Video: Which Type Of Mortgage Is Best For You?

 

In this week’s video, Ben Brain sat down with in-house mortgage adviser, Joe Thompson, to talk about what type of mortgage rate is best for you and what you should be looking to do if your fixed term rate is soon coming to an end. The transcript can be found below…

Ben: Hi, it’s Ben from Hannells and I’m back again with Joe, one of our expert in-house mortgage advisers and today we thought we’d talk a little bit about some of the coverage that mortgages have been getting in the Press recently. What’s right, what’s wrong and what should you be doing particularly if you’re coming to the end of one of your current mortgage terms.

So Joe, I think it’s best – because it can get quite confusing with all the different types of mortgages out there – could you give us a bit of a synopsis about the difference between your standard variable rate (SVR), your tracker rate, and your fixed rate. What are the main differences between the three main types of mortgages that are available?

Joe: Yeah absolutely. So standard variable rate is a rate that a mortgage lender will set all their other rates from so they’ll go okay this is our blanket rate. It’s just the the rate, it’s a variable rate as it’s called and they can change it at any point so it can be up it can be down and it’s what they base all their other rates off. Like I said.

It is bog standard and it does change every month. A fixed rate is fixed for a specific period of time. Usually two, three, five years. Sometimes ten years with some mortgage lenders and that means your interest rate doesn’t change so your monthly payment doesn’t change for that period of time.

Ben: Yeah good for you if the rates go up not so good if the rates stay down because you’re on that fixed rate which stays the same regardless.

Joe: That’s right yeah that’s it. And then you’ve got the tracker rate which actually tracks the Bank of England base rate and it’s like remember at school running parallel you remember parallel lines that’s exactly what it does. It runs parallel so it’s usually like a percent or two percent above what the Bank of England base rate is and it mirrors it so it does track it. So one minute it could be up the next minute could be down.

Obviously, as we know it’s up and keeps going up at the moment so tracker rate, it’s not for everyone.

Ben: So, one of the things I’ve heard in the media recently which got some pushback from the financial industry was a statement that said all of these types of mortgages are linked to the Bank of England base rate, which we know has recently gone up. And there was push back saying well no that’s not exactly true.

But from my understanding if the Bank of England base rate goes up that IS going to have an impact on all of those types of mortgage not just the tracker that tracks the base rate but the fixed rate and the standard variable rate mortgage. What’s your thoughts on that?

Joe: So, the Bank of England base rate it does influence interest rates. So new fixed rates coming to the market, it does influence them because they will increase their rates accordingly. The same with the standard variable. It’s not LINKED though so the only one that is linked is the tracker rate which does track it.

But mortgage lenders, you know, if the interest rate from the Bank of England does go up, traditionally they will look to increase their prices accordingly and similarly when it decreases they will decrease in accordance with the Bank of England base rate going down.

Like we saw post Covid you know, the bank rate was right down at the bottom wasn’t it and loads of fixed rates were like one percent which was great for those people who are getting interest rates for that time.

Ben: OK, so I understand from that the tracker is DIRECTLY linked to the Bank of England base rate the other two are INFLUENCED which I think was a good way of describing it. Now let’s say that I’m coming to the end of my own fixed term and I’m thinking… Well first of all how do I know?

Will the lender tell me I’m coming to the end of my fixed term? Will my adviser that I work with to sign up for the mortgage tell me? Or is the onus on me to find out when my own fixed term is so I can make a conscious decision with regards to what type of mortgage I’m taking out next?

Joe: So, if you took it out through a mortgage adviser what they’ll usually do six months before you’re due to remortgage or at the end of your fixed rate they’ll get in contact, if they’re any good they’ll get in contact, and go “oh by the way Ben, you know you’re due to remortgage.” It’s always worth pulling out your documents and going “right when am I due to remortgage?” just so you know in your own mind.

Ben: Yeah, especially with the last two or five years they’ve gone past pretty quickly, a lot of people might be surprised as to how soon their term is actually coming up.

Joe: Yeah that’s exactly right yeah it sneaks up on you. A lot of mortgage lenders now do have like a login so you can go online and log in and find out from there.

So it’s always worth finding that out, but yeah usually your mortgage adviser will get in contact with you and start the process for a remortgage.

Ben: OK, so I’ve had a call from my adviser Joe because he’s on the ball.

He’s told me that my fixed term is coming to an end. We’ve talked about the different types of mortgages that are available. Given the current climate and what we’re hearing about mortgages and interest rates in the press – is there one in particular that you’re recommending to clients at the moment?

Joe: Yeah so your mortgage adviser sounds a great guy to be honest, he’s on the ball which is really good.

Yeah, look there’s no blanket advice – which is really important to stress to people – you know your shirts are probably a large, it’s not going to fit me.

So it’s not one shoe fits all or one shirt fits all. It’s all individual advice, so what’s good for you isn’t good for me as a mortgage and say it’s not good for a neighbour.

It is individual so you need to sit down with your adviser and go through the option that suits you.

For example fixed rates -there’s no point taking a five-year fixed rate if you’re looking at moving house in the next two years so it’s about getting the right advice for you. For example tracker rates are good for some people but they’re not good for everyone.

They are variable so the the prices do go up and down with the Bank of England base rate rising and falling. So if you’ve got a lot of disposable income that might be good for you but it wouldn’t be good for me. I’d like to know exactly what I’m paying per month.

So I can’t stress enough, it’s so important to sit down with an adviser and go through your own individuality. Your own individual needs.

Ben: Yeah and what you’ve said there about there not being a one-size-fits-all solution, especially when it comes to mortgages, is sometimes where the media can go wrong because they make a statement everybody assumes it applies to them but that’s not necessarily the case.

Joe: That’s exactly right yeah. There’s so many different mortgage types, there’s so many different types of buyers out there. One bit of advice is not is not right it’s not good. It’d put me out of a job wouldn’t it! If you say “right this is it for everyone” I’d be a terrible mortgage adviser. So you know there are so many different products out there, thousands of mortgage types and thousands of different clients, different buyers. So, yeah a blanket statement is very dangerous and could cost a lot of people a lot of money in the long run.

Ben: OK, so we’ve talked about different types of mortgages what might be best and the fact that there’s not a one-size-fits all but, I might put you a bit on the spot with this question, let’s say I’m going to take out a fixed rate mortgage in the current circumstances what should I be looking to do two year or five?

Joe: Yeah so again, there’s no wrong or right answer.

Ben: I knew you were going to say that..

Joe:  It’s individual needs. So there’s no point giving you a five-year fixed rate if you’re going to be moving in the next two / three years because you’re going to get what’s called an early repayment charge, which we’ll we’ll cover on another video.

But yeah, it’s individual. If you’re staying there long term we can’t predict what interest rates are going to do it’s about the here and now so we’ll be looking at your individual needs.

Ben: OK, thanks Joe. Well I think the main takeaway from that conversation is first of all find out when you’re coming to the end of your fixed rate mortgage, get in touch with your adviser – if not speak to somebody like Joe who can point you in the right direction. If you’ve got concerns or if you’ve got any questions related to mortgages get in touch with us here at Hannells and Joe or one of our expert in-house mortgage advisors are here to help answer any questions. Drop a comment below, send us a message or you can email us at enquiries@hannells.co.uk.

As always Joe thanks for joining me on a Friday afternoon, thanks for watching and we’ll see on the next one!

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** DISCLAIMER – YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE **