Weighing up the pros and cons

Professional advice is essential when choosing your mortgage

If you are considering remortgaging, or you’re a first-time buyer, it is essential that you obtain professional advice to enable you to weigh up properly the pros and cons between opting for a standard variable rate, fixed loan or tracker deal. Especially as interest rates could continue to remain low or even fall below their current levels.
If you currently find yourself in this position, then rates of about 4 per cent should be considered for first-time buyers and borrowers wishing to remortgage. The lowest rates are also still reserved for those with a large deposit or significant equity in their home.

The cost of fixed-rate mortgages have dropped only slightly since last December’s 1 per cent point cut to the base rate and this January’s 50 basis point reduction. This is despite swap rates, the rates at which banks lend to each other, falling to record lows.

As the base rate is likely to stay low for the remainder of this year and there is still scope for rates to fall further, tracker borrowers would remain the greater beneficiaries of lower rates. This means that trackers with no collar, the minimum rate that some lenders apply on trackers, are likely to be more attractive to many borrowers in this current economic climate.

A borrower with a deal linked to a standard variable rate (SVR) continues to be at the mercy of their lender as to whether they benefit from base rate cuts. Those lenders that have announced they would cut their SVR by the full half-point are typically offering rates between 3.5 per cent and 4.5 per cent. Many SVR rates, which borrowers revert to after a fixed or discounted-rate deal ends, could now be lower than the best tracker rates.

This could be welcome news for remortgage borrowers who have lower levels of equity in their properties. Borrowers with less than 10 per cent equity are likely to have their choice restricted in terms of new mortgage deals, other than going on to their lender's SVR.

Although SVRs have been falling in recent months, fixed-rate deals are still taking longer to show signs that they are another alternative option.