thoughts/wisdom on these under utilised products?

Thanks K_S. 

I am a Financial Planner (Associate level) so have a reasonable understanding on risk profiling, budgeting and economics.

I was just not too sure why they are not being discussed more on these forums, however I believe you have answered this question by saying that they are not really recommended by brokers (for your stated reasons). 

I presume I do not have to go through a broker if I wanted to go don this route? Is there anywhere I could go to see the historical changes in SVRs in relation to BOE interest rates? I would be interesting to see how they typically move in relation to the base rate. 

I am heavily leaning to a variable rate when remortgaging, whether that is a tracker or discount remains to be seen. 

Sorry K_S I didnt mean to insinuate that you were saying it was an industry-wide approach, I just deduced that it may be due to the lack of chatter about them. 

I fully appreciate that they are for only those with a certain risk tolerance and capacity to absorb those risks, should things go the wrong way. I just need to ascertain whether or not I fit into this camp. 

I am concerned about fixing for 5 years after my term ends May 2023, as I believe that this will be at or near the top of the market! Of course, that may not end up being the case and it something I will need to seriously consider - being in the wrong fixed rate is nearly as bad to being in a tracker/discount that is increasing. 

If I could remortgage now, I would tend to lean towards fixing as I think there is still a reasonable amount of upside in interest rates, however the there will be a ceiling within this cycle and it's trying to work out where that is. 

Thanks for your help