Should I keep my Tracker Mortgage?
Mortgage Interest Rates
In the summer of 2018 interest rates went up by a quarter of a percent. This was the first increase in over ten years. Such is the rarity of interest rate rises in this post credit crunch era, it was big news, because it signalled the first time mortgage payments had increased for any First Time Buyers from 2007 up until that occurrence. Quite staggering really. Perhaps borrowers didn’t even realise rates could go up!
20 years previous, one of the first acts of Tony Blair’s first Government was to hand over control of interest rates to the Bank of England. The Interest rates are the Bank of England’s tool to keep inflation under control. They adjusting rates upwards to keep the Economy from overheating and reduce them to try and stimulate growth.
The fact that there was such a long period where interest rates remained unchanged demonstrates how long it took the UK Economy to begin to recover following the credit crunch and bail-outs of some of our major High Street Banks.
Interest rates have been so low for so long now it’s easy to see how people might be concerned a little when they see mortgage payments increase. Rates are still at a very low level historically though and arrears and repossessions remain low too.
Fixed Rate Mortgage
Most customers opt to take out fixed-rate mortgages these days. In particular, First Time Buyers tend to love the idea of knowing precisely how much their mortgages will cost each month. It is by far their largest outgoing and they like to be able to budget accurately.
There are still people out there with old tracker mortgages that they took out pre-credit crunch. Tracker mortgages are variable and monthly payments can vary depending on what’s happening to the Bank of England rate month to month.
Some of the tracker deals on offer years ago were phenomenal deals not seen since. Customers that are on these deals are generally reluctant to give them up, even though they know that one day their payments will go up.
In terms of whether they should ditch their tracker now depends on a few different factors. Attitude to risk plays a part as does someone’s financial circumstances. For example, if a borrower is coming to the end of their mortgage term they are unlikely to change mortgages now because in the latter years most of their monthly payment goes towards capital, not interest.
If a borrower has a longer term to run then they might think about fixing if they can get a cheap deal at a low loan to value. The rule of thumb is the longer you fix for the higher the rate becomes, e.g. a 5 year fixed rate mortgage is normally more expensive than a 2 year fixed rate.
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