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Mortgage comment for national newspaper - urgent request

Journalist: Rebecca Goodman, Freelance

ended 06. February 2024

Hi,

I'm writing a story for the i newspaper today based around a case study. She bought a house in 2021 (1.85% rate paying £1300/mth), remortgaged in October 2022 and had the option of a fixed rate (5.52% / £2,100/mth) or a tracker (0.75% over base rate). She went for a tracker and is now paying £2,000/mth.

I'd really like a mortgage expert to give a short quote for this one, addressing: the fact that this is happening to loads of people, what their options are, what's likely to happen going forward (will prices go down, should she move to a fix if they do), and any insight really around the topic,

I'm on a tight deadline so would need something be EoP today if possible, 

Many thanks,

Rebecca

17 responses from the Newspage community

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Editor
Michelle Lawson
Director at Lawson Financial
It is hard to fully comment without knowing the nuts and bolts of the situation and whether advice was taken or not. If advice was taken, all outcomes would (or should!) have been discussed. There are a lot of people in these situations and some lenders do have the option to 'switch and fix' from a tracker product without paying penalties. As rates have come down now, this could be a consideration however the borrower would then lose out on any potential Bank Base rate cuts. It is really important that borrowers take advice, moreso now than ever, to understand the options available to them as there are many considerations and variables to take into account.
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Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
She's now in a position where she could consider a fixed rate deal which would very likely be lower than the tracker rate she's on. However, this all depends on her plans and whether she's most focussed on reducing monthly payments now, or holding on for the prospect of rate reductions in the future. This is the same decision we all need to make every time we get a new mortgage deal; certainty, perhaps at a premium or variability with the potential, but not guarantee, of lower payments.

She could also look at changing the overall term of the mortgage and/or if there's an opportunity to move into a lower LTV bracket which could reduce monthly payments further.
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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Mortgage decisions are entirely subjective and there's no overall correct answer. Many people are in the same position as the case mentioned, and in her case it looks like the she has made a good choice, with the liklihood of 2 or 3 base rate reductions this year, meaning lower mortgage payments. It does look like we've hit the top end of the market as far as rates are concerned, so expect the uptake of tracker rates to rise. With some trackers having no early repayment charges, anyone taking these could switch to a fixed rate at any time.
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Simon Bridgland
Director at Charwin Private Clients

This is happening to so many clients now on both main residence products and buy to let. I've had a buy to let case hit my desk this week which is currently on a fixed rate of 1.77% due to end in June, it currently with an interest only payment of £423pm. Due to the increase of rates they are now looking at a jump to a rate of 5.54% fixed for 5 years and a payment of £1,324pm. The gross rental income is £1949pm so after tax and managment fees the client is actually on the cusp of selling, so another private rental leaves the market. Property type means they are very limited on lender. Other potential lender options have fees of over £15,000 for a rate of 4.89% and some as high as over £30,000 to get a lower rate of 2.89% to be anywhere close to the current rate, which simply isnt possible for the client to do. Clients in this position have a choice, sell up or have all the risk for zero reward, being on a tracker is just adding cost as any meaningful reduction is a long way away.
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Ben Perks
Managing Director at Orchard Financial Advisers
To take a Fixed or Tracker rate was a conundrum faced by many over the last year.
In the right circumstances a Tracker Rate can be a good option for those that are less risk-averse and can afford to make payments whether they rise or fall.
The market comentary is that the Base Rate has peaked and it will start to reduce marginally throughout the year, but there is no guarantee of this.

The key thing is whether the product has Early Repayment Charges, many Trackers do not have these which gives borrowers the flexibility to shop around as the market improves. For many, the option to jump ship has been an attractive one.

I would advise this person to keep in touch with a Broker and review her circumstances on a regular basis. Repeated conversations with a professional will help her keep on top of any better Tracker rates available to switch to, or if fixed rates reach a level suitable for her.

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
2024 is set to be the worst year for 'mortgage shock' since interest rates spiked. More customers are facing the prospect of eye wateringly high interest rates compared to their ending deal, this year. Homeowners are facing higher rates and repayments but there are some options to help. The new mortgage charter allows homeowners to extend their mortgages or opt for a period of interest only to keep repayments lower than they ordinarily would be. Rates arr set to fall at the end of the year as inflation comes back down towards target and the eocnomy weakens. A varibale rate could be the way to go.
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Darryl Dhoffer
Founder at The Mortgage Geezer
No two clients circumstances, aims or requirements are the same. The Base Rate in October 2022 was 2.25% and with a Tracker taken at 0.75% above base rate, giving a final rate of 3%, compared to a 5.52% fixed rate offered at the same time, the tracker most likely would have been the best option at the time. I would have stressed to the client to make overpayments where possible to reduce the balance in the background, and get confirmation of her risk appetite cut off would be ie if the Base rate continued to rise ? I assume with the Tracker, she could have cancelled at any time without penalty and secured a fix. When Base rates increased, a diligent advisor would have kept the borrower abreast of this and the possible risks retaining a tracker mortgage.
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Elliott Benson
Owner at Sett Mortgages
There was a buzz around trackers and variable products at the end of 2022 when there was a large gap between fixed products and variable products in that fixed were a lot higher.

There are lots of people being faced with their fix ending and the prospect of payments increasing dramatically and with the base rate being as high as it is, it can be tempting to look at a tracker as in the above example.

It is likely, long term that the base rate will come down but as we've seen, it's been steadily increasing for the past year. If you are looking at the option of a tracker or a fixed, do you think it is likely, given recent inflation and also the closeness of the voting by the BoE, that the base rate will decrease drastically enough in the next two years to make a variable worth it?

You could spend two years on a variable hoping for it to come down or two years on a fixed, knowing exactly what you are paying and then in two years if rates have come down, you've won anyway
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Denni Tyson
Mortgage and Protection Advisor at Henchurch Lane Financial Services
Firstly, I can imagine the year of 2023 to be quite painful for the client with all the base rate increases, but this could be a "long term gain, short term pain" scenario. Providing the client has a tracker with no early penalty, it could well be that the base rate decreases as well as fixed rates where she can switch too.

I think in October 2022, when the UK economy went bang courtesy of a certain politician, many panicked and selected high fixed rates. If the base rate reduces, clients like this will be grateful as she could end up saving thousands rather than fixing for 5 years plus at a high rate.

This is happening sadly to many , but as an advisor my most important rule is to give flexibility for clients right until the end of their existing product. Mortgage rates are so erratic the last 18 months, that going forward, we should be striving to allow clients flexibility rather than just jumping on a fixed and the easy route.
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Akhil Mair
Director at Our Mortgage Broker
As a mortgage expert, we understand the common scenario you're facing, where homeowners reassess their mortgage options amidst changing rates. In light of recent fluctuations, it's essential to consider your choices carefully. While tracker rates offer flexibility, fixed rates provide stability in uncertain times. Looking ahead, market dynamics play a crucial role; while prices may fluctuate, it's challenging to predict definitive trends. Should you anticipate a potential rise in rates, exploring fixed-rate options could offer peace of mind. Our advice hinges on your long-term financial goals and risk tolerance. We're here to provide tailored guidance and support throughout your mortgage journey.
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Matthew Jackson
Director at Mint FS
All options should be discussed fully when looking to purchase or remortgage - in a volatile market it is easy to dismiss more flexible variable rate options. However good brokers will know that a fixed rate is not the right advice for everyone.

A tracker or discounted product offers risk with reward , a lot of clients have seen the value of the flexibility offered by a number of lenders - specifically the ability to jump from this product to a fixed rate if rates were to go above a comfortable level.

If the affordability is there these products are still a good option as we are likely to see 2 or 3 drops in base rate this year - the clients that took the risk, will be rewarded with a much lower rate and payments going forward.
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Robert Timm
Managing Director at Sunland Mortgages
Whilst impossible to comment on specific clients without knowledge of their situation, it would seem at the time she probably made the right call to switch onto a 0.75 + base tracker, because the base rate was around 2.25% at that time and hasn't immediately jumped to 5.25%, it has happened over time, so she's probably paid less than she would have done for an equivalent fixed rate.

The economical data has been positive over the last few months, which has led to commentary that the BoE MPC could look to gradually reduce the base rate, meaning this client will immediately benefit. It would be unrealistic to expect the rates being offered to consumers to be near 1.85% again anytime soon. I hope that when the client originally bought her home that her adviser would have discussed what would happen to payments if rates shot up in the future, and the client and adviser still felt it would be affordable.

Unfortunately there's no right answer when it comes to stick or twist on her rate
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Jonathan Burridge
Founding Adviser at We Are Money
Depending upon who you listen to, BoE is not coming down anytime soon, domestic inflation and salary rises are still really high. One view is that base is going to be around 1% lower in a year and ease down a little more to around 3.5% within two years. We are seeing SWAP rates settle down and bob around a little so "the market" is not expecting much change. So, it could be time to lock into a fixed rate as those who have a good amount of equity in their property can see 2 and 5 year fixed rates that are starting with a 3 or low 4%, meaning you'd probably do okay over the next few years. Base rate is unlikely to drop deep or quick enough for a tracker at 0.75% to recover higher interest compared to a fixed over that period. Of course, it does depend on the costs to exit the current rate and what lending options are open to that borrower depending upon their status. No one knows the future, forecasts are lucky or wrong.
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Ashley Thomas
Director at Magni Finance
We have seen this with a lot of customers when we are reviewing their options. If this customer wanted to keep a tracker it would be worth reviewing this as you can get more competititve tracker rates, some as low as 0.10% above base.

Alternatively, it would be worth looking at a 2 year fixed rate as some of these are more than 1% lower than the tracker options.

There is a risk/reward benefit with going for the tracker, it depends when base rate reduces and by how much. You will pay more in the short term but could be better off over the 2 years.
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Clive Read
Owner at Goldmanread
Unfortunately many borrowers have found themselves in a similar position, especially if they remortgaged in the last 12 months. Clients options are either to take a rate switch with their existing lender or remortgage to another bank. The advantage of remortgaging is that generally rates will be more competitive and they'll potentially be able to extend their term thus lowering their monthy repayments. Rates have started to fall gradually but our feeling is that rates may not fall as quickly as many borrowers had hoped. Its important not to panic though. Before committing to a new deal think about your circumstances, plan your finances and make sure your new mortgage is affordable.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
The client finds themself in a rubbish position here but not without options. Dependant on the loan-to-value, fixed rates are a fair bit lower now than October 2022 which would reduce her payment significanty, they could explore whether a temporary switch to interest only is viable although not always advisable, They could look to extend the mortgage term to bring repayments down or if all else fails they could bite the bullet and look at cheaper properties - that however isn't always possible in the areas customers want to live.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
The advice given at the time will be tailored to the individual's situation, future plans and capacity to withstand increases in rates. However, that can and does change; for example, this person was recommended a variable rate type mortgage at that point in time, but that doesn't mean she can't re-look at that position. I am currently working with some borrowers in a similar scenario who are looking to remortgage and pay the early repayment charge to their current lender, as a new fixed rate deal is now significantly cheaper than the fixed rate they secured last year. In their situation the numbers work, and they are saving money by paying the fee to escape their current fixed rate. Where someone is sitting on a variable rate it becomes a less straight forward scenario, as they will benefit if and when base rate falls, so it needs to be very carefully considered and the pros and cons discussed with the borrower.