These days mortgage rates are a buzz term. They are all over the media, in our conversations and on people’s minds. And this is mainly because rates have been fluctuating in such an unprecedented way over the last year.
However, the problem with rates is that we can find ourselves too caught up obsessing with a number rather than approaching our mortgage needs in a ‘holistic’ way. And, by this, I mean the ‘whole’ of our needs and circumstances.
As a mortgage broker my aim is to find you the cheapest most suitable rate on the market on the day of application.
Notice the words ‘most suitable’. This means crosschecking and factoring in all the ‘other’ needs, wants and criteria quirks of your case. It involves so much more than the ‘lowest’ rate and the lowest number – it is the mortgage which is going to serve you best as a whole and why.
It is actually my favourite part of this job – the problem solving, puzzle collating and critical thinking element required to reach the perfect fit for each case and client.
Believe me, there really is no one size fits all. We are so very individual, and our mortgage needs therefore are too.
There are various products you can opt for when it comes to mortgages, here a few of the most popular types:
Fixed Rates
This is where you fix the rate for a set amount of time, typically two or five years, although we are seeing many three year products available and some which run for 10 years.
The benefit and attraction of fixing the rate for many is the budgeting certainty it offers – there is comfort in knowing monthly payments won’t change and therefore increase within that fixed period.
However, it also means you don’t automatically benefit if the rates decrease. The fixed rates tend to come with early repayment charges (ERCs) attached these are penalty fees if you pay back all or a specific amount of the mortgage within fixed period.
Tracker Rates
These mortgages track the Bank Of England (Bank of England) Base Rate, then add on a specified amount set by the lender.
An example of a tracker rate would be 0.50% above the BoE base rate for two years. This means that the monthly payments are changeable either way. If the BoE increases, so does your mortgage payment, conversely if it decreases so does your payment owed.
These products often do not come with any ERC’s and therefore can be appealing if you know you will be looking to change your circumstances soon and want the freedom to leave this product when with no penalties.
Variable Rates
Much like trackers these mortgages’ rates can increase and decrease. However, the rate in this case is based on each lender’s specific Standard Variable Rate (SVR), which is set by the lender.
For example, it may be a discount of 3% on the lender’s SVR. If the lender’s SVR is 7.50% then the rate you pay is 4.50%, if the lender changes their SVR to 8.0% your rate changes to 5.0% and if the lender’s SVR decreases to 6.0% your rate decreases to 3.0%. These also often have no Early Repayment Charges, and therefore offer more flexibility but less certainty.
Which type of mortgage is best for you?
The various characteristics of a product should be fully explained to you your broker, so you understand the nature of it enough to make an informed decision.
In today’s mortgage market we have seen rates rise over the last year substantially following a number of consecutive increases in the Bank of England Base Rate. This has been jarring for many.
Economists also predict that the rates of today will reduce over the next two to three years and industry swap rates indicate this too.
As there’s no definitive knowledge on this, just predictions, it opens many conversations for people about what to do for the best regarding their current mortgage needs.
Typically, at the moment, a two-year fixed rate is higher than a five-year fixed rate. This is an indication that the market believes the rates will reduce compared to today within the next five years and they’re pricing themselves accordingly.
Therefore, if you’re looking for the cheapest rate available, arguably it might look like a five-year fixed rate. However, when looking at your personal circumstances that may not be suitable for your needs. It may be that a two-year fix suits you better or even a variable or tracker.
There’s so much to understand about your needs now and your needs in the future, loan with your risk appetite and wellbeing regarding peace of mind, when it comes to mortgages. This is why your best mortgage solution doesn’t always mean the best rate.
Gemma Bennett is a senior mortgage broker for The Mortgage Mum
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Connect with The Mortgage Mum team
You can connect Gemma via email Gemma@themortgagemum.co.uk
gemmabennett_themortgagemum.co.uk
Gemma Bennett _The Mortgage Mum
Gemma Bennett
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