Mortgage, predict the unpredictable...

How long is the tracker for? And how much would interest rates have to drop for it to be cheaper than the fixed rate?

I just went 2 yr fixed. As tracker rates were generally over 1% above fixed broker said any tracker benefit would mean rates would need to drop by 1% at least to cover the difference and that is unlikely or break even in 2 yrs. May be right/ may be wrong but it's always a gamble.

Are there penalties from pulling out of the tracker and is there another arrangement fee for the switch to the new fixed product after 6 months? Depending on size of your mortgage this may or may not be an issue.

A year ago I got a good fixed deal for 3 years. The lender asked why I chose 3 years and I said because that is my guess of how long it will take to go lower than the deal. We are all just guessing...

A year and a half ago I managed to fix at 2.25% just before rates jumped up.

Took the chance on a 10 year deal, as I guessed they would not go down to previous lows again. But it's all just guesswork isn't it?!

However fixed term rates have just come down and will now be £150 lower than our tracker offer, whuch is brilliant and a no brainer….

I would be surprised if banks and building societies are offering remortgage deals which are that much of a 'no-brainer'.

If they are trying to tempt people away from trackers, they may be thinking that the tracker is likely to be a better deal for you, and a risk to them, over the lifetime of the mortgage.

Have a look at inflation and interest rate forecasts. At the moment they are expecting inflation to be back down to around the 2% mark by the end of next year. The BofE increased interest rates to cut inflation, so we should expect rates to fall alongside inflation. Get your calculator out and work out what you'll be paying with your tracker if interest rates fall as expected.

At the end of the day it's abou

We're in a similar position, rates have dropped since our initial quote of 5.64% to 4.19% for a 5yr fixed.  essentially going from ~1400 to ~1100 a month.  The 2/3yr offer was 4.34% and I think with rates going down we're just going to opt for the 2yr.

It is almost by definition guesswork. The market consensus is that the offerings are similar value, though the fixed rates will probably turn out slightly more expensive because you're paying for the privilege of not taking the risk.

That's not to say there aren't some lemons out there best avoided.

You can somewhat protect yourself if going for the cheaper deal by sticking the difference into a savings account (You can actually get reasonable interest at the moment, higher than some mortgage rates). Then when the deal ends you have the option of paying a lump off the mortgage or buying a new bike 🙂

Get your calculator out and work out what you’ll be paying with your tracker if interest rates fall as expected.

What is the "expected" rate fall?

Martin Lewis has been saying that he doesn't expect them to fall to similar levels again for a very long time, if ever.  Will they drop more than another .75%?  I'd be surprised but Iiterally have no idea whatsoever.

We've just gone through the same last week, went for a 2 year fixed.

I'm probably not the best one to give advice, I fixed in Nov at nearly 7%, they're offering sub 5% now. Very painful.

The current winds are blowing towards a reducing rate, inflation is falling, job market is slowing, wage inflation pretty much stopped and recession likely...

But the world is so volatile! We could be in another middle eastern war in months, new government in the UK and the US and god only knows what else.

Bookmarked, mortgage up late March and pondering this right now.

Looking at some 5 year deals (offset) around the 4.3 mark.

It's affordable compared to what we are paying today, so I think we'll go with that. 60% of mortgage deal ends in March, the rest in October.

In general, when economists have looked at this, over the long run, trackers are better for the consumer than fixed rate deals.

However as almost everyone massively extends themselves when buying a house, most people find the reassurance of predictable monthly outgoings to be worth paying a premium.

Also the key phrase is over the long run. If you're swapping from trackers to fixed and back again, then in essence you're trying to time the market, and so you're just as likely to lose as to gain.

I believe that when surveyed, most of the economists who believe that trackers are better for the consumer were found to be mostly on fixed rate mortgages themselves.

Yer pays yer money, yer takes yer chances.

What is the “expected” rate fall?

Currently 5.25%. The general middle-of-the-road expectation is for rates to start falling in the middle of next year, maybe to somewhere between 4 and 4.5% going into 2025, then possibly to continue falling. Certainly there is zero prospect of the kind of ultra-low rates we saw a couple of years ago. I don't know where the OP's fixed offer sits vs his tracker, but certainly he needs to work out a series of 'what ifs' before deciding, particularly on the length of the fix.

@kramer

Yeah, having said all that, I always fixed, even at a premium. Depends on your attitude to risk.

My best-case assumption is a mortgage rate of 3% on 5 year fixed with a decent LTV by end-2025.

But current Red Sea sabre rattling could easily f*ck inflation again so i'm also ensuring that a 4% mortgage rate is manageable for us.

If I was looking a remortgaging now and could get a 2 year fixed at <4.5% I'd take it and be cautiously optimistic of doing slightly better next time round.

mostly on fixed rate mortgages themselves.

To be fair, since the BOE got their independence to set rates there hasn't been *that* much volatility in rates, but I remember my folks having a house repossessed in the late 80s as they just couldn't afford it any more - I think there's a lot of people with memories of similar.

I always fix - even at a premium.

i'm coming off a 5yr fix at the end of july, chucking some numbers in the MSE mortage tools and getting about 3.9% on a 5yr fix or around 4.3% on a 2yr fix.

 I think there’s a lot of people with memories of similar.

Yep, me!
I nearly lost my first house when the interest rate got up to something ridiculous in the early 90's and I was earning a pittance.  That event had a profound affect on me and I barely had any borrowing for anything* after that other than a mortgage as I was so scared of a re-occurrence.
We paid off our mortgage just before Xmas and now watch the interest rates solely to maximise our savings!

* I had a loan for a van and some IT equipment for my business and that's it.  If I can't afford to buy something without a loan then I can't have it!

There is no right answer, any available information is priced in. Partially the banks making forecasts so their fixed/trackers should all yield the same over their terms. And partially the wisdom of crowds, if the banks are selling more trackers or fixes than they're comfortable with, the cost of that product goes up.

So basically it comes down to this.

Yeah, having said all that, I always fixed, even at a premium. Depends on your attitude to risk.

I suspect that the majority prefer a fix, which would infer that the tracker should be cheaper.

Twice I lost out by fixing before rates fell (Brexit, then COVID), then I lucked out in a big way by fixing a month before Truss happened.

Also depends where in your mortgage you are. 25 years to go and a rate rise might ruin you because most of the payment is interest so doubling the rate almost doubles your repayment. 5 years to go and the rate changing will barely change the monthly payments. Although the inverse is also true, overpaying in the early years because you're on a tracker that's gone down will take years off the term.

tracker will always be cheaper over the long term, but you can get lucky/unlucky on fixes if you strike at the right/wrong time.  rather than use a calculater, plumb the numbers into excel and model it,

I dont think you can you get a lifetime tracker these days, i had one with hsbc, but now they only do a 2 year tracker circa 0.8% above base rate..

fees need to be considered, a £999 booking fee may benefit a massive mortgage if the % rate is slightly lower. for a small mortgage a slightly higher interest rate may be better than to pay the fee

are you likely be able to lump some money over the coming years, if so a tracker may work better unlimited overpayments.

i just cant see a tracker beating a fix (4.25%) in the coming 18 months

*Expectations* are a Fed pivot in Mar.

That could easily change - but when the Fed moves the BoE probably will. And will be a drip of 0.25.

Also keep an eye on Oil price - if the dumb-asses see Oil moving up they will put the brakes on the pivot - is my guess.

I'm on a tracker  (no penalaties at all for swapping around and overpaying) - very much suits me, even though I've paid a bit over the odds now - I benefit9ed for 8 years so banked the difference across the time. I can remember when Nationwide gave you £250 just to switch the mortage to the same tracker!

fees need to be considered, a £999 booking fee may benefit a massive mortgage if the % rate is slightly lower. for a small mortgage a slightly higher interest rate may be better than to pay the fee

My current lender (Natwest) provides a calculation which shows the updated repayment if the fee (£950) is added to the mortgage.  Using the lower rate with a product fee is notably better for me on both 2 and 5 yr deals (and I assume would be even better if I paid it at the start as I wouldn't then be paying interest on it).

I takes some nerve to take out a variable rate when fixed are lower but it's exactly what we did some years ago - the rationale was if trackers were lower then the mortgage companies are expecting rates to go down, and indeed they did to historic lows.
I'd probably do the same now but like anything it depends how you feel about risk. Most people go fixed.

It is almost by definition guesswork.

Yup - we fixed at 3.9% for five years in September 2022 - at the time I felt relief at fixing at that rate, despite coming from a 1.49% (IIRC) rate. I was even thinking of ways of overpaying/saving to ensure we didn't come out of the other side staring at even bigger hikes. Now I think I may have done the wrong thing – still, it's not a horrendous rate tbf.

super timely thread, our tracker (5 years @ 2.08%) was up this week and I'd booked in a 5 year fixed @5.39% back in October.

Decided to cancelled it just before it kicked in and let it drop down to the SVR (6.99%), figured I'd give it a couple of week to see which way the wind is blowing.
Best at the moment is 10years @3.99% or 5 @4.14% (locked into FirstDirect).

I holding out for a slight drop in the next few weeks but then f-knows where its going.

as fooman says, risk, if you can afford the risk ie your mortgage is £500 a month but you can easily afford to pay £1k, then go for a tracker as unlimited payments, if you can only afford the £500 then get the fix..

mortgages need to be paid down to 65% LTV to ensure you get the best rates available, if your mortage ltv is high then you'll get poor rates. my first mortgage was a lifetime tracker, which kept dropping from 2008.

hsbc

2 year fix (65%ltv) 4.54%   [versus 4.29% £999 booking fee

Tracker 2 year is 6.09% [ie tracker is 0.84% above curent 5.25%.] fee free unlimited overpayments.

is the base rate gonna fall 1.55% in the short term, i doubt it,

i'd only take the tracker if i wanted the flexibility to pay it off in full, but then you could lump sum before fix starts

otherwise SVR is 6.99% for full flexibility. need to also consider if you intend to move or get divorced in the fixed timeframe, and or ease of switching

I think if Labour get in this year rates will stagnate or rise. If conservatives stay in rates will continue a steady lowering

I'm fixing for two year at the end of February and currently looking at 4.25% and no fees.  I can't see significant drops over the coming years that will bring a variable into line with that and even if it did at the end of the term, it's be £50-60 a month.  No fees = little penalty unless the rates go back up.  That's us moving from 2.49% to 4.25% which is a lot better than I was expecting.

How are folks getting on? We've just been sent a reminder that we can lock in a new deal ahead of moving onto the variable rate sometime in August. Difficult to know at present what rates will do.

Been on a tracker for years dropped to 2 year fix now. Glad I did.

Expecting internet rates to move middle of the year but only a bit at a time. Certainly in a run up to a G.E the government will be having words with the BoE...

Certainly in a run up to a G.E the government will be having words with the BoE…

Even if you do believe that the BoE committee is not independent - why would they bother listening to a Chancellor who won't be around after the election?

I just fixed at 4.49% for 5 years with NatWest so with my luck interest rates will back down to 0.5% within days...

I don't think we'll be seeing those sort of rates again. I think around 4% will be the new 'normal' for the base rate.

dont be so sure, no one really knows. 2 years ago i took out a 5year fix at 1%. i could have got a 10yr at 1.2%.

i really really wish id taken a 10year. but its a long time to be locked in with big penalties

We were exactly the same @DT78 - we fixed at 1.19% for 5 years as we were nervous of a 10 year fix.
In hindsight 2% ish for 10 years would have been great.

I don't think that's any indicator of future rates.

Inflation is still very high so I don't think they'll risk reducing rates to anywhere near the 1% mark. They'll almost certainly come down but it will be very small increments. I reckon a c4% rate will be around for a long time.

Just an opinion of course. Like you say, noone really knows.

I did wonder that with the distinct possibility of Trump being in charge of the US again and Putin guaranteed another term that the markets would be nervous. Given that mortgage rates are linked to swap rates any cuts in the base rate might not guarantee cheaper mortgage deals. Will see what I can lock in now based on the assumption I'll go elsewhere is rates do drop the summer.

the point i was making was that 2 years ago thr banks thought they would still make money on a 10 year deal at 1.2%. So they had no insight into rates going up like they did. they were predicting stable under 1% rates for a decade.

then lots of shit happened.

there were least when i last researched (still are ? dunno) countries with 0% rates.

on balance i think itll probably staying in and around 2 to 3 % for the next 10 years, but im just guessing like everyone else

We ditched the variable rate a week before the end of our term and went with a 4.4% 2 year deal that worked out approximately £300 a month cheaper than the variable rate was going to be

Even if you do believe that the BoE committee is not independent – why would they bother listening to a Chancellor who won’t be around after the election?

Because the Governor and MPC are effectively appointed by him? And because the Tories are still going to fight an election believing they need to do things to stay in power. It's definitely in the Tories' 'interest" to encourage lower interest rates for the electorate.

Remember the government owns the BoE, appoints the Governor and thus MPC.

The Chancellor can overrule them anyway if he wanted to exercise such power because he felt that the BoE were pushing in the wrong direction. Which they are but that's the Tories for you.

Remember the BoE are free to set interest rates based on a target set by the government - only a chimp believes they are independent in any way that goes against current government targets.

Expectations were a March pivot (which is why there were a few pre-march Mortgage deals that went away) - that changed due to stickier than expected inflation - so now expectations are May onwards.  But paying interest itself is inflationary so they're creating havoc with this part of inflation curve.

But I still think on balance lower interest rates in a run up to a General Election - I bet you a fiver. That's why they delayed the election.