Fixed rate mortgage dilemma

Tough call Nigel.

If you would have asked me before the Northern Rock affair, I would have said mortgage rates would go up in the short term followed by a reduction after that.

Right now I don't know as there are calls to reduce mortgage rates now to reduce the preasure on mortgage bad debts but this could lead to higher rates in the future.

I like the thought of the fixed and knowing where you stand for the next five years. Is the fixed rate at 5.63% within your budget?

Regards

PB

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Is the fixed rate at 5.63% within your budget?

Yes, absolutely. I guess the real issue is signing up now and finding sub 5% fixes by the middle of next year. But with all the banking issues fixing again now has many upsides.

The tracker would give a current pay rate of 6.09%, and two 0.25% base rate reductions would reduce it to 5.59%; below the fix.

I realise it's all about the balance between risk and certainty, but I'm sure confused!

Nigel

Hi Nigel,

knowing you like certainty have you considered a two year fixed mortgage, a bit of a half way house?

Regards

PB

A good idea, but Nationwide's 2 year fix is well over 6%, or 5.88% for a £999 fee.

I really need the MPC to answer this one!!

Nigel

Yes that is too much.

As the 5 year one is within your budget, I would seriously suggest fixing it for five years. Then at least you know where you stand for the next five years. Ok it might come down in that 5 year period but it will never go up.

However make sure you get plenty of advice and take the time to make the right descission for you and your family,

Regards

PB

The trouble is that in the current climate nobody knows what is going on, and I suspect you are right that fixing is wise - at least it cannot rise. Even the advisers we use for our money market investments at work aren't giving any predictions beyond 12 months or so.

We only have about six years to run on the mortgage, so hopefully this is the last time we'll have to decide what to do.

Nigel

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The trouble is that in the current climate nobody knows what is going on

Yes but if you fix your mortgage for five years you will know exactly whats going on for the next five years and then you only have a year to worry about after that.

Regards

PB

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Which way would you go?

Nigel

In the direction of an IFA, of course Nigel.

M

I just switched to an Offset mortgage with the RBS. No tie in period and low initial charges. Possibly an option for short term?

Nigel

In making your decision do not try to second guess the way mortgage rates will go in the short/medium term, its an impossible call. In any event it's not the real point. You should consider whether the repayments on the new fixed rate are affordable against current and future income - if they are then fix and forget. Specifically don't agonise over the decision if rates do go down - see it as insurance.

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In the direction of an IFA, of course Nigel

I used to agree with this advice until recently. I took advice from one (as I always do), then did my own research on the net and got a far better deal. When I asked why you didn't offer this option, she said it was because that particular offer was only open direct to customers and wasn't available through IFA's.

I suppose if I was doing it today, I would go for a discounted tracker, probably for a short term such as 2 years.

In my personal opinion, it's a fair bet that rates will start falling in 2008, but not a certainty. It's also a fair bet that they're unlikely to fall very much, very quickly, but that's not a certainty either.

Historically there have been occasions (E.G. Japan and US) where interest rates have been slashed to prop up otherwise ailing economies.

If you want the most cautious route, knowing what you're paying and that the amount is affordable, you may go for the fixed rate (personally I feel it's an OK rate, ignoring arrangement fees). If you want to be a little more risky and feel rates will fall far enough and quickly enough to make your financially better off, you may take the variable rate tracker.

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I used to agree with this advice until recently. I took advice from one (as I always do), then did my own research on the net and got a far better deal.

Hardly surprising if you're not paying for advice by going direct is it? Bit like going to a hifi dealer, demoing their equipment, listening to their advice and agreeing a way forward and then buggering off to buy it on ebay 'cos it's cheaper...

That would only apply if you were daft enough to ask an IFA who was commission based. Anyone with any sense would pay an hourly rate for advice that was totally independent of the adviser's financial interest. Indeed I don't understand how commisssion based or product tied financial advisers can be possibly called independent.

how about a bit of both? if both deals are with the same company see if they will split it? 70% fixed 30% tracker. Different companies will argue as to who has first dibs if you default. hard to see how one provider can use this complaint. neil

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Indeed I don't understand how commisssion based or product tied financial advisers can be possibly called independent.

That's cos they're not...

By definition a tied adviser is not an independent adviser (or IFA), they are a tied adviser, tied to one company or able to provide a limited range of a few products/funds from a few companies (multi-tie). Far and away the majority of investors take tied advice and have absolutely no idea as to the extent of how the advice they are receiving is restricted because they've not seen the alternates e.g your Scottish Widows rep. at LLoyds TSB can only talk to you about Scot Wid products and even then, only a VERY limited range of products determined as suitable by Lloyds TSB. I'll tell you now, you have absolutely no idea in practical terms of the difference between seeing someone with very restricted options (if any options at all, some banks use a system based approach and although they'll deny it, the software selects your fund for them) and an IFA.

An IFA will offer you a choice between commission, fee or a combination of the two. Although it's pretty insulting to imply an IFA who is paid by commission will not give you independent advice. Do you assume any of your friendly Naim dealers regularly discussed on this forum automatically supplies you with the product that has the biggest mark up?

Most people still choose not to pay a fee. Administrative and compliance requirements mean you will have to pay for say 3 to 4 hours work for an IFA to suggest a home for your £7,000 ISA. Good value? Probably not. However 20 hours work to invest half a mil? Probably worth agreeing a fee and getting the commission rebated.

If the whole industry went fee based only, then most people would not be able to get/afford independent advice and the IFA industry would die and you'd be left with tied reps only, who will not offer the fee route or like a chap a colleague spoke to a couple of days ago from another firm, the IFA firm imposes a minimum investment (in his case £1M!!!)

how much do ifa's charge ?

Personally I would not fix as rates will come down (US economy, house prices will probably plateau in the SE, no imminent wars, etc, etc) Also with energy prices so high ($90/bbl oil)indicating general macro economic twitchiness I think the economy will keel over with sustained high interest rates so they will trend downwards I would guess.

It really depends on how much of your income is currently consumed by your mortgage and how much of an increase you could stomach.

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Our current five year fix at 4.99% is coming to an end.

What is the SVR after the end of your current deal?

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Nationwide's best fix is currently 5.63% for five years with no fees. Alternatively it's a tracker at 0.34% over base.

The fix is lower than the current base rate, which tells you a lot about where the market thinks interest rates are heading in the next few years. With interest rates likely to fall in the US and the prospects of a recession, interest rates in the UK are also likely to fall, especially if the housing market starts to look vulnerable. My advice? If you could afford to pay double your current mortgage without it being too painful take the risk on a floating rate. Otherwise take the fix and sleep soundly at night.
John

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how much do ifa's charge ?

Depends what you want.

Usually a fixed hourly rate is offered for 'standard' advice e.g a reasonably straightforward investment portfolio and this varies from firm to firm and region to region, even adviser to adviser in some firms. If however, more specialist advice is required e.g. IHT/trust planning there may be a separate scale due to the increased level of knowledge, experience and regulatory authorization necessary. They may also agree a flat total fee with you beforehand if you prefer. Remember that the fee is usually payable for the consultancy work, whether you take the advice or not.

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Originally posted by JamieWednesday:

quote:

how much do ifa's charge ?

Depends what you want.

Usually a fixed hourly rate is offered for 'standard' advice e.g a reasonably straightforward investment portfolio and this varies from firm to firm and region to region, even adviser to adviser in some firms. If however, more specialist advice is required e.g. IHT/trust planning there may be a separate scale due to the increased level of knowledge, experience and regulatory authorization necessary. They may also agree a flat total fee with you beforehand if you prefer. Remember that the fee is usually payable for the consultancy work, whether you take the advice or not.

i need my pension looking at as the halifax are refusing point blank to discuss it

Probably 'cos they're tied advisers (Insight) and cannot discuss other firms products (assuming you didn't take it through Halifax/Insight in the first place - you may have a Halifax Life pension or even Standard Life from the days of that relationship but they probably wont be able to discuss it now while representing Insight - who they own, as they do Clerical Medical but they can't advise on them either...). Many IFAs won't charge for a first meeting. During that the adviser and yourself can determine if anything else should be done. Charges/commission would only be earned if work needed doing (NB, many people, but not all, may choose commission route for pensions as fees can work out more expensive in many pension cases...)

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Originally posted by John Channing:
If you could afford to pay double your current mortgage without it being too painful take the risk on a floating rate. Otherwise take the fix and sleep soundly at night.
John

I would support this - whilst it would appear that interest rates should trend down, they may not. No fixed rate is offered without the belief that upside is attached but this year has shown how badly the banks (and insurers) can get it wrong. Not sure how heavily geared Nationwide are currently, but they probably are not financing loans through significant debt.

It's so much easier for corporates, you buy an appropriate hedge to put a floor on your loss if you get the "bet" wrong.

Chaps

I know several people in the building society business at a fairly senior level. Swindon is the HQ for the Nationwide.

The best mortgage for anyone is a tracker. They are always the cheapest over a long term period, can usually be terminated without a penalty and have no start up fees.

Regards

Mick .. just given the best advice from inside the trade.

Thanks everyone for your advice on this. Nationwide also offer the option of taking a tracker at no fee and switching to a fix later without penalty - you just pay any fee associated with the fix, which may be ultimately the best solution once rates settle down.

Nigel