Do you remember when fixed rate mortgages were cheap? The days when it was cheaper to take out a 2 year fixed rate mortgage than it was a 5 year mortgage? Of course you do, as it was only a matter of weeks ago!
However, do you remember when you last wondered ‘should I get a tracker mortgage?’. We’d bet money on the fact that it wasn’t that recently – and why would it be in the age of cheap fixed rate mortgages that provided inexpensive borrowing and certainty.
Just as political careers and entire economies can be undone in only a few hours, the mortgage marketplace can also change in a very short space of time, too. The last couple of weeks has seen both.
As it stands, the best 2 year fixed rate mortgage deals are more expensive than longer-term fixed rate mortgages. Not only that, but right now tracker mortgages are cheaper than fixed rate mortgages. In fact, as a Guildford mortgage broker we’ve had more enquires about tracker mortgages in the last 2 weeks than we’ve had in the last 5 years!
So, are we seeing the rise of the tracker mortgage? If so, is a tracker mortgage right for you? Let’s take a look.
How high will interest rates go?
First of all, what’s right for you may not be right for others – so the purpose of this article isn’t to provide a blanket endorsement of tracker mortgages, but to provide a list of pros and cons for tracker mortgages in the context of today.
What’s important to remember is that the Bank of England (BoE) has just increased the base rate by the largest single raise for over three decades, taking it from 2.25% to 3.00%. Many are speculating that interest rates will peak at around 4.50% next year. However, given the recent sizeable jump, we believe that any more increases are likely to be made in smaller increments.
So, if you were to apply for a 2 year tracker mortgage today, you’d be making savings on monthly repayments compared to a fixed rate mortgage. That’s great news, but you would also want to factor in what those monthly repayments would look and feel like if the BoE increased the base rate to 4.00%, 4.50% and 5.00% or more.
If the short-term gain is worth any longer-term pain, then maybe a tracker mortgage is for you. If a rise to 4.50% isn’t palatable, then a fixed rate mortgage might be a better option.
Keep in mind the bigger picture
As we’d all sometimes do better to remember, it’s not all about money. When it comes to the benefits of tracker mortgages, there are many to consider over and above the financial aspects.
For example, tracker mortgages are flexible. There are often no early repayment charges (ERCs) that you typically get with fixed rate mortgages, so you have the flexibility of paying as much of the mortgage off whenever you wish. Equally, if the base rate continues to rise to a point that’s making you feel uncomfortable, you can jump to another mortgage with relative ease.
If, for example, you know you’ll be moving in the next year or so, a tracker mortgage may offer the flexibility of changing mortgages when you change home – something that a fixed rate mortgage is less able to do without incurring ERCs. Likewise, if you’re expecting to come into money and would like to use that to pay off a portion of your mortgage, then a tracker mortgage would allow you to do that. A fixed rate mortgage typically restricts overpayments to 10% of the balance each year.
So, are we seeing the rise of the tracker mortgage? On the basis that it’s becoming more popular and people are thinking and talking about it again, we think the answer’s ‘yes’. However, just as things have changed in recent weeks, they’re likely to change again over the coming weeks, so regardless of what mortgage you decide to choose, it’s worth using a mortgage broker to help you get there.
If you’re considering a tracker mortgage, contact our team of Guildford mortgage brokers on 01483 238280 or by e-mailing info@complete-mortgages.co.uk.
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