Advice for Landlords
The last couple of weeks have brought much uncertainty for mortgage borrowers. However Mortgages for Business advises homeowners that while the reports in the papers of a city slump are not far off the mark, the reality for homeowners is far more positive that the press has been reporting.
While inflation is rising, but interest rate cuts look imminent, a big dilemma looms for those mortgage borrowers who are nearing the end of their tied-in mortgage term.
An immediate reaction to this quandary is to suggest that it would not be sensible to launch into a fixed rate at a time when interest rates look set to decrease. However, on the other hand, if you take out a tracker rate at a time when inflation looks set to continue to rise then you are putting yourself in danger of bearing the brunt of sharp interest rate rises in the longer-term – these rises would be a result of the Bank of England’s attempt to manage inflation by pushing up interest rates.
So, what are your options?
1. Stay on your lender’s standard variable rate
If you allow your current mortgage to revert to the lender’s SVR then there is the potential to save money in the long-run. However, with most lenders charging above 7%, it is less likely that this will be the best option for you. Mortgages for Business advises you to speak to your broker in this particular circumstance as he or she will be able to help you decided what the best action to take is.
2. Take a tracker rate, and then fix when interest rates rise
There are currently some good tracker deals out there and it is possible to take out a tracker mortgage until the base rate begins to rise again: at which time you can switch to a fixed rate. This is a good idea in theory, but this kind of method can result in hefty early repayment charges (ERCs) and if the tracker product doesn’t charge ERCs then it is likely that you will be charged extensive product fees for the privilege.
The difference in arrangement fee costs can be up to 1.5% of the mortgage, for example TMW currently have a 5.24% tracker mortgage deal with no ERC’s with an arrangement fee of 3% of the loan (minimum £895). In contrast, UCB Home Loans has a 5.84% tracker rate with ERCs, but the arrangement fee is a set £1,995: This means that on a loan of £150,000 the difference in arrangement fees between these two products is more than £2,500 – this is something to seriously consider if you are only aiming to be on a tracker mortgage for a short period of time.
3. Use the drop lock facility
Recently, several lenders have emerged with drop lock facilities. Essentially this allows mortgage holders to drop into a fixed mortgage rate at any time without incurring a penalty. The catch is that this facility only applies if you switch from a tracker to a fixed rate with the same lender and there is no guarantee that your particular lender is going to have competitive fixed rates in six months time.
With all of these options, Mortgages for Business, the award-winning mortgage brokerage advises you to see your mortgage broker. It is always best to get expert advice before venturing into a large financial commitment such as a mortgage.
