Current risk of a tracker

straddie

Hi,

I'm familiar with the tracker vs fixed arguments, and with the base rite looking set to rise rather than fall in the short-medium term, the stability of a fixed rate has an obvious appeal.

However, two year fixed deals have now hit 7%, and longer term fixes are not far behind for those with higher LTVs, as is our case, and that's before you include the exorbitant fees. At the same time, HSBC have a life time tracker deal of +0.79% with a £599 fee, and there may well be other similar tracker deals I haven't come across.

If you were to take out the HSBC deal, you would start off paying 5.79%. Assuming the base rate continues to rise in 0.25% intervals, you would need several such rises before the tracker became more expensive than the current fixed deals. Of course that's before you factor in the savings made by paying the cheaper rate up to this point - the money saved by doing this means it would take even longer before the tracker deal left you out of pocket. So the HSBC deal seems quite compelling at the moment.

It also has no ERC so you could get out and fix at any time if it looked like rates were going to rocket, although I appreciate that the price of fixed deals at this time would most likely be much higher than 7%, so you'd still take a bit of a hit.

Does my logic here sound reasonable? Or am I missing something? Of course, it makes the assumption that it's going to take some time for the base rate to rise by more than 1%, but maybe a quick, sharp rise is actually quite likely? Is a 5-10 year fix still likely to be a cheaper option in the long run? Or maybe there's a deal out there that I've missed that's better still?

Your opinions welcomed and appreciated... I hate this re-mortgage lark, it's so difficult to decide what's best to do!

m1ntie

"I hate this re-mortgage lark, it's so difficult to decide what's best to do!"

This is another good reason to go for a lifetime tracker - less stress and no more high fees every 2-3 years.

sreppaw

When I took out my BOE+0.49 life tracker with offset (fee free at the time for FTBers), I could not see how the bank was making much money on that margin. I didn't like the idea of having to be on a treadmill of remortgaging every 2 (or so) years and I anticipated that deals would not always be as cheap as they were in 2005/6 as they were still the cheapest they had ever been.

Surely if you plan for spikes in interest rates then as far as I can see a tracker will be cheaper over the long term, what happens if your fix finishes when interest rates are high (SVRs will be higher rate than the tracker)? I overpay into the offset account an amount that exceeds the long term average interest rate.

e.g. you could take the ~1.25% and overpay by that amount (or if you have to pay a large booking fee the APR over the 2/3 years may be more like 8%, so 2.25% difference), then if rates go up there will be a buffer to draw back.

foreversummer

straddie wrote: »

Hi,

If you were to take out the HSBC deal, you would start off paying 5.79%. Assuming the base rate continues to rise in 0.25% intervals, you would need several such rises before the tracker became more expensive than the current fixed deals. Of course that's before you factor in the savings made by paying the cheaper rate up to this point - the money saved by doing this means it would take even longer before the tracker deal left you out of pocket. So the HSBC deal seems quite compelling at the moment.

It also has no ERC so you could get out and fix at any time if it looked like rates were going to rocket, although I appreciate that the price of fixed deals at this time would most likely be much higher than 7%, so you'd still take a bit of a hit.

Hi Straddie

That is my reasoning exactly, and I have just gone for the Woolwich fee-free lifetime tracker.

Also, of course, it you add the exorbitant fees charged for the majority of fixed rates to the loan each time, you pay interest on them for the term.

Wish you all the best.

Foreversummer

straddie

Thanks for the feedback so far guys, I'm glad to know I'm not way off the mark here.

To add to my original post, there is one alternative I have come across which might swing me back towards the fixed - I had overlooked HSBC's own fixed deals; you can currently get a 5 or 10 year deal at 6.29% with a £799 fee. Over the couse of 5 years this works out about £2500 more than the tracker deal in our case, assuming rates don't move. However, you would only need a couple of rate rises for the tracker to draw level, something which could happen before the end of this year, never mind the next 5-10 years. Bearing in mind the peace of mind a fixed deal brings, I'm thinking this makes this particular deal almost as compelling as the tracker.

I haven't found any other fixed deals where this applies and I suspect HSBC's won't be around for much longer, but for the time being this leaves me even more uncertain what to do!

On a related note, what do people think about 10 year deals? It seems a long time to lock into a single deal and lender, but if as people are saying the era of cheap mortgage rates is over for good, it would seem to make financial sense to lock in for as long as possible if the deal is reasonable?

m1ntie

"On a related note, what do people think about 10 year deals? It seems a long time to lock into a single deal and lender, but if as people are saying the era of cheap mortgage rates is over for good, it would seem to make financial sense to lock in for as long as possible if the deal is reasonable?"

I think a long term fix or a lifetime tracker is the way to go. Despite what people think, mortgages are still relatively cheap compared to historic rates.

Some banks are lending at 6% or less, whilst it is possible to get 7.25% on savings accounts - to my mind in the longer term there is only one way mortgage rates can go and that is up -even if base rate comes down.

foreversummer

I think we all agree on this thread that a short-term deal with large fees is a no-no.

Maybe mortgage rates will remain high with large arrangement fees regardless of the base rate. I get a feeling that once the banks get used to charging such a lot they won't want to reduce them too much.

With a tracker of course you will benefit if the base rate decreases. If we go into recession, or growth slows sharply, base rates may well come down and with a tracker you do get the benefit of this.

I wish you all the best with your decision. Both hubbie and I feel that whatever the outcome we have at least given it our best shot. None of us can do more than that.

Foreversummer

kitkat84_2

Hi all

I have just moved from a fixed rate to a tracker with the same mortage company. I was after some advise as they have charged me £1499 to do so!? Are they allowed to do that?

aliwali

We have just moved to a lifetime tracker with HSBC and luckily managed to get it at +0.48%. We figured that there would have to be quite a few rises to make it a worse deal than a fixed term product. There is also the obvious benefit of not having to pay booking fees every 2 to 3 years to fix a deal.

Never had a tracker before so we were really nervous going for it, but hopefully we have done the right thing, only time will tell.

Alison

_Andy_

kitkat84 wrote: »

Hi all

I have just moved from a fixed rate to a tracker with the same mortage company. I was after some advise as they have charged me £1499 to do so!? Are they allowed to do that?

Yes they are.

carolineb23

we are in the same boat and also looking at hsbc. Can't decide whether to go for 5 or 10yr fix, the payments are much higher than we are paying at the moment, but we don't really know whether it will get better or worse in 5 years time, and don't really fancy paying another fee to fix again in 5 unless deals are much better, however, 10 years is a long time. Decisions decisions...