Property Should I fix my mortgage rate or choose a tracker?

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With the recent rise in the Bank of England base rate, more clients are requesting fixed rate mortgages - especially those longer term products of five to ten years fixed. In comparison, tracker requests have all but stopped.  


Whilst I don't think too many clients would be right to take a tracker mortgage at the moment, these products generally (but not always) come with a really useful feature.

They often have no early repayment charges, which can be helpful if you are unsure of your long-term plans.

I personally used a tracker recently for almost a year whilst my wife and I took our time to find a new property. Being able to come away from a lender at a point of your choosing is a really useful feature. It is also advantageous if you are expecting a large lump sum from e.g. bonus, which would be above the 10% annual overpayment most lenders allow or if you plan to do work to the property which results in a substantially better loan to value once the work is done. 


Clients naturally want to fix into a rate before their current deal ends. This works fine for most, but if you are hoping to move within a year or two, you could be stacking up potential issues for the future. 


Almost every lender in the market offers mortgages that are portable during the fixed rate period (porting is the ability to move the product from one home to another during the fixed rate period). However, they offer no guarantees that they will lend the amount needed for the new home or that they will be willing to lend against the new home. 

The basic risks of fixing in over a period when you are likely to move fall into two categories:


Situations where an early repayment charge has to be triggered 

  • Your current lender will not allow you to borrow the amount you need to complete the new purchase.
  • Your current lender either does not want to lend against the new purchase or the survey reveals a down valuation which means you cannot complete the transaction. Usually a client will have to try a second lender and this would trigger an early repayment charge with the current lender. 

 

Situations where you may want to consider triggering an early repayment charge

Whilst you can port a mortgage when moving, most clients tend to borrow more. It is often hard to get the product end dates to align on the two parts of the mortgage that the client will have. This means that you are pretty much tied to the existing lenders product range as you cannot move one part of the mortgage without the other, or you need to pay early repayment charges on one part of a mortgage if you did want to remortgage to another lender.

  • If your current lender is not competitive when part of the mortgage comes up for renewal, you are either obliged to take a less than competitive option or you have to trigger early repayment charges on one part in order to find a new more competitive lender.
  • Lenders do not always offer the same rates to existing clients that they would offer to new clients. 

Whilst no lender wants to be involved in short term lending, there is a move in the market to offer trackers with no early repayment charge because lenders appreciate that for some, plans are a fluid situation. This is where advice from a mortgage broker could save you a lot of hassle in the long run. Rates on these products are generally not much higher than an equivalent fixed rate so you do not usually have to pay a premium for this type of product although you do of course carry the risk of a base rate rise increasing the monthly payments. I hate seeing a client pay an unnecessary early repayment charge and often a bit of forward planning can solve this issue. 

Please get in touch if you’d like to discuss in more detail.
 

David Baker – Latest Blog Posts

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