Mortgages: Fixed-rate or trackers?
One simple decision could cost homeowners thousands of pounds over the coming year.
Over the coming months, a large number of UK homeowners are set to be faced with one of biggest financial decisions they will ever make.
While economic circumstances meant that, for the one million homeowners who took out a fixed-rate mortgage deal on their properties seemed the shrewdest move to make, as these deals come to an end amidst growing economic uncertainty, the way forward is less clear.
Currently, around 65 per cent of borrowers are favouring fixed-rate deals.
The biggest advantage of these, of course, is that there will be no nasty surprises over the length of the contract.
Given this, they are ideal for those new to the property market and wary of getting in over their heads, while tracker deals should only be taken out by those who are confident they will be able to withstand an increase in their monthly repayments, however unlikely such a prospect may be.
According to Nici Audhlam-Gardiner, therefore, new borrowers and remortgagers should "think twice" about plumping for a tracker.
"While tracker rates are looking a little more affordable than fixed rates from most lenders, the decision to take out a tracker should only be made if borrowers are confident that they could withstand a further increase in rates, which is not out of the question over the next two years," she said.
Given that the Bank of England has so far been reluctant to buckle to popular pressure and slash interest rates in the manner of its US counterpart, perhaps the best advice is to 'wait and see', meaning there could be an upswing in fixed-rate mortgage applications later on in the year.
In comparison to the fixed-rate hare which is set to take a breather over the next few months, the tracker tortoise currently has all the momentum and has entered 2008 at full speed as homeowners heed the advice of many experts and throw caution to the wind.
Indeed, new figures from Spicerhaart Financial Services (SFS) show that the popularity of such products increased by 350 per cent over the last year alone.
The vast majority of both borrowers and financial advisors believe that the Bank of England will cut interest rates by at least a quarter of a per cent in the first half of 2008, thereby potentially saving those on tracker deals hundreds of pounds.
"Our advice to borrowers remains very much the same: tracker mortgages are by far the most attractive proposition in 2008," said Andrew Montlake, partner at brokers Cobalt Capital.
"The precarious state of the housing market, coupled with ongoing fall-out from the credit crunch, means rates are still likely to come down two or three times during 2008," he advised.
However, despite the potential savings out there, recent research by mform found that up to 40 per cent of mortgage borrowers have never switched lenders, making such a debate largely academic.
