EARLIER this week we learned that mortgage applications climbed back to pre-recession levels last month. Research from mortgage broker Countrywide showed that a growing number of Britons are now choosing fixed products rather than flexible tracker mortgages.
Fixed products made up 61 per cent of applications in March – an increase of 4 per cent since February 2010. This contrasts with a recent resurgence in the popularity of tracker products, which made up around half of all mortgages in December 2009.
But should you really be choosing to fix your mortgage rate right now? After all, many think the Bank of England will keep rates at historically low levels for some time, which should ensure that trackers remain competitive. However, second-guessing what how the central bank will respond to a whole range of as-yet unknown situations is fruitless. You will only know whether you will have benefited financially from choosing one or the other in hindsight.
Mark Harris, managing director at Savills Private Finance, says that mortgage applicants should select the product that suits them best now rather than trying to predict future interest rates. “If a swing in interest rates is going to put you in trouble then you should fix your rate because it takes away that uncertainty and anxiety.” If you fix, you won’t be worried every month that your repayments will soar. First-time buyers may particularly benefit from the peace of mind that fixed payments give. But if you are happy to take a risk then Harris says there is still value in tracking the base rate at the moment.
If you do that, don’t be tempted to just choose the product with the lowest rate. Make sure the mortgage is either penalty-free, or at least penalty-friendly – you don’t want to be trapped on a tracker mortgage if interest rates start going through the roof, for example. Harris says you want a penalty of no more than 1 to 2 per cent of the entire loan – they can be up to 5 per cent.
If you are taking out mortgages of more than £1m then Harris says that you are best to seek advice, as a tiny move in interest rates can make a huge difference. Such mortgages can be tailored to suit your individual needs with some of the loan fixed and some floating as well as in different currencies.
With mortgage deals easier to come by and the best rates available with deposits of 25 per cent, there’s more to choosing a mortgage than its rate.