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'Bart'

Fixed Rate Or Tracker

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You'll have to bear with me on this. I've never had a mortgage so I've never really gone that deeply into them.

Some friends of mine bought a house a few years ago. Ex-LA, at a fairly decent price for the time (although subsequently it has seemed less like a bargain due to the amount of work that needed doing).

Anyhoo, they're coming up to the end of their current mortgage deal time period arrangement thingy (in November). Now they've been on a fixed rate up until now, obviously not the best choice in hindsight but there you go.

Now they are wondering whether to stick with the fixed rate or go with a tracker (she wants to stick, he wants to go with a tracker).

My own feeling is that while IRs should be a lot higher than they are, there is no political will to rise them, and no will from the MPC for anything other than token rises. I don't think IRs will rise until those in charge are forced to raise them.

But what do you lot think. Would you go fixed, tracker or maybe shop for a better deal elsewhere (they're with HSBC at the moment).

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I've allways gone with fixed and allways will, that is more to do with the fact i would worry too much and knowing what i will pay over a long period of time and calculating whether or not i can afford it is just my prefference.

My opinion is that interest rates will remain below 2% for at least 5+ years, however i am not willing to risk having my house repossessed over it.

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Before the crisis, variable rates were tracking sometimes >0.5% BELOW the BOE rate.

Now, they're +4% odd. Imagine what that'll do once rates go back upwards..

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what about an offset foreign currency teaser rate IO Pension based "product", hand crafted by Ephrim Goldenhurst himself?

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Interest rates are in approximately decade long cycles. So you'll need a 15+ year fix to make you safe. A 2 year or 5 year fix is just too short to be add much safety.

When fix rates first came in lots of people locked in and then found they expired just as mortgage rates (not base rates), began to ease upwards in 2008. A lot of people bought 5 years fixes in 20023 and were stuck in 2008.

If you look abroad, people fix for 25 years, like in the US.

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I've always gone with fixed and always will, that is more to do with the fact i would worry too much and knowing what i will pay over a long period of time and calculating whether or not i can afford it is just my preference.

That's pretty much exactly the attitude of the lady of the house.

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I took out a five-year fixed rate re-mortage a year ago thinking interest rates had to go up, and I was wrong, so far. But I sleep like a stone.

The reason people in the UK don't take 25 year mortgages like they do in Canada and the United States is that the few that are available here are complete rip-offs. Like the credit cards, bank accounts, insurance and utilities, we've become used to churning them every year to avoid getting taken. A shame, really.

It comes down to how much you would be screwed if interest rates rose beyond what you could pay back. Odds are that there will be more than a few hundred pounds difference either way at the end of the mortgage, but the variable rate one would probably rise from very little to a lot more.

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Three things to consider:

The fee if any.

The penalty to exit if any.

The flexibility to overpay if you can.

Go for the cheapest with the greatest flexibility. ;)

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We bought our house this year. My gut is telling me the second mistake we made was taking out a 10yr fix at 5.09%. Should have gone with the 2.99% tracker with HSBC (lower fee too) and paid off an additional £10-12k off our mortgage over the next five years.

Interest rates are going to stay on the floor for a long time. :(

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We bought our house this year. My gut is telling me the second mistake we made was taking out a 10yr fix at 5.09%. Should have gone with the 2.99% tracker with HSBC (lower fee too) and paid off an additional £10-12k off our mortgage over the next five years.

Interest rates are going to stay on the floor for a long time. :(

...your choice is not a bad choice imo 10 years is a long time, what you are paying out today you could well be saving further down the line....some long term fixed allow 10% of outstanding balance to be overpaid each year....the thought is a nice one but I would imagine most on a repayment mortgage would not take advantage of it even though they might like to. ;)

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We bought our house this year. My gut is telling me the second mistake we made was taking out a 10yr fix at 5.09%. Should have gone with the 2.99% tracker with HSBC (lower fee too) and paid off an additional £10-12k off our mortgage over the next five years.

Interest rates are going to stay on the floor for a long time. :(

That's a hard one.....

I'm not taking the piss, I would honestly really struggle to choose. I agree that rates won't come off the floor until around 2014/2015, but after that I would not be surprised to see a solid hike.

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If they go for a life time tracker they will never have to pay re mortgage fee's again. and wont get stuck on poor rates when the deal ends

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Go for the cheaper tracker but put the difference between the tracker and variable mortgage each month on Barcelona to win the Champions League next year.

What could go wrong?

OK..... each night before you go to bed pray that Messi doesn't get injured.

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...your choice is not a bad choice imo 10 years is a long time, what you are paying out today you could well be saving further down the line....some long term fixed allow 10% of outstanding balance to be overpaid each year....the thought is a nice one but I would imagine most on a repayment mortgage would not take advantage of it even though they might like to. ;)

We were aware of the 10% overpayment option and plan to use it to greatly reduce the term :D

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That's a hard one.....

I'm not taking the piss, I would honestly really struggle to choose. I agree that rates won't come off the floor until around 2014/2015, but after that I would not be surprised to see a solid hike.

It's really impossible to tell where we are headed. I thought interest rates would have been lifted by now... nothing offensive, back in January I was expecting 1% by about now and 2-3% by 2014/2015 going forward. However we have now gone passed the point of no return and the 30% hike in the cost of living (food and running the household) means there is no chance now as it will be a choice for many to either pay the mortgage or eat, not both and as we all need to eat it will be housing that gives.

Most people I know who are lucky enough to have been saved by ZIRP are spending 'their' freed up money on foreign holidays/tat and not paying down the huge debts. It really winds me up that they haven't taken the opportunity to pay down as they truly believe HPI is still on the cards. If this behaviour isn't tackled then the rest of us don't stand a chance.

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Bookmark your post and look at it in a year's time. Things could be very different then - no-one can foretell the future.

Of course not but that kind of sage advice is not much use when deciding whether to go for a tracker or fix is it?

My neutral advice is to listen to HAM and the other poster - avoid short term fixes, they're a scam.

Pick a long term view and take a full term fix or take a cheap tracker that lasts at least 5 years.

My non neutral advice is to pick the latter of the two options above.

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It's really impossible to tell where we are headed. I thought interest rates would have been lifted by now... nothing offensive, back in January I was expecting 1% by about now and 2-3% by 2014/2015 going forward. However we have now gone passed the point of no return and the 30% hike in the cost of living (food and running the household) means there is no chance now as it will be a choice for many to either pay the mortgage or eat, not both and as we all need to eat it will be housing that gives.

Most people I know who are lucky enough to have been saved by ZIRP are spending 'their' freed up money on foreign holidays/tat and not paying down the huge debts. It really winds me up that they haven't taken the opportunity to pay down as they truly believe HPI is still on the cards. If this behaviour isn't tackled then the rest of us don't stand a chance.

I would welcome your thoughts on this: I'm earning about £55k and planing to buy as much house as I can for about £250k with a £180k mortgage in a decent bit of south London (not Croydon) asap, although I have held out a years already. My thought process is that the squeeze of tax and inflation will dump on house prices, I'm not sure when maybe its already happening, maybe it won't really kick in for a couple of years. But after that wages will start to eventually respond to inflation and house prices will stabilise. Thus a ideal period in between now and then to buy, lock into 10yr fixed, then let inflation eat the debt.

Is this a daft strategy, am I overlooking something?

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Three things to consider:

The fee if any.

The penalty to exit if any.

The flexibility to overpay if you can.

Go for the cheapest with the greatest flexibility. ;)

Precisely.

My mortgage application has just been approved. HSBC lifetime tracker at base rate + 1.89% (currently 2.39%) if you have less than 60% LTV, as I do. No fee, no penalty to exit and full flexibility to overpay. In fact, I'm borrowing more than I need so I can keep my £30K of NS&I index linked bonds paying RPI + 1% (currently 6.2% tax free). It's free money!

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Most people I know who are lucky enough to have been saved by ZIRP are spending 'their' freed up money on foreign holidays/tat and not paying down the huge debts.

That may be your anecdotal experience but the net lending stats tell a very different story.

Never be mislead by what you can personally observe with your own eyes, firstly because its only part of the picture and secondly because the experience is immediately overloaded with your own bias.

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That may be your anecdotal experience but the net lending stats tell a very different story.

Never be mislead by what you can personally observe with your own eyes, firstly because its only part of the picture and secondly because the experience is immediately overloaded with your own bias.

+1

I shouldn't let my own 'ancedotal' cloud the bigger picture.

;)

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I would welcome your thoughts on this: I'm earning about £55k and planing to buy as much house as I can for about £250k with a £180k mortgage in a decent bit of south London (not Croydon) asap, although I have held out a years already. My thought process is that the squeeze of tax and inflation will dump on house prices, I'm not sure when maybe its already happening, maybe it won't really kick in for a couple of years. But after that wages will start to eventually respond to inflation and house prices will stabilise. Thus a ideal period in between now and then to buy, lock into 10yr fixed, then let inflation eat the debt.

Is this a daft strategy, am I overlooking something?

Flattered as I am. There are far superior minds at work in this forum who can offer more insight and greater analysis/predictions than my own ramblings.

IMO it is dangerous to take debt on a wing and a prayer in the hope that inflation will do the work of reducing it's burden, there is no hard and fast rule that wages will rise in line with the cost of living. I took the 10year fix route as I figured we could reasonably clear our mortgage in that time frame.

That being said, borrowing 3-4xsalary is a sensible start and other HPCers are increasingly writing up stories of having bought or preparing to do so in earnest. The tide is turning in our favour.

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Is it possible here from any providers?

The regulators have made it all but impossible for ordinary consumers to buy derivatives to do this.

The wealthy and the financial elites can be designated "sophisticated investors" which means they can directly buy these better value financial products. You'd be amazed how much cheaper a fix product is for the upper classes.

Of course, if the regulators did let Joe Punter buy it, then there is a good risk they'd get screwed as although they're simple, people are easily confused with finance. Which would put the price up.

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Isn't the absence of long-term fix products the fault of the typical borrower as well?

I would guess that with rampant "housing ladder" homeownerism and people switching homes every five years, there is really no appetite from banks to offer a product that has plenty asymetric risk. Banks simply match the duration of their mortgage offers with the duration of the ladder step. In Germany or Netherlands, where people buy only once or twice in their lifetime, no such problems.

The fact that banks lend much less out of savings as is the case in Europe - and therefore have to fund themselves on the wholesale markets - might be another cause.

In any case, I'd go tracker as the others have said, because really what safety is there in a 5y fix?

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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