Fixed or tracker, the consumer gamble

Nia Williams

March 12, 2010

Commenting on the launch of HSBC’s 1.99% discount mortgage deal and Santander’s mortgage rate cuts, Hannah-Mercedes Skenfield, mortgages channel manager at, said: “Any cuts in rates and fees is good news for mortgage borrowers, and its great to see Santander and HSBC leading the charge by announcing changes and additions to their mortgage offerings. Santander’s cuts are clearly targeted at those who want to shelter from a possible rise in interest rates in the medium term. Those consumers seeking this kind of risk mitigation will find Santander’s offering very attractive, but not necessarily the best available, so it is worth shopping around.

“HSBC are targeting a different breed of borrower. The last time HSBC made this move we saw a sharp increase in remortgage borrowers coming back into the market. These were people with a lot of equity built up in their home that had been happy to sit on their current lender’s SVR. HSBC’s product is looking to encourage these people away from their current lender with a fantastic headline rate. With many products with high headline rates, we have seen extremely high arrangement fees which actually make the products less competitive. However, this HSBC deal is a market leading product but with a maximum LTV of 60 per cent, this launch won’t have much impact on a vast number of borrowers, or potential borrowers.

“It is worth being aware that, as a discount product, the 1.99% rate is vulnerable to changes in the lender’s SVR offering. We are currently seeing a lot of discrepancy between lenders’ SVR deals with a difference of 3.95% between the lowest SVR rate and the highest. The average SVR rate currently sits at 4.72% compared to 4.64% three months ago and 4.59% in March last year. These increases have occurred despite a flat Base Rate, and so borrowers with mortgages pegged to an SVR should be aware that their rates could be increased without the Bank of England taking any action at all.

“We are perhaps reaching a fork in the road for the mortgage market, with some lenders keen to capitalise on the low Base Rate for excellent, headline grabbing rates and others looking to lock customers in on fixed deals before rates rise. Borrowers coming to the end of a deal have a tough choice to make, do they take the risk and plump for a low rate variable deal and hope nothing changes, or do they pay a little more each month for the sake of secure fixed repayments? Ultimately each individual will have to make this decision themselves and there is no right or wrong answer. However, if you do go for a variable rate, do so only if you can afford a potential three or four per cent increase in rates, when they do eventually rise.”

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