Am I a fool to get a SVR tracker mortgage now?

[Potatomashed]

Mortgage advisor keeps pushing to fix around 6% for 2 years. Current SVR is around 3% although this is expected to rise with base level increases but still less than the fix. We have some flexibility in our budget so likely can absorb any short term increases.

Background: house is 400k and needs (a very generous estimate) of 100k renovations as hasn’t been touched since was build in 70s although is currently lived in. We have 380k cash from previous sale but thinking of getting a mortgage for 150k so we have some savings behind us etc.

We originally thought monthly mortgage would be around £600 pcm which is very affordable and worth the compromise which this house represents (over 35year term). We could afford at a stretch £1200 a month (previously agreed purchase would have been this but fell through). Fixing at 6% is about 900 a month but if we start on SVR we can afford to significantly overpay.

I’ve always had big LTV ratio and fixed on previous mortgages but this is a bit of a different ball park and I’d appreciate any advice!

Yes. Rates are going to go up, inflation is gonna go up to 10% which means the wages potentially could increase beyond the interest rates if you fix a mortgage. This is how people did so well out of property in the 70’s.

@HiveBee yes it would be foolish to do SVR? I work for the NHS so little prospect of inflation busing pay rise…

Bugger. That changes things a bit. SVR is a huge gamble, i think everyone accepts rates will increase to 6% at least. Thats why the fixed rates are 6% whether they go beyond that nobody knows.

I think with a SVR you can fix at any point so if rates did start to climb that option would still be there? Rates will keep climbing mind you but the difference between base rate and fixed rates right now is big as banks have factored in that risk for months/years ahead. My mortgage is up for renewal in 12 months and that's what I'm thinking of doing although a lot can change between now and then!

Personally if I was looking now I’d roll the dice and go with a tracker. As rates would need to jump a lot in the short term to make the fix pay and every suggestion is that rates should settle back a bit.

we’ve had trackers for most of our life and are currently in our first fix till 2025.

We’ve just gone on a tracker as we’re (hopefully) in final stage of selling and our fixed term ended. The tracker rate was less than the new fixed rate, could go up but hopefully will have sold by then.
if you’re going to do a significant amount of work, is it better to go tracker, overpay and then remortgage after the work as I’d assume the property value will increase and therefore your LTV will be better and you’ll owe less with the overpaying? But depends if the work will take 2 years anyway and you’d rather have the certainty of the fixed rate.

Thanks for your response. That’s what I was thinking but I suspect we would then fix for a much higher %? So confusing.

can anyone recommend an online calculator to help me work out compound interest etc? My maths is failing me a bit. Or should I speak to a financial advisor? I’m not convinced by the mortgage advisor

Thanks for responding :) Yes I had this thought too, it seems more sensible to overpay where we can and reduce the capital we pay interest on and if needed we can remortgage/fix later on… the only issue is we are planning another baby and I don’t know if we can apply for a mortgage when on mat leave?

Mortgage advisers in my experience are on par with Estate Agents in terms of levels of mathematical understanding ability and administration skills.

I know financial advisors have to have a deeper understanding to pass their examinations but whether or not they can give you the answers you’re looking for I doubt very much what you actually want is a deep dive financial analysts opinion. But even then it is literally just an opinion.

at the moment the opinion that I trust which is of a friend who is a global digital transformation manager who has taken two banks through a complete transformation in the last 2 to 3 years and worked on the RBS project in 2010. Her opinion now is that rates will hit 8- 10% how long they will stay there for is another matter. Those who like to lament about the fact that they were paying 15% at one point conveniently forget to mention that a) it was for a matter of days unless you are stupid enough to fix on that day but then I suppose in their mind they thought 20% was a possibility and b) we had Myra‘s at the time which effectively gave you 40% of your mortgage payment back in government support actually wishy is a big fan of that and it may well be re-introduced.

I love that the AutoCorrect has changed Rushi to wishy, That’s probably about right

I totally understood what you meant by wishy when you said it too!
Not sure what a Myra is but will have a look and make some decisions. I’m wondering if we should be really drastically cutting the renovation level so we borrow less and the interest rate changes will mean less… will update with what we decide! Thanks for your thoughts everyone

It was MIRA’s … tax relief on your mortgage… abolished in 2000 by Gordon Brown

I have massively reined in my plans for renovation, cost of Materials it’s gone absolutely nuts so there’s little point in actually doing any DIY either because the chances of you stuffing it up is quite high and then it costing you double in material you might as well get the professionals in or not as the case may be.

@Potatomashed one thing that stood out was getting more on your mortgage to renovate & saying overpay the mortgage.

I don't know what I'd do in your position, especially as you're thinking about having a baby too.

I think I'd only borrow the extra to do certain projects, try to cost them carefully, don't over borrow.

I don't know if any banks are still offering overpayment refunds?

I think trackers & off set mortgages definitely can be better, I think svr could now possibly work out better too, but personally I like to know where I'm at & that I can afford it, so fixed generally works better for me,, but it's all so unsettled now 🙇🏻‍♀️🙇🏻‍♀️🙇🏻‍♀️

Martin Lewis addressed this question in his podcast recently.

I think his response was along the lines of: the closer you are to your maximum budget, the more sensible it is to fix. If on the other hand you have some wiggle room and reasonable worst case scenario wouldn’t be a complete disaster, it could be worth taking a tracker.

The fact you can significantly overpay could make it a good move, but with saving for a baby, would certainty be more important?