Since the credit crunch bit, the Bank of England base rate has fallen from 5.75% to 3%, it’s lowest level for over 50 years. This is of course good news for many mortgage borrowers, but with further cuts expected others are unsure what type of mortgage would be best.
While fixed rates have been falling slowly over recent months, it took the most recent base rate cut of 1.5% to bring them more in line with borrowers existing deals, many of which are now coming to an end. Those with sufficient equity may now not see the hike in their payments they might have feared earlier this year, but should they opt for another fixed rate?
Some experts expect base rate to fall as far as 1% or even lower, but while there are borrowers such as those with young families or those on a tight budget, who value the security of a fixed rate, others may be in a position to take advantage by opting for a variable deal.
Many variable rates track the Bank of England base rate, giving the certainty that if base rate falls, so will the mortgage rate payable. However, recent changes in tracker deals such as increased tracking margins and in some cases the addition of collars have lessened their appeal.
Given this uncertainty, a mix and match mortgage could be the answer. This is where the lender allows the mortgage to be spread across two schemes, such as a fixed rate and a tracker. This gives the borrower some peace of mind, but also allows them to take advantage of any further cuts in bank base rate.
Variations on this theme such as Woolwich’s 1 year fixed rate (which reverts to a base rate tracker for the remainder of the term), or switch to fixed deals where the lender allows the borrower to switch from a tracker to a fixed rate without penalty will provide similar flexibility.
Borrowers who choose this type of arrangement must ensure they consider all aspects of the deal such as when you can choose a fixed rate on a switch to fixed deal, and any early repayment charges. Taking all fees into account will be more important than ever, as with some of these schemes, the borrower could pay two arrangement fees.