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Due to the current economic turmoil, it is particularly relevant to discuss with your mortgage broker not just what the best deal is now, but how things are likely to change in the future.
When it comes to rates, the options are fixed-rate or a tracker mortgage. Your mortgage broker will be able to hunt around and find the best deal for you in either case. However, it pays to know a little in advance when comparing best mortgage quotes. A fixed-rate mortgage is one in which you will pay the same amount for a fixed period of time (typically two, three or five years) – great if you want to make the same monthly payment without worrying that circumstances beyond your control might push rates up.
On the other hand, a tracker mortgage reflects interest rates, which means that if rates go down, so do your payments (though equally, your payments will rise with the interest rate). Trackers have seen a huge increase in popularity in the last year, as customers suspected that, as a result of the global economic problems, interest rates would stay the same or fall further.
Tracker mortgages: Bank of England or standard variable rate?
When you are comparing tracker mortgage quotes, there is one important question to bear in mind: what are they actually tracking? This may seem like an obvious question – tracker mortgages are directly linked to the interest rate (plus a fixed difference of a percent or so for the bank's profit) – and so the amount you pay on a monthly basis rises and falls as the interest rate does. However, although many of these track the Bank of England's base rate of interest, others follow the bank's own internal base rate – their Standard Variable Rate, or SVR. This is also linked to the Bank of England's base rate, but can vary due to a number of factors.
The thing to remember is that, although any changes in the Bank of England's base rate may be reflected in the SVR and therefore passed down to you, they do not have to be. There may be a considerable lag in the time it takes for you to benefit from any falls (sadly, the same is not true of the rises, which tend to work their way through the system considerably faster). One crucial question to check with your mortgage broker is therefore whether your tracker follows the Bank of England's base rate or the mortgage lender's SVR. If you feel (like many people at the moment) that you would benefit not only from the Bank of England's current relatively low base rate but also the likelihood of further cuts in the future, then you need to make sure you know what sort of tracker you are buying. Plus, if you are on an SVR, now may be the time to consider switching to a better deal if you can.