Wednesday, 7 January 2015

Fixed rate mortgage compared with Tracker/Variable rate mortgages


The choice between a fixed rate and tracker mortgage is often a difficult one which is made more problematic by the number of different products currently on offer.

According to Which Compare service fixed rate mortgage deals are proving most popular.  In an article published at the end of 2014 Which reported:

‘A huge 76% of people who filtered mortgage results on the website from the start of September 2014 to the end of November 2014 asked to see fixed rate mortgage deals. This compared to 11% for tracker mortgages and just 2% for discount variable rate mortgage deals’.

So what are these options?

Fixed rate mortgages options

As the name suggests, a fixed rate mortgage has an interest rate that is fixed for an initial term - say 2, 5 or even 10 years. This means your monthly mortgage payment will remain the same over the period, giving you certainty and allowing you to budget for a major item of expenditure. At the end of the fixed rate period, the mortgage usually transfers to the lender's variable rate.

Although many economists are not expecting a Bank of England base rate increase until at least late this year, this particular option clearly has some appeal.

According to Which:

‘There were 976 five-year fixed rate mortgage deals on the market in mid-December and 1,505 two year deals. The lowest rate on the market was a two-year fixed rate deal on offer from The Post Office at 1.37% on a 60% loan-to-value (LTV) mortgage. A five-year fixed rate deal is available from HSBC at 2.48%. Over the past three months a number of mortgage lenders have also launched competitively priced 10-year fixed rate deals. For those with a 40% deposit Santander has a 10-year fixed rate deal of 3.44% and Woolwich has a 3.45% offer. People with a 30% deposit would be able to apply for a 10-year fix from Nationwide at a rate of 3.49%’

Tracker/Variable mortgages

Tracker mortgages usually track the Bank of England base rate, and, as a result, your mortgage repayments will change when the base rate moves up or down. Before applying for a tracker mortgage, you should therefore assess whether you would be able to afford for your repayments to increase – if you wouldn't be able to, a tracker mortgage is not the best option for you

According to Which tracker mortgages are on the decline:

‘Over the past nine months the number of tracker mortgages on the market has been steadily falling. There were a total of 482 on the market in April 2014, this had dropped to 330 by August.

In mid-December the figure stood at just 299, with 210 two-year tracker mortgages on offer and no five-year deals. The best rate on offer comes from TSB with a two-year tracker mortgage at 1.09%, tracking 0.59% above base rate’.

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidpett@mjpconveyancing.com

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