To fix or not to fix? That’s the question first time buyers and homeowners remortgaging are asking themselves. And it’s no wonder why.
As we highlighted last month, global events—like the war in Iran—can have a direct impact on the economy. So much so, according to The Guardian, around 1,500 mortgage products have been shelved because of the conflict and the Bank of England has predicted that the war in the Middle East could end up increasing monthly mortgage payments for more than one million UK households.
“Talk of rising rates often leaves people wondering which way to turn,” mortgage adviser Jo Jingree says. “Generally speaking, fixed-rate deals tend to dominate the headlines,” Jo adds. “But if you’re looking to retain some flexibility—whether that’s because you’re hoping to move, remortgage or buy within the next six months— there are other types of mortgage types out there.”
So, what other types of mortgages are there?
Common mortgage alternatives to fixed-rate deals include tracker mortgages, standard variable rate (SVR) deals and discount mortgages.
Alternative mortgage types: Tracker mortgage
A tracker mortgage is a type of variable rate mortgage. Tracker mortgages follow the Bank of England base rate during a set period plus a percentage set by the lender. This means your monthly mortgage repayments can go up or down. Just know: some lenders have a ‘collar rate’ on their tracker mortgages. This means that your rate can’t go below a certain minimal level.
“Without getting too technical, there are two main types of tracker mortgages,” Jo says. “Some have early repayment charges (ERC) and some don’t.”
So, hypothetically speaking (and where eligible), tracker mortgages without ERCs could appeal to those planning to move, anyone wanting to overpay by more than 10% annually without penalties, or someone hoping to fix later down the line if and when the market stabilises.
Alternative mortgage types: Standard variable rate (SVR)
If you’ve already got a fixed-interest rate mortgage, SVRs are the default rate your lender puts you on if you don’t remortgage before your deal expires.
The SVR is different with each lender. But generally speaking, SVR mortgages have a higher interest rate than any other type of mortgage.
According to this article, as of April 8th, average standard variable rates stand at 7.49% while average 2 year fixed-rate mortgages stand at 5.59%. This means SVR mortgages are 1.9% higher than the average 2 year fixed-rate mortgage.
However, in uncertain times, SVR mortgages can provide greater flexibility—allowing you to move quickly, switch to a new product early if market conditions improve, or make overpayments without incurring an ERC.
Alternative mortgage types: Discount mortgages
Also referred to as a ‘discounted-rate mortgage’ or a ‘discounted-variable mortgage’, this is where the interest rate you pay is set at a certain amount less than your lender’s standard variable rate (SVR) for a set period.
Therefore, just like a tracker mortgage, discount mortgages can fluctuate depending on your lender’s SVR. So the amount you pay each month can go up and down.
But discount mortgages can offer the possibility of paying lower interest rates if your provider’s standard variable rate is lowered because of changes to the Bank of England’s base rate.
To fix or not to fix? That’s the question
“Unfortunately there is no crystal ball,” Jo says. “So it’s impossible to say with certainty what will happen to mortgage rates over the next couple of days, weeks and months to come.”
But what we do know is that talking to a professional mortgage adviser, like Jo, is a good place to start.
Along with offering a supportive hand and helping you explore all your options, Jo can meet with you to review your situation, sense check mortgage affordability and discuss your attitude to risk.
“This helps me advise on which deal/s would be suitable for you and your circumstances,” Jo adds.
Multi-award winning adviser Jo deals with first time buyers, remortgages, buy-to-lets, people who are self employed, those moving home and clients who are credit impaired.
So if you’re keen to explore your mortgage options, Jo offers a free 30-minute no-obligation phone call. Get in touch via WhatsApp or email.
There may be a fee for mortgage advice. The precise amount will depend upon your circumstances, but we estimate it will be £399.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Please be aware that by clicking on to some of the above links you are leaving the Mortgage Confidence Ltd website. Please note that Mortgage Confidence Ltd nor HL Partnership Limited are responsible for the accuracy of the information contained within the linked site(s) accessible from this page.
