Follow this topicThe top mortgages for 2011
Should you play it safe or take a chance with your rate this year?
It doesn’t matter if you are taking out your first or your fifth mortgage, one of your biggest decisions will be whether to take a fixed rate or a variable deal (the majority of which are now Base Rate tracker mortgages).
And it really is a crucial decision, because getting the right option for your needs can not only save you lots of money, but potentially many sleepless nights too!
There is no right or wrong choice when it comes to choosing a fixed or tracker rate mortgage, no matter what the prevailing economic conditions, or the outlook for interest rates. Ultimately, you need a deal that is right for you and your family.
So what are your options?
Take a tracker
A tracker rate is variable so it will move up and down in line with changes to the Bank of England Base Rate. They are very clear and transparent, so you take out a rate that is priced at a set margin to Base Rate, such as Base plus 2%. Today you would pay 2.5% because Base Rate is 0.5%. If it were to rise to 1%, your payrate would track this increase and you would pay 3%. And so on. You will also track decreases in the Base Rate, although with interest rates currently at a record low it’s reasonable to assume that they won’t be going down in the near future.
The biggest benefit of tracker rates in the current climate is that they are the cheapest deals available. To find out more, why not have a read of Get a mortgage at less than 2%.
Overexposed
However, there is a big downside. In order to bag a great tracker deal, you need to be aware that your payrate will rise if the Bank of England increases its Base Rate.
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At the moment this is a very real risk since rates are so low, and there is no cap as to how high the Bank can increase rates.
The current consensus of leading economists is that interest rates will rise this year, probably in October, but most experts agree that the outlook is simply too difficult to accurately predict. Mervyn King, governor of the Bank of England has intimated that rates will remain low in the coming months, despite rising inflation, but he stressed that the Monetary Policy Committee (which sets the Base Rate) remains poised to increase rates if necessary.
If you are comfortable with the prospect of your rate rising and have enough room in your budget to accommodate increases in your monthly repayments, you might decide it is worth taking a chance on a tracker. After all, for every month that rates remain on hold, you will be enjoying low repayments.
Below are some of the best trackers on the market right now:
20 best buy trackers for 2011
|
LENDER |
DEAL |
RATE |
FEE |
MAX LTV |
|
2-year tracker |
1.99% (Base + 1.49) |
£999 |
65% |
|
|
2-year tracker |
2.14% (Base + 1.64) |
£945 |
60% |
|
|
2-year tracker (remortgage only) |
2.19% (Base + 1.69) |
£995 |
60% |
|
|
2-year tracker |
2.19% (Base +1.69) |
£99 |
65% |
|
|
Term tracker |
2.29% (Base + 1.79) |
Fee-free |
60% |
|
|
2-year tracker |
2.29% (Base + 1.79) |
£999 |
60% |
|
|
2-year tracker |
2.29% (Base +1.79) |
£999 |
65% |
|
|
2-year tracker |
2.29% (Base + 1.99) |
£495 |
60% |
|
|
Term tracker |
2.35% (Base + 1.85) |
£945 |
60% |
|
|
Term tracker |
2.39% (Base + 1.89) |
£99 |
65%
|
|
|
2-year tracker |
2.48% (Base + 1.98) |
£1,250 |
75% |
|
|
Term tracker |
2.49% (Base + 1.99) |
Fee-free |
70% |
|
|
2-year tracker |
2.54% (Base + 2.04) |
£945 |
75% |
|
|
Term tracker |
2.68% (Base + 2.18) |
£999 |
70% |
|
|
Term tracker (remortgage only) |
2.88% (Base + 2.38) |
Fee-free plus £300 cashback |
70% |
|
|
Term tracker |
2.99% (Base + 2.49) |
Fee-free |
80% |
|
|
2-year tracker |
3.49% (Base + 2.99) |
£495 |
85% |
|
|
Term tracker |
3.99% (Base + 3.49) |
£999 |
85% |
|
|
3-year tracker |
4.09% (Base + 3.59) |
£995 |
85% |
|
|
Term tracker |
4.29% (Base + 3.79) |
Fee-free |
90% |
Safe and secure
Many borrowers do not want the uncertainty of a mortgage that could increase if rates were to go up, especially as they are expected to rise this year. They prefer the safety and security of a fixed rate mortgage, where your pay rate is set for an agreed term and does not move, regardless of what happens to interest rates.
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See the guideThe benefits are obvious. You know what you have to pay each month and you are not left exposed to rising interest rates. For those on a tight budget, this peace of mind can be invaluable and enables you to plan ahead with your family finances.
However, there is a downside. You pay a premium for the security of a fixed rate mortgage and they are currently priced higher than equivalent tracker deals. For many borrowers, this is a price worth paying to ensure their mortgage repayments do not become unaffordable in the event of rapidly rising rates.
Others are willing to take a chance on a tracker to bag a better rate. There is no correct option, even when you take into account interest rate expectations this year.
Ultimately your own financial circumstances are most important when it comes to your decision. If you absolutely cannot afford for your repayments to rise in the next year or beyond, but you can comfortably afford the fixed rates on offer today, a fix may well be the best option for you.
The best buy fixes are currently really attractive, and below are some of the top deals on offer at the start of 2011:
20 best buy fixes for 2011
|
LENDER |
DEAL |
RATE |
FEE |
MAX LTV |
|
2-year fix |
2.65% |
£1,995 |
60% |
|
|
2-year fix |
2.69% |
£999 |
65% |
|
|
2-year fix |
2.74% |
£999 |
65% |
|
|
2-year fix (remortgage only) |
2.75% |
Fee-free plus £250 cashback |
50% |
|
|
2-year fix |
2.85% |
£449 |
75% |
|
|
2-year fix |
2.99% |
£495 |
75% |
|
|
2-year fix |
2.99% |
£399 |
70% |
|
|
3-year fix |
3.29% |
£995 |
75% |
|
|
2-year fix |
3.49% |
£399 |
80% |
|
|
2-year fix |
3.69% |
£945 |
80% |
|
|
5-year fix (remortgage only) |
3.75% |
£699 |
50% |
|
|
5-year fix |
3.89% |
£99 |
65% |
|
|
5-year fix |
3.98% |
£995 |
70% |
|
|
5-year fix |
3.99% |
£99 |
60% |
|
|
5-year fix |
3.99% |
£999 |
75% |
|
|
2-year fix |
4.09% |
£995 |
85% |
|
|
5-year fix |
4.13% |
£995 |
75% |
|
|
5-year fix |
4.19% |
£995 |
75% |
|
|
2-year fix |
4.99% |
£99 |
90% |
|
|
2-year fix |
5.09% |
£999 |
90% |
More: What the VAT hike means for you | The top 10 cash ISAs for 2011
At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
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