Talk Money: Mortgages – fixed or variable rates?

Claire Cook from independent mortgage and financial advisers Talk Money, gives essential advice .

Mortgages – fixed or variable rates?

This is one of the first questions many people ask, should they take a variable or fixed rate mortgage? This is a major consideration when assessing which rate will be best for you. An independent financial adviser will know the market and will be able to advise based on your own situation. Firstly, here is an explanation of the main types of rates.

Fixed rates: When you fix your mortgage rate, your monthly repayments stay the same for a set period of time, the underlying Bank base rate has no impact on your monthly payments. Fixed rates come in varying terms, typically 1-5 years but there are longer terms available.

Variable rates: Variable rate mortgages come in different guises. A ‘discount’ rate will be at a set percentage below the lender’s standard variable rate for a set period of time. (All lenders have their own individual standard variable rates, some higher than others). The lenders change their own variable rates as the Bank of England moves the rates, however, they can delay changing their rates, or can even choose not to pass rate changes on at all.

A more recent version is the ‘Tracker’. This is often seen as a fairer way of taking a variable rate mortgage, it is set at a differential to the actual Bank of England base rate. The rate will change directly in line as the Bank base rate, meaning that the lender cannot manipulate the rates, but will pass on any changes immediately to the borrower.

…most of the lenders have much lower variable rates than fixed rates,so this may tempt you to take a variable rate.

How do I decide?

One of the first considerations is to see exactly what fixed and variable rates are on offer at the time you take your mortgage. Currently most of the lenders have much lower variable rates than fixed rates, so this may tempt you to take a variable rate. You should then consider whether the Bank of England base rate is likely to rise or lower significantly over the next few years. Currently with Bank base rate being at 0.5%, the lowest it has ever been, it will almost certainly rise. Again, your adviser can discuss this with you.

Possible rate movements should not be your only consideration – your personal situation and attitude to risk are a very important factor. Many people like to know exactly how much they will be paying for a set period of time. This can give peace of mind and will stop you worrying when the Bank of England meet each month! If you are stretched financially or if you are taking on a much larger loan a fixed rate can be just what you need.

Whatever your circumstances, a good independent adviser will be able to explain all of the options, and will make sure that whatever rate you take, it is exactly the right one for you.

If you would like advice on the issues I have raised, or any other mortgage or financial issue, for a free initial consultation please call me, Claire Cook on 01273 224667.

Buy to let mortgages are not regulated by the Finanicial Services Authority. Talk Money is a trading style of Best Practice IFA Group Ltd, which is Authorised and Regulated by the Financial Services Authority. If you prefer to pay a fee for advice this option is available, the exact amount of the fee will depend on circumstances but we estimate it will be 0.5% of the loan amount. Where a rate is quoted the rate will depend on individual circumstances and not all borrowers will qualify for acceptance of the loan (or similar).Your home may be repossessed if you do not keep up repayments on your mortgage.