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Fix or track: safety first or take a gamble

The recent predicament of people looking to remortgage is weather to go for a fixed rate deal or a Tracker rate mortgage. I always advise my clients to go with what they most feel comfortable. Even though tracker rates are the lowest they have been for some time clients have to feel secure with this choice. A fixed rate deal may offer that security. We at Mortgage Tree assess our client’s attitude to risk before we make our recommendation.

I have taken an article from ‘This is Money’ written by Richard Lambert who offers some advice.

‘The appeal of a five-year fix to both buyers and remortgagers is the longer term security it gives and that there is no need to remortgage in a short period of time, when rates are likely to be higher.

Homeowners should check that deals they are looking at are portable, and can therefore go with them if they move home.

The five-year fixed rate offers are going up against lifetime tracker rates at 2.5% – fee free lifetime trackers are being offered at 2.75% to 3.3%. The pay rate on these will rise when the base rate does.

The bigger margin on fixed rates means that borrowers willing to take a gamble on rates rising slowly are being tempted by tracker rate mortgages.

Those happy to take a punt on rates rising slowly can save money over time by opting for a tracker, but they need to be comfortable with the risk of higher payments and factor in a decent safety margin when working out future mortgage costs.’

Best fixed rates

A handful of improved fixed rate mortgages are tempting those who’d rather opt for safety first. Best five-year fixes are below 3.5%, best two-year fixes are below 3%.

The best rates require big fees, but in most instances, fee-free or low-fee options are available and that highlights how vital it is for borrowers to work out if a big fee-low rate mortgage is worth it for them.

Typically, the bigger your mortgage the more worthwhile it is paying a large fee, although watch out for those that are a percentage of your loan.

When to fix?

The problem for borrowers is that they don’t know when mortgage rates will hit the bottom. Those who stalled on last autumn’s offers, got caught out when rates shot up in the New Year.

Even with recent falls, lenders have some room to lower rates further, as margins are high and they are trying to ration mortgages due to their own lack of funding.

There is no guarantee that they will do so though and many are likely to use chunky margins to rebuild balance sheets rather than push rates down further.

Borrowers need to be aware that in these repeated financial crisis days there is something else factored in to mortgage rates: risk.

Lenders are boosting rates to cover their fear of bad debts and the financial authorities’ demands that they cover themselves adequately. That fear factor will remain for years to come, so don’t expect a return to the easy credit days before 2007.’

Mortgage Tree can guide you through these tough decisions; give us a call on 07773064911 for free no obligation advice.

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