July 10th, 2011
The biggest question for any new mortgage – get a fixed rate or go for a tracker?
With inflation stubbornly high, the ECB starting to raise rates and Sterling really suffering, a rate rise is surely just a matter of time. Inflation in China and India continues to be in excess of 5% and the USA will have to start increasing rates soon in order to continue to borrow the huge amounts they need.
The Bank of England has a 2% inflation target. If they are at all serious about maintaining that, they need to increase rates soon. Prices are increasing across the board – gas & electricity prices are up 18% this week – so inflation is unlikely to naturally drop to 2%, which is what the bank has been hoping will happen.
The upshot is that I believe the markets are understating the effect inflation is, and will, have. I forecast that rates will increase quicker and higher than is generally expected, to bring inflation under control, support Sterling and keep the UK in step with the big players.
So I am recommending fixed rates, in particular 5 year fixed rates. A sub 4% 5 year fixed rate will, over the 5 year period, offer a better deal than any other deal on the market. Two year fixes are even cheaper at sub 3%, but after 2 years the rate you will drop onto will probably be in excess of 5% and you may well have less equity in 2 years time when you come to re-mortgage, as house prices will inevitably decline as rates increase.
If you decide to go with a tracker, make sure you can still afford the repayments when they increase – they may be very low now, but that is temporary. They will increase to “normal” levels and you should ensure that you can afford it when you are paying 5%, rather than the sub 3% you are currently paying.
So, pay a little more now by locking into a 5 year rate and you will be happy you have done so.
The only exception is the “old” tracker rates that were on offer before the market crashed – those, for example, tracking at around about base + 0.50% or less. These may be able to absorb fairly large rate increases.
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June 15th, 2011
Northern Rock are again waiving redemption penalties for some mortgages – in fact, all mortgages held by the “bad” bank, Northern Rock Asset Management.
How do you know if you are eligible? Contact us with your Northern Rock mortgage account number and we can check and advise you accordingly.
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June 9th, 2011
Abbey are having a one week mortgage Sale!
There is a 2 year fix at 2.89%, or a 2 year tracker at base + 1.49%, giving a current rate of 1.99%.
Both on offer to 75% loan to value – so you need a 25% deposit – with free legals and valuation.
The fee is £995, added to the loan.
This is a great deal. If you think rates will rise, go for the fixed rate, but if you believe rates will stay low then the tracker is good value.
Applications must be completed by Thursday 16th June. So if these are of interest, please contact us urgently.
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February 21st, 2011
Will inflation force rates up? Yes, it is inevitable and the only question is when?
Some commentators are saying that spare capacity in the recovering economy will ensure rates are not increased quickly. I disagree and predict rates increasing fairly quickly – to 2% or so by the end of the year. I think that QE and demand will force prices up at a rapid rate and the public sector cuts will have a very, very small impact upon keeping demand down.
Remember, we are starting at rates at 0.50% This has created cheap money for a long period and this will inevitably seep through in the guise of increased demand and hence inflationary pressure. Add in QE and China starting to export inflation and it’s an inflationary spiral.
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January 17th, 2011
If you are at all unsure, go for a fixed rate.
Inflationary pressures seem to be building and price rises will be imported from abroad. Prices seem to be heading upwards and the Government will have to raise interest rates at some point this year to combat inflation.
Woolwich & Nationwide both offer “lock-drop” mortgages, allowing you to start on a tracker and drop into a fix whenever you wish. However, you are limited to that particular lenders fixed rates and, as lenders see rates about to increase, they will put up their fixed rates.
So the longer you wait, the more expensive your fixed rate is likely to become.
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October 19th, 2010
Now available with just a £699 fee.
Seems astoundingly good value, with average rates over that 5 years certainly likely to be over 3.75%.
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September 19th, 2010
As part of the decision on whether to remain on a nice, low rate tracker or standard variable rate (SVR), it is now important to consider how much your property will be worth.
This is because of two things; the best mortgage deals are governed by how much equity you have in your property, and house prices are widely predicted to fall over the coming months.
The very best deals require 40% equity – your mortgage must be less than 60% of the value of the house. There are still excellent deals available to those with 25% equity, but this seems to be becoming the new minimum. There are deals available up to 90%, but the rates on offer get more expensive.
If your house value falls (and they are predicted to fall, even yours!), this may reduce the amount of equity you have to below the critical 25% mark. So the decision you have is whether to stay on a low rate now and hope that the house value holds up enough to switch to a fix next year, or take the plunge and switch to a fixed rate now at a higher rate than you are currently paying – taking the long term view.
My general advice would be to seriously consider fixing now. Rates are very low and a 5 year fix seems excellent value. Bank of England rates will rise next year and if house prices also fall (which they normally do as rates rise), you may find yourself with a more expensive mortgage to chose from. This will be because the rates on offer will increase and your equity will also decrease, forcing you to chose from a more expensive, lower equity mortgage.
The problem is that, if you are on a low rate SVR such as C&G, at 2.50%, you may want to remain on low payments and not want to pay the premium to switch to a fixed rate. But bear in mind that it could cost you more in the long term if you do not.
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August 23rd, 2010
There are now 5 year fixed rates available for a little over 4%. This represents just a 1% premium over a 2 year fix.
All things being equal, I can see very little reason not to opt for a 5 year fix over a 2 year. After 2 years, rates will almost certainly be a fair bit higher than they are now, so the 5 year fix will prove good value over the term.
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August 18th, 2010
The biggest question most lenders are asking is whether to get a fixed rate or a tracker mortgage – and there is no clear, easy answer!
The economy is still relatively weak and the Government cuts will only depress demand in the short-term, but on the other hand inflation remains high and is not dropping anywhere near quick enough to meet the Bank of Englands 2% target. So raising rates will tackle inflation but harm the economic recovery.
My feeling is that a 2 year fix and a 2 year tracker will offer roughly the same cost over the 2 years, but a 5 year fix now will work out cheaper than a tracker over the 5 years. So I am leaning towards recommending five year fixed rates, although this would obviously depend upon peoples circumstances, so do not take it as a recommendation!
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July 13th, 2010
The FSA want to make it impossible to get a mortgage without proving your income. So unless you have payslips or a P60, or 3 years accounts or tax returns, it will be impossible to get a mortgage. And even then, your mortgage will be limited to, typically, 4 times your income – maybe 5 for some people.
The effect will surely be to stop house prices taking off as they have previously. With lenders cracking down on interest-only mortgages at the same time, I expect the effect will be that house prices will not only cease to rise as much as they have done, but quite possibly result in prices actually falling again, especially when interest rates are eventually increased, which I expect to start in early 2011.
This should see a return to the days of buying a property as a home, rather than as an investment. So if you are planning on buying soon, be aware that your home may end up being worth less than you paid for it for a few years to come.
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