Why You Shouldn't Take Out A Fixed Rate Mortgage

If anyone is interested in the Co-op 0.64% tracker, one of their mortgage advisers told me this afternoon that they are pulling it at the end of tomorrow, so you need to ring before 8pm on 17th if you want it. (Co-op tracker is available for purchase and remortgage whereas as the HSBC 0.48% tracker is for remortgage only which is why we are going for Co-op)

if the base rate does come down, what makes you believe that banks will pass this discount onto mortage holders themselves? it's been demonstrated recently that the banks will not pass this on. Hence i reckon fixed rates give more certainty.

I've been receiving Fool emails for several years now, and although I've been tempted to post comments, I've never felt strongly enough to register until today. I would urge all readers to take articles such as this with a pinch of salt, and hold a healthy scepticism regarding the expertise of the writer. I'm referring to the assertion that "Rates for tracker mortgages are expected to be hard hit by the credit crunch for some time to come since they are based on LIBOR". This is complete nonsense. If you look in the table that follows this comment, you will see that all the rates quoted are "BBR+(margin)" Dear readers, I'm sure many of you will be aware that BBR stands for Bank of England Base Rate, and therefore has nothing to do with LIBOR. The writer sounds very confused by claiming trackers are hard hit due to the high LIBOR rate, but goes on to say that there are still good deals to be had! How can this be so? In the current climate, it's important to act on sound reasoning and judgment, which is often based on advice given by so-called 'experts'. Whilst I applaud the aims of the Fool website, I've seen enough now to make myself heard in an attempt to warn vulnerable readers about this kind of inept reporting (I've seen Fool articles with glaring inaccuracies on enough occasions now to realise that the writers do not have sufficient knowledge to 'educate' the rest of us). For most people, the best way forward would be to find a competent professional advisor to assist them in finding the right mortgage for their circumstances. That way, borrowers can be sure they are acting on sound advice, and can avoid potentially costly mistakes. Also, a good advisor can access the best deals immediately, thus overcoming the issue of lenders pulling the best deals very quickly and with little warning. I wonder how many people have read this article and have been put off a tracker because of worries over the LIBOR rate. I would ask that those behind the Motley Fool website vet their contributors rather more closely in future, perhaps along the lines of the FSA training and competence requirements for financial advisers. Also, a prominent disclaimer warning readers that your articles do not constitute sound financial advice would deserve consideration.

Topadvisor: you're wrong. I've also never been bothered to register until today but I can't let that tripe go unchallenged. Most UK lenders' fund some or all of their mortgages by borrowing on the money markets. As LIBOR goes up then that gets more expensive. Hence, new deals will be offered at a higher margin over BBR. Therefore the article is correct: as LIBOR goes up, *new* trackers aren't such good deals.

Thanks WTF100. That's what I would have written in response. The point of my article is to say that trackers are likely to become more expensive going forward as a result of higer funding costs through the wholesale money markets. But there are still some good deals around if you act quickly. Very quickly in some cases - the Co-op 5.64% tracker, for example, is no longer available after today.

Jane

WTF100 and TMFJaneB - WTF explains the intent of the article well, but that isn't how it reads. I understand what you're saying in as much as the margin charged over BBR will go up because of economic factors including LIBOR, but that doesn't mean that trackers should simply be described as "based on LIBOR". This implies, especially to those less financially aware, that there is a direct link to LIBOR when there isn't. If one takes out a tracker mortgage today, no change in LIBOR is going to affect it, yet the article could easily lead people to believe that it would, and they could be put off a tracker as a result. Adding more weight to this is the fact that you singled out trackers as being 'LIBOR-based' whereas a balanced article would have pointed out, as WTF has, that ALL mortgages are affected by LIBOR. We may be arguing over terminology here, but the FSA stipulates that communications with customers must be clear, fair and not misleading. Although I realise you aren't under the authority of the FSA, calling BBR trackers "LIBOR-based" doesn't follow this principle, so some more thought regarding how such wording reads might be a good idea. A professional advisor is in a better position to explain these things to applicants fully, as they wouldn't suffer the limitations of the written word. I think it's very important that articles such as this are written with the utmost clarity. WTF100 - if all mortgages are affected by the LIBOR rate, then they are all subject to upward interest rate movement when new deals are introduced, so your assertion that 'new trackers aren't such good deals' is also misleading. In order to describe something as a good deal, you have to take the alternatives into account, and the alternatives are also increasing in cost due to the higher LIBOR rate that you correctly pointed out affects all mortgages. Ultimately, there are many factors which determine a good or a bad deal for any specific borrower, their attitude to risk being an important one. I replaced my fixed rate mortgage with a tracker back in December, and I'm now paying less that the fixed rates on the market. I had a modest arrangement fee, and I can repay the mortgage at any time without penalty. If BBR drops again, my mortgage will be a lot better than anything on the market, so trackers can be good for the right borrower. Of course, BBR could have gone up, hence the importance of taking attitude to risk into account.

Do not only go by the interest rate. I have just renewed my fixed at 5.69% but with no application fee. Even the Abbey's, see above, low rate of 5.49% with the lowest application fee of £675, that works out to approx. £18 per month over the fixed period. For Chelsea with an application of their fee of £1,499 over two years that would be over £62 per month over the fixed period.

There is no substitute for doing your sums!