What type of mortgage?

finlma

What do people suggest as the best mortgage for first time buyers at the moment taking into account predicted interest rate drops? Even with the expected drop I'm considering a 3 year fixed at 4.85%. Would you think I'm better with a tracker? I know there's no right answer just looking for some predictions really.

Snaga

The ECB have not predicted any interest rate drops - so it would be wise not to factor these into your decision (They face very real inflationary pressure to increase them actually - but whether they will with all of the other problems is anyones guess).

Dont forget the people telling you that interest rates are dropping are usually economists tied to banks/lenders and can not be considered to be completely unbiased...

Supercell

Even if the ECB cut interest rates its dubious as to whether the banks will pass that on in the current credit environment. I certainly wouldn't be counting on rates to the public changing for the better any time soon.

astrofool

If the ECB drops, then tracker rates will drop also.

Ralph2

It is really hard to tell at the moment. Some banks have dropped fixed rates in last week or so and the rest will likely follow suit. EG 2 year fixed 4.65 with one lender and 3 year is 4.75 or 4.70 not sure now.
The advantages of first time buyer is that they know what there repayments will be. Also with most FTB who are borrowing most or all of the purchase price the tracker mortgage will be alot higher than the fixed. Average rate on tracker for FTB borrowing 100% would be ECB plus 1.25% so thats 5.25
Have you been offered a tracker rate and if so what is it?
It really does look like the tracker will drop in next month or so and this has to be passed on by the bank.
If I was going for fixed rate I would go for 2 or 3 years but no longer as there are penalties with the fixed if you move to another bank or if you want to make an extra payment off your mortgage.
Also check with the bank what happens when you come off the fixed and the rate you will be on then. Some banks will place you on tracker and others on the old variable rate which can be expensive.

patrickolee

in the longer term, you are assured to lose by fixing the rate. Not to mention penalties if you break
the agreement. Always tracker/variable imho. i see very little adv to fixing for 3.

confuzed

yet another benefit of tracker is early payment. Say you are young and after few years as you grow in career you get better salaries (or win euro million:D) you can increase your mortgage amount every month. It lets you finish your mortgage early and you don't need to pay mortgage in old age when you need money for medical bills.

johnnyskeleton

finlma wrote: »

What do people suggest as the best mortgage for first time buyers at the moment taking into account predicted interest rate drops? Even with the expected drop I'm considering a 3 year fixed at 4.85%. Would you think I'm better with a tracker? I know there's no right answer just looking for some predictions really.

Just to expand on what Ralph 2 and patrickolee said regarding penalties - this can be up to the total interest you would have paid over 3 years. So, if you decide to move mortgage to another bank after 1 full year, the original bank can charge you for the 2 years interest that you won't be with them. While it would be rare for a bank to actually do this, the contract you sign with them will often allow them to do this.

The other warning I would give about a fixed rate is that you might be able to afford the fixed rate for 3 years, but after that if interest rates went up to, for example, 6%, would you be able to make the repayments? Note that if the answer is no, the better option would be to take out a mortgage for a lesser amount rather than to take a variable rate. Just make sure that you aren't sold the mortgage on the basis of what your repayments will be in the short term, only to find that you can't afford them in 3 years and a month.

johnnyskeleton

confuzed wrote: »

yet another benefit of tracker is early payment. Say you are young and after few years as you grow in career you get better salaries (or win euro million:D) you can increase your mortgage amount every month. It lets you finish your mortgage early and you don't need to pay mortgage in old age when you need money for medical bills.

You can do that with most mortgages, but it often involves re-negotiating the terms of the loan.