The Best Mortgage to Have

by Mark Johnston

With the Bank of England maintaining low interest rates recently, the lowest interest rate for the last two years, and the support of the market place with Loan to Value mortgages back to between the 10 – 20 per cent value, it is apparent that there is a opportunity to motivate and provide incentives first time buyers to get into the housing market with earnest. Further developments at a local council level have been released in a recent publication which aim to help out even further.

The Local Lend a Hand program, aimed at helping first time buyers bridge the gap on their initial deposits, has been taken up by five local authorities, including Warrington, Blackpool, Newcastle under Lyme, Northumberland and East Lothian with a further ten waiting in the wings. Essentially this means that successful applicants would only have to stump up an initial 5 per cent Loan to Value.

Fixed rate mortgages offer a predictable monthly repayment option against the variable tracker rates offered which track the Bank of England base rate of 0.5 per cent. With a fixed rate mortgage, a higher initial borrowing cost, is seen as the more sensible and more traditional option.

Traditionally the tracker or variable mortgage rates track the Bank of England base rate. The Monetary Policy Committee meets every so often and decides whether the economic movement and recovery warrants an increase or a decrease in the base rate. The lenders will invariably add a few per cent on top. With the Bank of England base rate sitting at 0.5 per cent, a record low and a continued low since 2008 (over 24 months), lenders may chose to add an additional 2.5 per cent and charge borrowers 3.0 per cent as a rate.

However, a survey recently highlighted the fact that specialist mortgage suppliers are applying higher rates to borrowers on tracker mortgages and that these rates are more than likely to go up over the next few months.

If you, like so many industry experts, believe that the high inflation, weak pound versus dollar, weaker economic performance against prediction and flux in the market will lead to a higher Bank of England base rate, then a tracker mortgage is probably not for you.

The appeal of the fixed rate mortgages are apparent. They allow the buyer to spread out the cost of the loan over a long period of time and the amounts are set and predictable. This protects the borrower from changes in the market and in interest rates. They also are simple loans in terms of complicated payment schemes and changing interest rates as well as the terms and condition applied and is a very popular option.

Generally with these loan types, the borrower can make additional payments to shorten the term of the loan and sometimes they also allow lump sumps to be credited to the loan without penalties.

Borrowers will need to assess their current situation and weight this against predicting what their needs will be during the life of the loan. Once this is done, picking a mortgage become a straight forward option.



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