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With the base rate predicted to fall, many mortgagees are asking questions such as, whether is it time to fix your mortgage, or delay a buying decision.
Should you perhaps consider the benefits of a variable, or tracker deal to allow rates to come down before fixing?
In this blog, we further explore the differences between variable, tracker and fixed rates and the pros and cons of each.
Firstly, it’s important to understand the definition of a mortgage lender’s standard variable rate (SVR). The SVR is the default interest rate set by the lender, serving as a benchmark for borrowers who have completed their fixed or discounted rate periods.
The SVR is influenced by various economic factors and decisions made by the lender, such as changes in the Bank of England base rate or the lender’s financial performance.
Borrowers on the SVR may experience fluctuations in their mortgage repayments, as this rate is subject to adjustments. Borrowers on variable rates should stay informed about market conditions and explore alternative mortgage options to potentially secure more favourable rates.
Generally, a lender’s standard variable rate will be a much higher rate than other products that are on offer, such as fixed, discounted and tracker deals.
This means, that being on a lender’s standard variable rate will generally cost more than other products that may be available. If you are on your lender’s variable rate we recommend that you review your options as soon as possible. Use the link at the end of the article, we should be able to help.
A mortgage tracker deal is a type of variable rate mortgage where the interest rate is linked to a specified financial index, this is often the Bank of England base rate.
The interest rate on a tracker mortgage will move in line with changes in the index (i.e. the base rate), meaning that when the index rate moves up or down the mortgage rate will adjust accordingly.
Tracker mortgages typically have a set margin added to the index rate, determining the final interest rate charged to the borrower. These mortgage products offer transparency, as they can easily be tracked and the factors influencing changes in the interest rate can be followed and understood.
It’s important if you are considering a tracker deal to be aware that mortgage payments may fluctuate in response to changes in the underlying index. However, these mortgages can offer the potential for cost savings when interest rates are low or expected to reduce.
As with any financial decision, it’s recommended to carefully review the terms and conditions of the tracker deal and consider your financial circumstances before committing.
A fixed-rate mortgage provides financial stability. With a fixed rate, you can lock in your rate at a specific interest rate for an agreed period of time. The benefit is certainty of payment for the fixed rate period and being shielded from the volatility of future rate increases, whilst in the fixed rate period.
Therefore, the advantage of fixed-rate mortgages lies in predictability. Regardless of market fluctuations, your mortgage payments will remain constant. This can be particularly advantageous in times of economic uncertainty, if interest rates are on the rise, or you prefer to know exactly what you are paying and can budget.
What’s the downside? Fixed rates will generally have Early Repayment Charges (ERC’s), these are penalties built into the terms and conditions of the mortgage, if you pay off your mortgage within the scheme period. You also need to be aware that if rates drop even further, you are potentially paying more than the current deals available.
Both standard variable rate and tracker rate mortgages, are generally more popular when rates are either low or expected to reduce.
The benefit for those on a fixed rate, prices will remain constant throughout the fixed rate period. Whereas with the SVR and tracker rate, if rates or the index are reducing, then so will the rate being paid.
Product fees should also be taken into consideration, variable rates will tend not to have a product fee. However, some tracker schemes will and these need to be costed in, when comparing different options.
Other factors to consider are ERCs (early repayment charges) which also need to be factored in when making decisions. Variable rates & trackers tend not to come with early repayment charges attached, however again these need to be reviewed and confirmed when comparing deals.
The answer could be “yes”, as most economists and financial commentators are predicting that the base rate will fall at some point over the next few months. The base rate is then predicted to steadily reduce over the next few years.
This is leading some mortgagees to consider both variable and tracker mortgages as an option, with the hope that the variables/tracker rate reduces below the existing fixed rate offers that are available today.
It is important to note that fixed rates available today have been reduced and will generally be a considerably lower rate than a tracker deal.
This is because tracker rates will have a margin generally above the Bank of England base rate, whereas fixed rates are being offered based on the positivity of the banking system swap rates.
Simplistically the current swap rate pricing and subsequent fixed rates offered are based on the positive forecast that rates will continue to fall.
Interestingly though, whilst the general trend has been a decrease in mortgage rates. A few high street lenders have announced increases to product pricing over the last few days.
If you are looking to buy shortly or need to review your mortgage because it is coming to the end of a scheme period. There is a lot to consider with current market conditions and products that are available. Should you fix now for 2/3 or possibly 5 years or perhaps hedge your bets with a tracker rate?
There is no right or wrong, the decision should be based on your personal needs and requirements. What will help is professional advice which can help provide a sounding board, plus help you explore your options. So, you can make informed choices.
As a mortgage broker, MMPE deal with these questions daily, we provide detailed research and support our clients in making informed choices.
Working as an independent whole-of-market broker we have access to a wide range of lenders, meaning a vast array of products and criteria. We can also provide access to products that are not necessarily available on the high street.Schedule a Mortgage Appointment
My Mortgage Experts & Protection Experts Ltd (FCA 937076), is an Appointed Representative of King Mortgages Ltd.
King Mortgages is authorised & regulated by the Financial Conduct Authority (FCA). King Mortgages Ltd is entered on the financial services register http://register.fca.org.uk/ under reference number 803561.
The information contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
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Changes in property value, coupled with a potential reduction in your loan amount (with a repayment mortgage), mean a change in the equity available in your property (Loan to Value); hence there could be improved opportunities for a better mortgage for you.
Sussed will track when your mortgage is due to expire (usually when your mortgage payments rise substantially as you will automatically transfer to your lender’s standard rate).
The app will alert you when it’s the right time to discuss your options with your mortgage broker.
Sussed can help you plan.
This feature is ideal for today’s economy and increasing prices. Sussed will continually scan the market, looking for the best-fixed rates available, especially when interest rates are rising.
Using a series of algorithms, our clever technology can identify longer-term fixed rates available today that could save money against predicted rates at the end of your current product term (including the cost of transfer) – sussed is doing all the hard work.
With automatic property value updates and your Mortgage information loaded, this feature calculates the amount of equity and the maximum potential loan that may be available within a landlord’s portfolio. This will assist with seeing if there is the opportunity for to perhaps buy another property from leveraging your portfolio.
Within sussed, you will also be able to see each of your properties with a roadside picture, a confirmed property value, monthly rental, current mortgage balance, payments, interest rate and the Loan to value/Gross rental yield.
Sussed can help you manage your portfolio.
This feature is there waiting for interest rates when they reduce. Using the same technology as Rate Riser, sussed will identify if your current deal is now able to be improved.
Should the interest rates decrease, sussed will compare deals available on the day with your existing deal and flag if there is an opportunity for you to save money by switching.
There are price limits on homes you can buy with an equity loan. The limit is different for each region in England.