To track or to fix? – brokers share their views

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“In the current market, it is certainly worth considering a tracker rate as this could well be advantageous, but it very much depends on the borrower’s financial situation and appetite for risk.”

Should people opt for the security of a more expensive fixed rate or a cheaper tracker or variable rate mortgage? PR platform, Newspage, asked brokers for their views.

Craig Fish, founder and director at Lodestone Mortgages & Protection: “I am not recommending fixed rates to anyone at present, unless they are completely risk averse, as I think there is still quite a bit of room for downwards momentum on these. Looking at current SWAP rates, lenders have still got quite a bit of margin built into these at the moment, and this can be trimmed further. I am expecting and hoping that fixed rates drop below 4% at some point in the New Year as lenders look to eat into their annual lending targets early. At this point I will likely start recommending fixed rates again, but until then it’s tracker and discounted variable rates, without early repayment charges, all the way, once we have fully assessed and tailored our advice to the client’s needs.”

Lea Karasavvas, managing director at Prolific Mortgage Finance: “While SWAP rates have been reducing in the past few weeks, and we are starting to see this filter through to the fixed rate products in the market, we are very much of the opinion that the best value is within trackers right now. Lenders are slowly starting to build an appetite for new business, and this should drive down the cost of borrowing in terms of fixed availability in the not-too-distant future. But for those that need to move now or are coming off their fixed rates in the near future, we are arguably seeing better value in trackers as the price differential is so high between the two. We do expect fixed rates to drop further, especially as we go into 2023, but the added bonus of tracker products is that the majority of them carry no penalty for early redemption, meaning borrows can enjoy the lower tracker margins now and then look to exploit the lower fixed costs that are expected in the future. This is a riskier approach and involves potentially two arrangement fees, but as we are saying to clients, the margin of difference is too high to ignore and, in our opinion, fixed cost borrowing still has a bit of downward movement in it, which we expect to see early part of 2023.”

Elliot Cotterell, director at Windsor Hill Mortgages: “In the current market, it is certainly worth considering a tracker rate as this could well be advantageous, but it very much depends on the borrower’s financial situation and appetite for risk. Currently, fixed rates could be sat as much as 1.68% above a tracker using Skipton Building Society as an example. Even with a likely further increase to the base rate in December, this is still likely to be a lower payable rate of interest than the fixed rate. However, it is quite possible that we could see further reductions to fixed rates over the coming months despite more base rate increases. This is due to the margin initially set and also growing competition between lenders. When looking at variable versus fixed as an option, it’s important to consider the risk of property price reductions. If a borrower’s LTV is high and they have little cash available to inject to reduce the resulting loan to value, then this could put them in quite a precarious position. It is always best to speak with an independent adviser so that they can run through hypothetical scenarios for you when considering possible market changes. Of course, none of us have a crystal ball that tells us what the future holds for the market but we can certainly assess the possible options and therefore plan accordingly. At the end of the day it is down to risk appetite for the individual but in my opinion the prospect of a tracker in this market is certainly something that should be considered.”

Jamie Lennox, director at Dimora Mortgages: “Trackers are certainly looking extremely appealing at the moment for the right people. In recent weeks, following economists saying the Bank of England may not need to increase rates as quickly or as high as previously forecasted, this has certainly added to their appeal. We can’t take a one-size-fits-all approach with clients, though, and they need to be fully aware of the risk that rates can increase further in the months to come and by the time the mortgage completes the original payment they had been quoted could no longer be their actual payment. If customers are considering a tracker option they need to take a robust look at their income and expenditure and work out at what rate their mortgage would become unaffordable. If there isn’t much wiggle room, this may not be the answer. However, if there is, it gives people an opportunity to ride out the highs and lows of the economic storm as it unfolds.”

Lloyd Dorrington, head of term Finance at Finanze: “This is a question I am being asked a lot of late by clients compared to previous months. Personally, I wouldn’t advise tracker rates to our clients, especially at high LTVs both for buy-to-let and residential mortgages. They’re very unpredictable and in the case of buy-to-lets, the stress tests that the lender does to make sure the rent costs cover the mortgage are much higher on a variable product so might not fit on this basis. Also, some lenders have actually dropped their fixed rates recently after the huge increases we saw a couple of months ago, and so a fixed rate is more inviting given there are likely to be additional rate increases in the upcoming months or years. Also with a variable rate, when you then decide to switch onto a fixed rate there will be an additional broker fee, valuation fee, lender arrangement fee, solicitor fee and it can take three months to go through. As well as this, it can be harder to budget as you won’t know what your monthly payments are as these will change as the base rate changes, which they could be doing again in December. Although you may be able to afford the tracker payments today, this might not be the case once rates have risen, and you don’t have the stability that you would have with a fixed rate.”

Elliott Benson, owner and mortgage broker at Sett Mortgages: “I have seen an increase in enquiries from clients regarding tracker products recently due to the recent increases in fixed rates. However, so far I have seen very low numbers actually opting for them over a fix due to uncertainty and the preference to know exactly what they are going to be paying over the next 2 to 5 years. Trackers can provide savings at the moment and are worth considering, however given the base rate is forecast to increase once again, the general response I am seeing from clients is they would rather have the security of a fixed payment due to the rising cost of living and the sharp base rate rises we have just been through than risk their mortgage payments increasing along with their bills and food.”

Lewis Shaw, owner and mortgage broker at Riverside Mortgages: “In normal interest rate environments, not the past decade and more, trackers have always been cheaper than fixed rates, as you pay a premium for a fixed-rate mortgage deal to give you that security and stability. The problem is everyone has forgotten this due to the last dozen or so years of artificially low rates. Therefore if someone is looking for the cheapest deal, it will often be either a base rate tracker or a discount variable rate. However, mortgages aren’t just about the maths. A tracker is no good if you can’t sleep at night because of the worry about what your mortgage payment might be in six months. Moreover, due to stress tests that lenders use when calculating affordability, most people can generally borrow more on a five-year fixed rate as the stress test is more lenient. So if someone is stretching their affordability, is a tracker a good idea? Probably not. If they need to borrow the maximum to get their dream home, they might not have a choice and be forced to go with a five-year fixed rate to get the loan needed. There’s more to it than meets the eye.”

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