Now may be the time to take a gamble and save on your monthly mortgage repayments with these great variable deals.
It’s no secret that there are plenty of fans of fixed rate mortgages here at lovemoney.com, but even the most ardent fixed rate supporter has to admit variable rate deals are incredibly attractive as the base rate remains at a record low, and shows no sign of moving.
It may sound like a bit of a gamble, but the stakes seem to be in your favour at the moment - opting for a variable rate deal instead of a fixed could save you thousands for the next few years.
What is a variable rate mortgage?
Variable rate mortgages are linked to the Bank of England Base Rate. So the amount you repay is not set in stone and depends on what rate the Monetary Policy Committee decides each month.
This means that so long as base rate stays low, you benefit from lower monthly repayments. However, as base rate moves up, so will your repayments.
It goes without saying that a variable rate mortgage does not offer the same peace of mind that a fixed rate mortgage brings.
Yet a variable rate mortgage offers borrowers a bit more flexibility than fixed offers. You can enjoy a low rate on your mortgage, and then switch to the safety of a fixed rate later on, perhaps without even having to shell out on an early repayment charge.
Why now?
Borrowers who took out a variable mortgage in March 2009, when the base rate was set at a historic low of 0.5%, have been enjoying rock bottom monthly repayments with the ability to overpay and build equity. So why not cash in as well before rates rise again?
Experts are divided about when the base rate will rise but the consensus is that it won’t be anytime soon meaning a variable rate deal could help you save thousands for a few more years.
Have a look at the rates set each month over the last 37 years and make your own predictions. Interest rates peaked in 1989 at 15% but the highest they have been in the last 10 years is 6%, back in 2000. Trends show that any changes, when they come, will likely be between 0.25% and 1.5%.
Lifetime tracker mortgages
[SPOTLIGHT]A lifetime tracker might sound like a prison sentence, but it is actually quite a flexible way of borrowing. This option tracks the bank base rate for the entire life of your mortgage, plus a fixed percentage decided by the lender.
Considering the base rate is reviewed every month, you could spend a lot of your time on the edge. However, it is unlikely that any change will be steep so you will start to realise when the base rate is creeping up and can take action.
Many of us crave transparency when applying for a mortgage so a lifetime tracker could be just what we are looking for. Here are a few of the best lifetime trackers we could find around at the moment:
The Cooperative Bank is offering a lifetime tracker mortgage to existing customers at a fantastic rate of 2.59% (BBR + 2.09%) with no arrangement fee. On a £150,000 mortgage on a 25-year term, that means your monthly repayment would be just £679.74. However, to take advantage of this great offer you will need a massive 40% deposit and are liable to an early repayment charges in the first three years plus a possible exit fee of £140. So if the base rate starts to creep up you may not be able to switch easily until this period ends.
If you are looking to put down a slightly smaller deposit of 25% and are a First Direct customer, you could apply for a rate of 2.99% (BBR + 2.49%) with a £499 arrangement fee and no early repayment charge. Using the same example as above, that would give you repayments of around £710.54. And if the base rate starts to nudge up you can arrange to get onto a better deal without the hefty fines.
For anyone with a 20% deposit saved up, HSBC is offering a rate of 3.29% (BBR + 2.79%), with an arrangement fee of £599. For existing HSBC Advance customers the fee is reduced to £399. With our example this rate means your repayment each month will be £734.15, but again with no fee to leave early you are able to get out quickly if rates rise unexpectedly.
For any first-time buyers with a deposit of 10%, Britannia is offering a rate of 4.59% (BBR + 4.09%) with no arrangement fee. Sadly early repayment charges do apply. The monthly repayment equates to £841.43, which compared to the other deals looks fairly pricey. However, a comparable three-year fixed rate for a first-time buyer with a 90% LTV would be 4.69%, so this lifetime tracker is quite competitive (at least initially).
Tracker mortgages
Tracker mortgages are only linked to the base rate for a specific period, say two or three years. This means they offer better rates initially than you will get from a lifetime deal. However, once that period is over your mortgage is moved onto the lender’s standard variable rate, a rate which is not only a fair bit higher than base rate but which can also be increased at any time, irrespective of what is happening with bank base rate..
Take a look at a few of the best tracker mortgage deals we have seen this week:
Chelsea Building Society is offering a rate of 2.39% (BBR + 1.89%) for a two-year tracker based on a deposit of 30%, but for this great rate it wants an astronomical £1,495 arrangement fee. For a slightly higher introductory rate of 2.59% you can halve that cost to £795. The rate on both deals reverts to the lender’s SVR which at the moment is 5.79% and early repayment fees apply.
ING Direct has a two-year deal offering a rate of 3.39% (BBR + 2.89%) with a 20% deposit. However there is a hefty fee of £1,090 for the application.
Norwich and Peterborough Building Society has a deal for those with a 25% deposit of 2.49% (BBR + 1.99%) for two years, reverting to 4.99% thereafter, all for an arrangement fee of £795. Early repayment charges apply.
Yorkshire Building Society is offering those with a small deposit of 10% a tracker mortgage of 4.19% (BBR + 3.69%) for a fee of £495. The rate will revert to its SVR after three years which is currently 4.99%. Early repayments charges apply to this deal as well.
Tracker mortgages are still very cheap: don’t be scared into fixing your mortgage rate
Fixed mortgage deals vs variable mortgage deals
Five reasons why you need to remortgage today
The virtues of variable mortgage deals
How are mortgage rates decided?
The top 10 fixed rate mortgages
Use lovemoney.com's innovative new mortgage tool now to find the best mortgage for you online
At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage