Tracker or fix

[bee12345]

Hi all,

I don't have the best track record with mortgage interest rates! 4.5 years ago, I was sure that Brexit was going to make interest rates shoot up, so I fixed for 5 years at 2.19%.

Fast forward to now. The 2.19% fix hasn't been a complete disaster, but in hindsight wasn't the best decision. I have been overpaying by just less than double the mortgage payment each month for the last couple of years though, so the balance is starting to come down.

I'm thinking that my best move for Feb 2024 onwards is to go on a tracker with my current provider (Nationwide). My reasoning is:

* I'm not really worried about monthly payments going up too much if interest rates keep going up (in fact, I have just increased my overpayment standing order so that it overpays by almost 200% (i.e. I'll be paying £3k per month, when the payments only need to be just over £1k per month)

* I'd love to move house. I'm ok with where I live, until the noisy neighbour starts playing his music very loudly on a nice sunny afternoon when I just want to get on with some peaceful gardening...and therefore being able to move penalty-free works for me.

* The ability to overpay is important (although, it's interesting looking back at the paperwork for the 2019 fix that my overpayment allowance is 10% of my original loan i.e. the balance when I first moved to Nationwide in 2017, rather than 10% of the amount that I fixed for 5 years from 2019 onwards, so if I fix again, I might keep an overpayment allowance equivalent to 10% of the 2017 mortgage balance).

* I'll be on something like 26% LTV at the point of product transfer, so should be able to get the best deals.

* I can fix at any time when I either lose my nerve with interest rates rising or feel that the rates offered are more palatable.

Am I missing anything? I know the product fees are a consideration, but that's something to deal with at the time.

Thanks everyone!

Bee

[DrFfybes]

For the reasons you mention, I think fixing now would be a bad idea. Also well done for overpaying, means you're unlikely to appear in a BBC article on someone losing their home of 15 years as they still owe twice what they paid for it.

The only consideration I can see is if the fixes are lower than the variables at the moment (and I haven't looked) or what sort of short term discount deals are available (if any).

Interest rates might (probably will) go up again slightly, but I think they will start to drop again next year and the govt will be desperate to regain some control of the economy with another General Election looming. There are no doubt others with a different view on interest rates and inflation

Paul

[Tedx]

It is my guess that interest rates will go down next year. And taxes.

It's an election year innit?

'We, the Conservative Perty have taken the tough steps (in the year before an election) needed to fix the economy. After demonstrating our fiscal and monetary discipline, We can now begin to reap the rewards (in the election year). If you vote Labour they will just undo our good work'

[Gerry557]

Your fix probably did as intended so I wouldnt worry. Just like not picking the right lottery numbers.

My biggest concern is positioning yourself for the potential move. Do you need to build up cash or some cash. Will the mortgage be portable. Will you meet the nationwide criteria for the new place.

You might find that it might be peak rates by then. You could consider being on the svr for a temporary period if it suits your circumstances. Then pick the right product for the right house at the right time.

You have time left until you have to make that decision and the Outlook might look much changed by then anyway.

The good news is you are not on the limit and have some flex in whatever you do decide. I'd also look closely at product fees you might be better off without depending on which route you take.

[kempiejon]

The 2.19% fix hasn't been a complete disaster, but in hindsight wasn't the best decision. I have been overpaying by just less than double the mortgage payment each month for the last couple of years though, so the balance is starting to come down.

I have just increased my overpayment standing order so that it overpays by almost 200% (i.e. I'll be paying £3k per month, when the payments only need to be just over £1k per month)

I have no idea if svr or a fix are any good for your particular circumstances. You seem to be awash with cash, so could be working and paying a higher rate of tax? It might be worth confirming if there's a differential between your borrowing costs and today's savings rates.

With savings accounts offering 4 or 5% could you get your money working harder without reducing your debt but accumulate a big pile ready to go when you need a new mortgage deposit?
I have a mortgage fix of under 2% apr, I've been making monthly overpayments for the past 6 years and occasional lumps. Rather than overpay the house debt these days I add to savings accounts, last one was 5.95% for 12 months fixed. I expect to move in about 20 months so 1 year fixes and regular savers are making me more money than reducing the mortgage. I don't really have tax to worry about.

[Mike88]

If you fix now and rates fall will it be possible to re mortgage when interest rates have bottomed out?

[bee12345]

Thanks all for your replies.

The only consideration I can see is if the fixes are lower than the variables at the moment (and I haven't looked) or what sort of short term discount deals are available (if any).

There don't seem to be any deals. Some of the fixed rates are lower than trackers, but I don't want to get locked into anything.

It is my guess that interest rates will go down next year. And taxes.

Not sure. It was reported on the news in the last few days that if Labour are elected, they won't be able to do much in the way of increasing spending or reducing taxes because there isn't enough money left!

My biggest concern is positioning yourself for the potential move. Do you need to build up cash or some cash. Will the mortgage be portable. Will you meet the nationwide criteria for the new place.

Good questions! I've filled up this year's ISA subscription, so while I know it's not loads, it's enough to give a bit of a buffer. My current account is ok too. I will make sure that any mortgage I sign up to will be portable, and yes, I'm not worried about affordability criteria on a new house.

Your fix probably did as intended so I wouldnt worry. Just like not picking the right lottery numbers.

You're so right. Still annoying though!

I have no idea if svr or a fix are any good for your particular circumstances. You seem to be awash with cash, so could be working and paying a higher rate of tax? It might be worth confirming if there's a differential between your borrowing costs and today's savings rates.

With savings accounts offering 4 or 5% could you get your money working harder without reducing your debt but accumulate a big pile ready to go when you need a new mortgage deposit?
I have a mortgage fix of under 2% apr, I've been making monthly overpayments for the past 6 years and occasional lumps. Rather than overpay the house debt these days I add to savings accounts, last one was 5.95% for 12 months fixed. I expect to move in about 20 months so 1 year fixes and regular savers are making me more money than reducing the mortgage. I don't really have tax to worry about.

I am working (flippin' hard), and paying additional rate tax, so I get no tax free savings allowance. I have fully subscribed to this year's ISA at 3.4%. Anything else, I feel like I'm better off to reduce debt than save more.

If you fix now and rates fall will it be possible to re mortgage when interest rates have bottomed out?

The problem is that if I fix for 2 years, then there will be an exit penalty to pay if I want to take a different fix. The beauty of trackers is that you can break them at any time without penalty to fix with the current provider - well that's the case with Nationwide at least.

Just as an aside, in the mid 2000s, I was in a lot of debt and found the Motley Fool. The Dealing with Debt, Your Tomorrow Starts Today, Living Below Your Means groups were invaluable, although I generally only lurked. I don't know where I'd be without them. I'd love to be able to 'pay it back' but the DWD board here doesn't appear to get much traffic. DAK of any other boards where I could help in this respect?

Thanks all for your help!

Bee

[DrFfybes]

Good questions! I've filled up this year's ISA subscription, so while I know it's not loads, it's enough to give a bit of a buffer. My current account is ok too. I will make sure that any mortgage I sign up to will be portable, and yes, I'm not worried about affordability criteria on a new house.

Do you have any premium bonds? Rate is obviously not guaranteed, but it is tax free and pretty much instant access except for a few days before the draw.

At least on a variable you can usually overpay whatever you want.

Paul

[bee12345]

Do you have any premium bonds?

No, I haven't. That's a really good idea though! Thanks!

[Kantwebefriends]

"I was sure that Brexit was going to make interest rates shoot up": Project Fear worked, eh?

"The 2.19% fix hasn't been a complete disaster, but in hindsight wasn't the best decision." Hindsight is worthless. The question is whether your decision looked reasonable at the time. Based on your premise, it was.

As for your next move my instinct would favour flexibility i.e. your tracker suggestion.

One reason is that you are contemplating moving house. I am suspicious of the claims that fixed rate mortgages are easily portable, having seen many complaints from people who seem to have fallen foul of T&Cs they've not understood.