money-167735_1920

With the Bank of England base rate at its lowest ever level, we revisit the longstanding debate of whether to buy a fixed or variable rate mortgage. Whilst one option offers security, the other offers potential savings, and the question is which would be right for you?

 

Deciding on the best mortgage option is not an easy task, particularly as there are some very competitive rates available at the moment. Timing may be crucial, as the rise in inflation which is being widely predicted, is likely to be accompanied by rising interest rates, and we expect to see longer term fixed rates getting more expensive in the coming weeks.

Davenport Financial Management, our recommended Mortgage Advisers, are able to offer a competitive selection from across the market, and it is well worth looking at your options before committing to a deal with your Bank or Building Society. Davenport provide advice on the best option for you, whether that is a fixed or tracker/variable scheme.pigg-bank-2

In general, a fixed rate mortgage offers more short term security and provides the peace of mind which comes from knowing exactly what your monthly outgoings will be. Fixed rate deals are available over varying periods of time, giving you the ability to manage your outgoings around the term of other commitments such as loans or childcare costs.

Variable or Tracker rate mortgages tend to follow movements of the Bank of England base rate, so right now they are at historic lows. Initially, the monthly cost of a variable rate is often lower than a fixed one, but the question is, for how long?  Logically interest rates have to increase from their current level at some point, and the sooner this happens, the sooner the cost of a variable rate deal will exceed that of the current fixed offers.

In either event,  we would advise you to consider the potential impact of future interest rate rises as they will affect your monthly payments, whether this is as soon as rates move, or at the end of whatever fixed rate period you choose. We have broken down the pros and cons of each scenario for you to help you make a more informed decision.

 

Fixed
Variable
Pros
Cons
Pros
Cons

Surety of knowing exactly what your mortgage will cost.

Starting rates can sometimes be higher in comparison to variable packages.

If interest rates are cut, your rate will likely drop too.

Uncertainty of knowing what your payments will exactly be.

Consistency of payments.

If interest rates were to fall, you will not benefit financially.

There is usually no early repayment charge meaning the mortgage can be paid back in full at any point without penalty. There is no guarantee you’ll get the full benefit of all rate changes

Reassurance of  knowing the rates will not be increasing unexpectedly.

     

As you will know exactly what your outgoings are, you can easily budget around it

     

Our representative Andrew Fagg adds, “It is ultimately up to you to decide on what the best option is for you, and this decision will primarily be dependent on your own financial situation. In general though, I think that the current fixed rate deals look very competitive and I can see the possibility of rates increasing in the months ahead as we negotiate the economic changes thrown up by Brexit and the new administration in America. Having said that, if the economy slows and inflation does not materialise, we could see the current low base rate continue for some time.”

 

It is worth reviewing our Rates of the Week , to ensure you are aware of what may be available. For more detailed analysis of your financial situation and expert mortgage advice why not give our representative Andrew Fagg a call on 07720 353866; or email: andrew@davenportfinancial.co.uk.