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Fixed or Tracker Mortgage?

Written By On 30/04/2013

With the Chancellor announcing a few days back that the Funding for Lending Scheme is to be extended by another year, financial experts are predicting mortgage rates to come down even more in the near future.

Because of this, there are more competitive fixed rate mortgages coming to the market which is making it a real dilemma whether or not to choose a tracker or fixed rate mortgage.

The view of young economist Rob Harbron, working at the Centre for Economics and Business Research will certainly come into the equation for many. He says,

Our view is that we won't see a rise in the 0.5% base rate until 2016. Expectations for continued low rates are a result of our outlook for the economy. Weak growth conditions are expected to remain the 'new normal' for the next few years.

Brokers are saying that borrowers are opting for longer term fixed rate deals as they do not want any extra surprises in this already uncertain financial world. Whereas up until very recently the most common and often only choice was a two year fixed, there are now more five year deals coming to the mortgage market.

This has come about because the scheme allows the government to offer cheap finance to the lenders, thus encouraging them to provide more reasonable rates to people applying for loans.

Moneyfacts, personal finance data provider have recorded how much fixed rate mortgage deals have increased over the past twelve months. Two year fixed deals have risen by one third while five year ones have gone up by a massive three quarters.

When weighing up the pros and cons of taking out any new mortgage, it would be prudent to ensure to take into account the cost of all fees, as this can have a large bearing on the overall costs. HSBC for example, have just introduced a five year fixed at 2.49% for a 60% loan to value, but with a very high arrangement fee of £2,000. Nat West are offering a 2.99% five year fixed with a £995 arrangement fee, but with free valuation and legal costs.