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First-time buyer in need of guidance
Ela C
Posted: 31 March 2011 16:17:06(UTC)

Joined: 31/03/2011(UTC)
Posts: 2

Hello all,

I’m about to decide on a mortgage, but need your input on what will happen to interest rates. I understand the Bank of England will likely raise rates over the next two years, but by how much and when? 0.5% or 1%? Or more?

If I have to choose between a tracker rate mortgage at 3.29% and a fixed one as 4.29%, which one should I go for?


David Chapman
Posted: 31 March 2011 19:00:30(UTC)

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Hi Ela
Firstly I assume you have the right house at the right price !!
On balance I would go for the fixed rate on the grounds that the future would hold no nasty surprises for you - as you would know exactly what your outgoings would be - inspite of the initial higher rate and interst rates are going to rise in the short to medium term
Kind Regards
Posted: 31 March 2011 20:52:21(UTC)

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And do not borrow to the hilt, particularly if the rate of interest will be close to the limit of your current income. No pay rises must be planned for, but rate rises are a certainty, but we do not know when.

If you get a pay increase you will then have greater 'breathing' space. And then there are not presently planned, but perhaps inevitable other expenses if a family arrives. Sexist? No, reality.
Posted: 01 April 2011 02:14:11(UTC)

Joined: 09/01/2011(UTC)
Posts: 1

I assume from your question that it's a two-year tracker.

Suppose the Bank of England raise base rate by 0.5% in two months time, then another 0.5% in six months time. Over the first year the tracker would cost 3.29% + 0.666% = 3.96% over the first year. As long as there isn't a third increase sooner than 1 year and 4 months, the tracker is cheaper.

As the UK economy is in the doldrums with base rates of 0.5%, it seems unlikely that the Bank of England will raise rates by over 1% in the next two years. In fact the government's economic policy is to curb government spending, enabling the Bank of England to maintain low interest rates for longer.

The next question is - can you afford to be wrong? I think the odds favour floating rates but none of this is certain so if you can't afford to be wrong then settle for safety and 4.29% flat rate.

Lastly - I've got to ask why you want to buy a house? That's the real risk - not the small difference between fixed and floating rates. You may pay stamp duty and whilst house prices have risen hugely in the last 15 years, with real incomes falling and unemployment rising that isn't going to resume anytime soon.

If you live in an area that will suffer more from cuts in government spending, then expect house prices to fall. London and the South-East are in the strongest position - but incomes are the key to the housing market.

If house prices are stagnating, why not just rent and chill out?
allan c
Posted: 01 April 2011 19:18:18(UTC)

Joined: 17/06/2007(UTC)
Posts: 1

its a close call ..but i would go for the tracker as if the rates go up say in 6 months time you would be six months down the road before a payment change also if they went to 1% in a years time you would be half way into a 2 year fixed and be paying the same amount monthly ( at that point in time..)
only a thought ...but you are trying to protect yourself from sudden increases in the future by paying 1% more..NOW... than you have too.over just a 2 year period ..diff kettle of fish if it was over ..3/4/5 years..fixed of course
Anonymous Post
Posted: 02 April 2011 22:22:52(UTC)
Anonymous 1 needed this 'Off the Record'

Ela, while it depends on the timeframe you a looking at, be ready for higher interest rates in the future - look at the historical bank base rates in the following link; http://www.bankofengland...ics/rates/baserate.pdf. We may be headed for much higher bank base rates in next few years. I would go for a five-year fixed.
Ela C
Posted: 04 April 2011 14:33:16(UTC)

Joined: 31/03/2011(UTC)
Posts: 2

Thank you everyone for your time and useful information.
At the end we've decided to take a risk and go for a two-year tracker. As some of you have said - the interest rate may not increase by more than 1% in the next two years so it's risky but we should be fine.
To anwer your question, Jrussell88 - my husband really wants to have his own place and not to pay to any landlords. Besides we're going to stay in the property for some time so we're not expecting the price to go up quickly in order to sell it and make a profit. As you said we want to live there and chill out.
Thanks again for your support. Ela
Amelia Brown
Posted: 06 February 2013 12:08:26(UTC)

Joined: 14/12/2012(UTC)
Posts: 12


Though buying real estate is considered risky business and has implications beyond your individual risk. It probably depends on your decision that which market gives you a profitable worth.

First you have to find out the perfect location like I am living in London since last two year, I was also looking for some good advice when I first decided to buy my home. Plaza Estates agent help me to make the right decision. I would recommend you read some online discussion forums, community sites etc. for gathering more information regarding it.

Alan Anderson
Posted: 06 February 2013 13:35:41(UTC)

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Amelia is a spammer across several forums at the same time.
Natalie G
Posted: 30 April 2013 16:05:57(UTC)

Joined: 23/04/2013(UTC)
Posts: 2

From my research I know that since the March Budget this year you can get a 95% mortgage!

The government has put forward £130billion to help First Time buyers as well as existing home owners. Buyers will now benefit from state-backed mortgages.
Families with 5% deposit will get 20% extra from government and people who earn enough to afford repayments will get a deal underwritten.

A government-backed mortgage guarantee scheme to the value of £130billion will see the market flooded with 500,000 cheap loans.
The Government is to subsidise deposits and provide state backing for loans to help homebuyers get on the property ladder or move up.
The Help to Buy scheme will offer loans to top up the deposits of those buying newly built properties worth up to £600,000 who can only put up 5 per cent of the loan themselves.

The Treasury will add an extra 20 per cent of the house value to enable them to get a mortgage. The first five years of the loan will be interest free. After that it will attract a 1.75 per cent payment, which will rise annually by inflation plus 1 per cent.
Borrowers will be able to apply from April 1 and be able to repay the loan at any point. This part of the scheme is worth £3.5billion.

The second, bigger, part – available from next January – will guarantee £130billion of mortgages on any property, not just newbuild, worth up to £600,000.

The scheme will be available for mortgages of between 80 per cent and 95 per cent of the home value. So for someone able to muster a 5 per cent deposit, the Government would put in 15 per cent, to enable the homebuyer to access an 80 per cent mortgage loan.

I think this is brilliant news...What do others think?

Natalie x
Alan Anderson
Posted: 01 May 2013 06:43:48(UTC)

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Natalie G, 'others' think you're a spammer/"estate agent". What do YOU think? Maybe. . ." let me fill this post with crap" ?
steven woodford
Posted: 01 May 2013 09:10:12(UTC)

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Alan Anderson;19418 wrote:
Natalie G, 'others' think you're a spammer/"estate agent". What do YOU think? Maybe. . ." let me fill this post with crap" ?

I'm inclined to agree Alan - another post that is completely irrelevant to the original question followed up with a link to her website

On the subject of fixed vs floating rate, My 2 year tracker recently expired and I have just remortgaged with a lifetime tracker. We are in the fairly lucky position of having a nice chunk of equity and some breathing space to be able to afford increased payments so I thought it was worth the "risk".

Interest rates are at an all time low so of course they are going to go up at some point but I can't see it happening that quickly. Maybe a couple of percent over the next 5 years but a 5% base rate would just tip too many people over the edge and bring to light a lot of the problems that the artificcially low rate is surpressing - I don't think any government can afford for that to happen.

One option to consider is to look at a 30 year mortgage instead of 25. It might not be suitable for all but I did this with my first mortgage as it meant that the repayment amount each month was reduced, giving me some extra headspace should the interest rate have risen unexpectedly. I had no intention of letting the mortgage run for 30 years and I had a flexible product that allowed me to over pay so I still paid the same amount each month as I would have over a 25 year term, but I could have reduced this if i needed to.
Alan Selwood
Posted: 01 May 2013 09:44:06(UTC)

Joined: 17/12/2011(UTC)
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Never assume that rates can't change quickly. More important is to ask yourself : 'Could I cope if they did?'
Given the current, artificially-held-down base rate, I can see little chance of interest rates not going up drastically at some point unless we fall into a Japanese-style 20 year period of deflation.
If you can find a 5-year or even 10-year fixed rate mortgage at not too much more than a tracker rate, I'd be inclined to go for it in order to buy predictable breathing space.
Also look at offset mortgages in cases where you think you could currently overpay, since the effective interest rate is then considerably reduced and you may also get some leeway if payments become harder because you simply draw back out the overpayment.
But check the terms and conditions of any loan extremely carefully, including charges levied for taking on, and early ending a mortgage, and do lots of calculations on a 'What if....' basis to see whether you remain safe or become vulnerable.
Ultimately, paying a bit more in interest is very much cheaper (and better for your mental health) than being repossessed because you fail to meet demands in harder times.
2 users thanked Alan Selwood for this post.
Alan Anderson on 01/05/2013(UTC), Clive B on 01/05/2013(UTC)
steven woodford
Posted: 01 May 2013 10:56:43(UTC)

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I'm a big fan offset mortgages and have always used them. As a higher rate tax payer they make a lot of sense but you do need at least 25% deposit to get a decent one.

I'm using first direct at the moment and they have been great so far
Alan Selwood
Posted: 01 May 2013 12:24:43(UTC)

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Yes, they looked good value a few months ago when a relative was searching for offset mortgage providers.
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