Trying to choose between a fixed rate and a tracker, or thinking about getting help from family? Here are the options
rying to work out which mortgage is the right one for you can be daunting for anyone, but especially for a first-timer. There are more than 6,000 residential mortgage deals on the market. Here we run through some of the options and highlight some of the best rates currently on offer.
Fixed rate or tracker?
A fixed-rate deal offers the certainty of fixed monthly payments, which is arguably the way to go for those with tight budgets. However, the price of new fixed rates has been creeping back up after dropping sharply earlier this year.
With some commentators predicting the Bank of England may begin lowering interest rates this summer, some borrowers will be considering a base rate tracker mortgage, particularly one with no early repayment charges (ERCs).
The rate moves up or down in line with the base rate As has been the case for some time now, new five-year fixed deals are cheaper than two-year ones – very roughly by about 0.5 percentage points on average.
But many first-time buyers are still opting for two-year deals because it means they are tied in for a shorter period. They can then review their home loan in just a couple of years and move to a cheaper deal if – as many expect – interest rates have come down by then, rather than being locked into a five-year arrangement.
They may hope that a combination of them paying off some of the mortgage during that period, plus an increase in property values, will drop them down into a lower LTV bracket, says David Hollingworth at the broker firm L&C Mortgages.
Don’t forget that you are not limited to two or five years, he adds – there are also three-year fixes available, plus deals that let you fix your payments for 10 years or more.
There are some interesting deals around. For example, Virgin Money’s Fix and Switch mortgage, which is a five-year fix where you are only tied in for two years. So you have got five years of certainty but if interest rates go down, you can switch to another deal after two years without incurring charges. At the time of writing, the rate on offer was 5.14% for those borrowing up to 90%, although to get that, there is a £1,495 product fee to pay.
The newish mortgage lender Perenna will let you fix your rate for up to 40 years but only ties you in with ERCs for five years, so you are free to leave after that. Rates range between 4.99% and 6.3%.
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