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House Price Crash Forum

Fixed Rate Or Tracker

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It comes down to how much you would be screwed if interest rates rose beyond what you could pay back.

My friends don't (I believe) have the resources to cope with too big a rise in interest rates.

And they didn't even overextend themselves to buy. I think the house cost £63k. But they have children and student load debt, rewiring due to knackered electrics etc. Not much spare cash left at the end of each month.

Current expectations of first rate hike are in feb. Best 5 year fixed is about 4.5% (inc fees), best tracker base +1.89%. The sterling curve right now would imply you’d be paying less on the tracker p/m until mid 2014, with even implied repayment in mid 2016 only about 5.25%. So that would make a tracker cheaper in the short-medium term.

Blah blah blah...

A broker/adviser will tell you something along those lines, but nobody knows where rates are going. I would assess the most I could comfortably afford p/m. If that’s not much > current fixed (inc fees), go fixed and sleep well. If not go for the cheapest tracker. Watch fixed rates and if/when they rise to your level switch.

Great post northshore, thanks.

I thought interest rates would have been lifted by now.

Yep, me too.

If the BoE put up the base rate I'll eat my hat!

Surely they'll stick it up by a token 0.25% once or twice, if only for the sake of being seen to be doing something?

Thanks guys, you've given me plenty to think about. I try and avoid giving financial advice to friends so I'll just give them the alternatives and let them make up their minds.

It all depends on the kind of deals they'll get offered of course.

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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..

Whilst the BOE rate is artificially low, the margin the banks are making is artificially high. At a certain point raises in the BOE rate will not result in a linear rise in mortgage rates.

Fixed rates in any sphere, insurance, outsourcing contracts, private health care are generally for the benefit of the provider and prey on the fear and inertia of the client for maximum return.

Edited by Greg Bowman
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