Can anyone help me pick a new mortgage?! Fixed V tracker?

[ilikeyoursleeves]

We are about to remortgage our house to do our house extension. We need to borrow a fair bit for our total new mortgage but really don't know whether to go for a fixed rate or tracker.

We have two young kids therefore have nursery fees to pay for the next 4 years at least. I am part time and DH is self employed and has kids one day a week. We will be paying lots for mortgage plus nursery with hardly any disposable income for a while until the DC's get their nursery subsidised and start school. So we want the security of a fixed rate but these are about 2% more than the variable rates. However, if interest rates shoot right up we might be well and truly up the creek! We also might want DC3 one day so need to be able to afford that.

I wish I had a crystal ball to see what is going to happen with mortgage rates. Any financial advisors or anyone in the know to offer any advice? Is it best to go for a fixed just now for security or do you think mortgage rates will stay at the current rtes for another few years? Thanks

I would go tracker.

There is absolutely no way that the base rate can rise significantly in the coming 2-3 years, given that the economy is already on a knife edge, and that after the election there will be massive fiscal tightening - tax rises and spending cuts (ie. axing public sector jobs). Furthermore, inflation won't be a problem if the average wage isn't going up.

Also, to get technical, the UK "yield curve" is the steepest it has been for 40 years. Put simply, this means that for borrowers, the attractiveness of long term rates relative to short term rates is the worst for 40 years.

But make sure the tracker rate isn't too much over the base rate.

The question is can you afford for interest rates to go up? I think you have already answered that. I read somewhere recently that if you cannot afford for rates to rise by 3% then you should fix. I don't think it is about trying to second guess the economy but whether you can afford the rates at a certain amount. As we have seen these are unpredictable times.
Have you looked at he rates, what's the difference between fixed and tracker. In some cases there is not a big difference.