Despite the demise of Silicon Valley Bank, followed closely by the bailout of Credit Suisse by UBS, raising concerns that we face another banking crisis, other parts of the market are holding up well as central banks and governments responded quickly to minimise the fallout. With customers and investors losing confidence in both banks, this caused a liquidity problem which, if not dealt with quickly, could have potentially turned into another credit crunch.
While a hold in base rate at the Monetary Policy Committee’s March meeting seemed inevitable to try to shore up the banking sector at home, surprising inflation figures put paid to that. With consumer price inflation (CPI) rising to 10.4 per cent in February, after falling from 10.5 per cent in December to 10.1 per cent in January, it was inevitable that interest rates would have to follow suit to try to keep it in check. The MPC responded, increasing rates by 0.25 percentage points from 4 to 4.25 per cent, its 11th consecutive increase.
While another rate rise will be extremely unwelcome to those borrowers on variable-rate mortgages who have already put up with many rises in the past few months, it looks as though we are close to the end of consecutive rate rises. The markets are pricing in one more rise this summer, after which time rates could even start to fall, particularly as the MPC also noted in its minutes that while inflation had increased unexpectedly, it is still forecast to fall sharply over the rest of the year.
Swap rates, which impact the pricing of fixed-rate mortgages, have been falling in recent weeks, although they spiked on the inflation news before coming back down again. Fixed-rate mortgage pricing continues to fall on the back of this with several of the larger lenders reducing their five-year fixes for those with the biggest deposits last week, including Santander (to 3.99 per cent) and Halifax and Nationwide (to 3.94 per cent).
The question is: with base rate close to peaking, will fixed rates come down further and should borrowers opt for a variable-rate in the meantime? Those who need the certainty of a fixed rate to help with budgeting would probably feel happier opting for a fix although they may wish to consider a shorter term – of say two years – with a view to taking a longer fix after this time once rates have hopefully come down. Those who can afford to pay their mortgage if rates were to rise higher still may wish to consider a base-rate tracker with no early repayment charges as they can then drop onto a fixed rate when pricing becomes more palatable. If you wish to compromise, it may be possible to put some of your mortgage on a fix and some on a tracker.
With so much uncertainty, it is important to seek advice. AWS Private Finance is a whole-of-market broker who will look for the best mortgage for your circumstances, comparing all the products on the market. Please get in touch for more information.
Fixed Rates Vs Tracker Rates
Fixed Rate Mortgages vs Tracker Mortgages in the UK Mortgage Market
When it comes to choosing a mortgage in the UK, there are many different options to consider. One of the biggest decisions you will need to make is whether to opt for a fixed rate mortgage or a tracker mortgage. Both of these mortgage types have their own unique features and benefits, and it’s important to understand them in detail to make an informed decision. In this article, we will explore the differences between fixed rate mortgages and tracker mortgages, and help you decide which one is right for you.
Fixed Rate Mortgages
A fixed rate mortgage is a type of mortgage where the interest rate remains the same during the fixed rate period of the mortgage, regardless of changes in the Bank of England base rate or other market factors. This means that your monthly mortgage repayments will remain the same, making it easier to budget for your payments. Fixed rate mortgages are typically available for a term of two, three, five or ten years, although longer-term fixed rate mortgages are becoming increasingly popular.
One of the main advantages of a fixed rate mortgage is the stability it provides. As the interest rate remains the same, you can be sure that your mortgage repayments will not increase during the fixed rate period of the mortgage. This can be particularly beneficial if you are on a tight budget or have a fixed income. Another advantage of a fixed rate mortgage is that it can protect you against rising interest rates, which could cause your monthly mortgage payments to increase if you have a variable rate mortgage.
However, one of the main disadvantages of a fixed rate mortgage is that you may end up paying a higher interest rate than you would with a tracker mortgage if interest rates fall. This means that you could end up paying more for your mortgage than you need to if the Bank of England base rate drops significantly.
A tracker mortgage is a type of mortgage where the interest rate is linked to the Bank of England base rate or another benchmark interest rate. This means that your mortgage repayments will increase or decrease in line with changes to the base rate. Tracker mortgages are typically available for a term of two, three, five or ten years, although longer-term tracker mortgages are also available.
One of the main advantages of a tracker mortgage is that you may end up paying less interest than you would with a fixed rate mortgage if interest rates fall. This means that you could save money on your mortgage repayments if the Bank of England base rate drops significantly. Another advantage of a tracker mortgage is that you are not tied into a fixed rate, so you can switch to a different mortgage deal without incurring early repayment charges.
However, one of the main disadvantages of a tracker mortgage is that your mortgage repayments may increase if interest rates rise. This can make it harder to budget for your mortgage payments, particularly if you have a variable income. Additionally, tracker mortgages can be more complex than fixed rate mortgages, so it’s important to understand how they work and how they could affect your mortgage repayments.
Which Mortgage Type is Right for You?
Choosing between a fixed rate mortgage and a tracker mortgage depends on your individual circumstances and preferences. If you prefer stability and want to be sure that your mortgage repayments will remain the same for a set period, a fixed rate mortgage may be the best option for you. If you are willing to take on some risk and want to take advantage of potential interest rate decreases, a tracker mortgage may be the best option for you.
It’s important to compare mortgage deals from a range of lenders and to seek professional advice before making a decision. A mortgage broke like AWS Private Financer can help you find the best mortgage deal for your individual circumstances and preferences, and can help you navigate the complexities of different mortgage types while securing the lowest rate