Mortgage Clinic: 'Should we choose a fixed-rate or a tracker?'


'My wife and I are falling out over what to do with our home loan – a fixed rate or tracker? We're weeks away from our current deal ending (a two-year fixed rate on a £220,000 repayment loan) and I believe the Bank of England base rate will drop to 4 per cent over the next year. But my wife is arguing for the security of a fixed rate.' J Rangeworth, Bedfordshire

Our national obsession with house prices and interest rates has reached such a peak that it is getting to be a source of marital discomfort. It's a problem facing many UK households, as the credit crunch makes most lenders unwilling to cut fixed rates or trackers.

Your tussle is between the potential pay-off of a "gamble" on future lower rates and ever-cheaper monthly repayments, and the cost of a "safe", set monthly sum. The question is: can you afford to lose the gamble – and if so, by how much?

"Think about how comfortable you will be if rates were to increase," warns David Hollingworth at broker London & Country.

Take a typical base-rate tracker, offering between 0.2 and 0.3 percentage points above the Bank's rate. For every quarter-point rise or fall, each £100,000 slice of a tracker mortgage would mean roughly £15 on or off the monthly repayment.

Now let's take your £220,000 home loan: a whole percentage point fall on such a tracker would see a saving of £131 a month. Or, with the same size rate rise, an extra £131 a month to be found.

"If you feel comfortable with the ability to handle fluctuating payments, should rates begin to lift again, then a tracker is the obvious option," Mr Hollingworth says.

Despite their best efforts, highly paid City analysts ultimately don't know how high (or low) rates could go, so your guess is as good as any, although fluctuating economic data suggests further rate reductions.

It boils down to affordability: if there's enough room for manoeuvre within you and your wife's income to cope with any rises, then a tracker could tip the balance in your favour. But if you'd be in any way pushing your finances to the limit, then a fixed rate is the answer.

However, there is a solution for both of you, suggests Melanie Bien at broker Savills Private Finance: "Choose a tracker that lets you switch to a fixed rate at no penalty."

Lloyds TSB offers a two-year tracker at 0.18 per cent over the base rate (making it 5.43 per cent at the moment), she says, but it has a £1,995 fee.

Note also, she adds, that fixed-rate deals currently carry lower rates than trackers. For a £995 fee, Cumberland Building Society has a two-year fixed at 5.08 per cent.

Send us your questions and you could receive £50 to spend at Amazon

Foxed by jargon? Confused by all the options? Email a question to mortgageclinic@independent.co.uk. We will not reveal your identity, and we cannot give specific advice. If your question is printed, you'll receive a £50 voucher from Amazon.co.uk, so you can kit out your home with anything from a lawnmower to an espresso machine. www.amazon.co.uk/homeandgarden

Life and Style
Angel Di Maria is shown the red card
tech
Sport
Roger Federer after his win over Tomas Berdych
sport
Life and Style
News in briefs: big pants in 'Bridget Jones's Diary'
fashionBig knickers are back
Sport
James Milner is set to sign for Liverpool this week despite rival interest from Arsenal
sportReds baulk at Benteke £32.5m release clause
News
The controversial Motor Neurone Disease Association poster, featuring sufferer Michael Smith, has drawn a series of angry complaints
newsThis one has been criticised for its 'threatening tone'
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Financial Reporting Manager

    £70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

    Recruitment Genius: Payments Operations Assistant

    £23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

    Recruitment Genius: Telephone Debt Negotiator

    £13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

    Guru Careers: Communications Exec / PR Exec

    £25 - £30K: Guru Careers: We are seeking a highly-motivated and ambitious Comm...

    Day In a Page

    On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

    On your feet!

    Spending half the day standing 'reduces risk of heart attacks and cancer'
    Liverpool close in on Milner signing

    Liverpool close in on Milner signing

    Reds baulk at Christian Benteke £32.5m release clause
    With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

    The big NHS question

    Why are there so few new GPs when so many want to study medicine?
    Big knickers are back: Thongs ain't what they used to be

    Thongs ain't what they used to be

    Big knickers are back
    Thurston Moore interview

    Thurston Moore interview

    On living in London, Sonic Youth and musical memoirs
    In full bloom

    In full bloom

    Floral print womenswear
    From leading man to Elephant Man, Bradley Cooper is terrific

    From leading man to Elephant Man

    Bradley Cooper is terrific
    In this the person to restore our trust in the banks?

    In this the person to restore our trust in the banks?

    Dame Colette Bowe - interview
    When do the creative juices dry up?

    When do the creative juices dry up?

    David Lodge thinks he knows
    The 'Cher moment' happening across fashion just now

    Fashion's Cher moment

    Ageing beauty will always be more classy than all that booty
    Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

    Health fears over school cancer jab

    Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
    Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

    'I forgive everyone, but I don't forget'

    Fifa president Sepp Blatter issues defiant warning to opponents
    Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

    Weather warning

    Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
    LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

    High hopes for LSD

    Meet the volunteer users helping to see if it cures depression and addiction
    German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

    Saving Private Brandt

    A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral