Should we take a 5 Year Fixed now or stay on SVR at 2.5% ?

Posted on 8 September 2013 by Carrie


We are on a 2% above base mortgage with Nationwide after coming off a fixed deal a while ago. We were lucky and secured our deal before they removed this 2% above BR promise. I have been made aware that 5 yr fixed rates are now similar, but due to rise. Do I swap to a fixed rate and keep my payments as they are or risk the rates going up in a couple if years? I have worked out that even with fees it will be cheaper but what happens at the end of the fix? Would it be better to stay on my current deal as the fixed deals in 5 yrs time may be more than 2% above BR?

Carrie,

This is a common quandry and the answer really depends on your circumstances. You are paying 2.5% on a tracker mortgage at the moment and Tesco Bank has just announced a 2.49% fixed for 5 years with a fee of £1,495, free legals and free valuation. On this account, it will take you 5 years to break even on a mortgage of £250,0000 if the interest rates do not change. This will be sooner on larger loans and you may be worst off if you have a smaller mortgage.
Generally the pro’s and con’s of switching are:
- Pro’s: fixing for 5 years on a ultra low fixed rate and mortgage payments will be the same or very close to your current payments.
- Con’s:
o You will lose the lifetime tracker that you are currently on
o After 5 years it is likely that you will switch again as the variable rates are generally above 4% at present (Tesco’s is 4.24%)
o However, you will potentially have to refinance at some point even if you decide to stay on your current rate
o If you have Interest Only mortgage with Nationwide,  you will have to switch to a Repayment
o You will lose the flexibility connected with the tracker – unlimited overpayments, no redemption charges, which for many borrowers is a very useful facility, as they seek to reduce the mortgage balance through monthly and lump sum overpayments.

The expectations are that the BBR will not increase in the next 3 years, however, this is subject to economic targets and there is a pressure to start increasing the rate earlier, and fixed rates will move upwards before the bank rate does.

The decision is – security against flexibility and only you can decide which one is the most important to you.

Regards,

Simon

simon.collins@johncharcol.co.uk

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