There are three options available when selecting a mortgage product in the UK:
But what is the difference, and what does this mean?
The first is Fixed Mortgages – and by “Fixed”, this means the rates are fixed and the price you pay won’t increase (or decrease) over the life of the fixed mortgage. You will know exactly what the mortgage will cost. The fixed-rate is usually part of an incentive deal and can last from anywhere between 2 – 10 years. Once the fixed incentive period ends, you will return to a variable rate mortgage. The benefits of a Fixed Mortgage product are you can budget properly as you will know how much your mortgage repayments will cost each month. It is worth considering that there are usually no early exits from these products, without often expensive early exit charges.
Tracker Mortgages follow, or track, the Bank of England base interest rate, meaning your loan repayments can either rise or fall over the life of your mortgage. Whilst they follow the rise and fall of interest rates, they do not have the exact same base rate – the interest rate just moves with it. Where interest rates fall, you can start to pay back less interest on your mortgage. However, it’s uncertain whether rates will fall or rise, so you may end up in a period where your interest rates are high. If the interest rates increase, then your monthly repayment will also increase so there is an element of risk to these products and affordability needs to be considered. Like fixed mortgages, there is usually a fee for early withdrawal from the tracker mortgage product, and usually, the incentive period on tracker mortgages lasts about 2 years, however, some tracker rates last for the full lifetime of the mortgage.
- Standard Variable Rates (SVRs)
Finally, we have standard variable rate mortgages (SVRs). This is the basic product offered by mortgage providers, and as it is not tied to any specific ‘deal they can change the interest rates whenever they want. However, the changes to the product are usually when the Bank of England’s interest rates move. After the end of a tracker or fixed rate incentive period, this is what most borrowers’ deals will revert to. There is no early repayment charge on these kinds of mortgages as it is not tied to a product deal of a certain term.
These mortgages are often some of the most expensive, and like tracker mortgages, if interest rates rise, you’ll be paying back more on your mortgage, but if a product free of penalties is what you require, if you do your research there are competitive deals available.
Finding the type of mortgage that is right for you is usually about finding the best deal that suits your circumstances. Each mortgage varies from lender to lender, and whilst the types of mortgages are the same, interest rates are dependent on the lender.
Luckily for you, we have access to a comprehensive range of mortgages from across the market and can provide you with tailored advice to ensure you have the best product to fit your needs. Please get in touch so we can review your borrowing – and help you find the most appropriate product.