Mortgage rates have fallen again recently due to increased competition between lenders and the influence of the Bank of England’s Funding for Lending scheme. The difference in rates between fixed rate and tracker mortgages is very small right now and so choosing the right mortgage is more a case of which product suits you, rather than the prevailing rate, because the difference and be as small as 0.1 percentage points. With money experts not forecasting a rate rise until at least 2015 – some say later still – there is no risk in taking out a tracker at the moment. Because the Bank of England has recently announced a new strategy which pins interest rates to unemployment levels and so any increase is not practically likely until at least 2016.
If you have been putting off getting on the housing ladder, this may be the time to take the plunge and buy a house quick. Mortgage rates are low and are not expected to rise dramatically any time soon and house prices are getting more buoyant, so now is definitely the point to jump onto that first rung. Money experts do not expect mortgage rates to drop much further, so if you have a reasonable deposit saved or are eligible for one of the new help to buy schemes, now really is the time to move. The question remains – which type of mortgage is right for me? The simple answer is that there is no simple solution for all.
For the lowest of the low rate deals, you need a big deposit. If you can manage to get 40% together, then you open the door to the best deals on the market. 25% still gets you quite a good deal but in the easier borrowing climate which is beginning to come on line, you can still get some reasonable mortgage rates with a deposit as low as 10%. If you can manage the higher deposit, though, you really do get a good deal, with some building societies offering 1.5%, although these do usually carry quite a hefty fee as well. If you can borrow from a relative (the key here is an interest free loan or you are no better off) you can get the deal of a lifetime.
It is vital to give yourself time to shop around, because snapping at the first decent-sounding deal could cost you money. As well as the rate, you need to look at the other terms and conditions. If you want to move on after only a short while, you should go for a tracker, because you can repay whenever you want with no penalties. With base rates likely to stay low for a while, a tracker doesn’t carry much risk either. If you have found your house for life, repayment penalties might not matter much to you, so you could go for a five year fixed rate mortgage which will save you quite a bit potentially, but not necessarily over the life of the mortgage. With rates low generally over all kinds of mortgage the best advice would be to max up your deposit and then choose the lowest rate you can which will avoid hefty fees and penalties. A low rate might save money month on month, but fees can make it much less of a bargain than it looks.
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