For more information on the pros and cons of the different mortgages give our experts a call and they can advise on the best option for your circumstance.
What is a fixed rate mortgage?
With a fixed rate mortgage, the interest rate stays the same for a set period of time. This means that for every month during this set period, your mortgage repayments will remain the same, even if there are changes with changes to the Bank of England base rate, or your lenders’ standard variable rate (SVR).The term of a fixed rate mortgage usually lasts between two to five years, but can be much longer. When this period comes to an end, your lender will typically transfer you automatically onto its SVR.
What is a tracker mortgage?
A tracker mortgage is a type of variable rate mortgage. The interest rate usually tracks the Bank of England base rate at a set margin (for example, 1%) above or below it. Tracker mortgage deals can last for as little as one year, or as long as the total life of the loan. Once your tracker deal comes to an end, you’re likely to be automatically transferred on your lender’s standard variable rate (SVR). Typically, this will have a higher rate of interest.
What is a lifetime tracker mortgage?
A ‘ lifetime tracker mortgage’ is a mortgage where the rate you pay back the loan at ‘tracks’ the bank of England base rate for the entire span of the mortgage, for example the base rate +1%. This is different to a typical tracker mortgage where the rate tracks the base rate for a set time period i.e. two years and then reverts back to the lender’s standard variable rate.
What is a discount mortgage?
A discount mortgage is a type of variable rate mortgage. The term ‘discount’ is used because the interest rate is set at a certain ‘discount’ below the lender’s standard variable rate (SVR) for a set period of time. For example, if a lender has an SVR of 5% and the discount is 1%, the rate you’ll pay will be 4%. And if the SVR is raised to 6%, your discount rate will also rise – in this case to 5%.Discount mortgage deals typically last between two and five years. When your discount mortgage deal comes to an end, your lender will typically transfer you automatically onto its SVR.
What is a standard variable rate mortgage?
A standard variable rate mortgage (also known as an SVR or reversion rate mortgage) is a type of variable rate mortgage. The SVR is a lender’s ‘default’ rate – without any limited-term deals or discounts attached.
When a fixed, tracker or discount mortgage deal comes to an end, you will usually be transferred automatically onto your lender’s SVR.
It can be risky to stay on your lender’s standard variable rate mortgage. A lender can raise or lower its SVR at any time – and as a borrower you have no control over what happens to it. Standard variable rates tend to be influenced by changes in the level of the Bank of England’s base rate. However, a lender may also decide to change its SVR while the base rate remains unchanged.
If you are on a tight budget and relying on your SVR to remain low, you’re in a very vulnerable position. In this case, it is very important you try to remortgage onto a fixed rate deal (which offers rate stability) before it’s too late.
When will interest rates go up?
It’s impossible to predict with any certainty when interest rates will rise again – there are no hard or fast rules about when exactly it will happen.
The most important thing for borrowers is to be sure that if you’re on a tracker, discount or other variable rate mortgage – you could still afford your repayments if rates went up by 2%. Although it’s unlikely that rates would rise by 2% in a short period, it’s not impossible.
On Black Wednesday back in 1992, the Chancellor raised interest rates by 2% in one day, and a further 3% shortly thereafter. Although this was an extreme event, it goes to show that movements in interest rates can be unpredictable.
Refer to our interest rate calculator which will help indicate what interest rate a new mortgage would need to save you money.
How does buy to let work?
Each person’s let to buy arrangement will work slightly differently but broadly it works like this:
Stage 1: Remortgage your current property onto a new mortgage deal. You could do this with your existing lender or a new lender. If you own enough equity in the property remortgaging will allow you to release some money.
Stage 2: The new mortgage will either need to be a buy to let mortgage or you will need to agree consent to let with the lender, which allows you to rent your property out but not to remortgage. Be aware that some lenders will increase their interest rate or charge an admin fee in order to grant consent. You would then let out your existing property to cover your mortgage repayments.
Stage 3: Use the equity you have released or existing savings as a deposit to take out a new mortgage and move into a new home.
Stage 4: Keep letting your existing property until you would like to sell it.
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