2yr fixed rate Vs. 2yr tracker - advice needed for moving house

Trevstonbury_2

Hi all,

I'm looking for some advice. I currently have a fixed-rate 5-year mortgage with Nationwide that runs out in January 2026 at 1.54%.

We're in the process of moving house and will need to borrow some additional money. Our current mortgage advisor has provided us with two options.

I know there's a good chance interest rates might go down over the next couple of years, but is it worth taking a gamble on a tracker for such a short term versus a fixed rate?

I was thinking that perhaps sticking with a fixed rate for 2 years might be the best option. We could then look at what products are available when we need to review our mortgage again in 2 years' time, assuming interest rates will be lower.

Any advice would be much appreciated, please let me know if you need any further information.

 

Option 1 – 2 Year tracker

2 Year Base Rate Tracker Product code:

Loan amount: £34,913.00 Duration of loan: a term of 33 years 0 months

This is a repayment loan with a variable initial interest rate that tracks the Bank of England Base Rate for the remainder of the month in which the loan completes plus 24 full months.

An initial interest rate which is 0.74% above the Bank of England Base Rate (currently 5.25%), for the remainder of the month in which the mortgage completes plus 24 full months. The initial interest rate will never be less than 0.74%. This means your initial interest rate will be 5.99%.

Followed by the Standard Mortgage Rate, currently 7.99% for any remaining part of the mortgage term.

 

Option 2 – 2 Year Fixed Rate

Loan amount: £34,913.00 Duration of loan: a term of 33 years 0 months

This is a repayment loan with an initial interest rate which is fixed for the remainder of the month in which the loan completes plus 24 full months.

An initial fixed interest rate of 5.04% for the remainder of the month in which the mortgage completes plus 24 full months.

Followed by the Standard Mortgage Rate, currently 7.99% for any remaining part of the mortgage term.

ReadySteadyPop

I think there is a very good chance that interest rates could go up over the next couple of years.

BarelySentientAI

If you're set on 2 years, then you need to look at how much interest rates would need to shift on the tracker before the fix becomes more expensive.

Initially, it's 0.95% more expensive on the tracker.  For that deal to 'catch up' with the fix, BoE base rate would need to drop by at least 1% (which few people expect it to do) fast enough that you recover the extra that you've already paid by being on the more expensive rate.

The tracker might be good for other things like overpayments, but based purely on interest rates I'd stay well away from that one.

jbrassy

I'm currently buying a house and have gone for a 2 year fix. This is because I expect interest rates to go down over the next 2 years, so when I come to remortgage, I should be able to get a lower rate. 

My wife and I are economists, but don't take this view as gospel.

Just out of curiosity, what is the LTV ratio of the 2 year fixed rate loan? The rate seems quite high compared to what I have seen on the MSE best buy table. You're also borrowing a relatively small amount over 33 years. Are the numbers you provided correct?

Also, the tracker mortgage seems like quite poor value. I had a tracker a couple of years ago which was 0.25% above the Bank of England base rate, so 0.74% is a lot.

Finally, when you say you have spoken to your 'mortgage advisor', is this just a mortgage advisor from your current lender? If it is, you are unnecessarily restricting your options. It might be worth speaking to a mortgage broker such as L&C. The two options you presented seem quite poor compared to what I have seen available.