Black says: “There has been a lot of recent debate on whether it’s best to choose a fixed or a variable rate mortgage and the fact remains that there is a significant initial interest rate premium payable by those opting for a fixed rate.
“The choice between fixed and variable remains something of a gamble because no one knows how quickly, how often or by how much the base rate will increase. Research by Capital Economics has suggested that the bank base rate would have to increase to 3.25 per cent in two year’s time for fixing your mortgage now to be cheaper than the average existing variable rate.
“To assess a new product a good reference point is always to look at its peer products. The average two-year base rate tracker mortgage at 75 per cent loan to value currently charges 3.09 per cent, or a 2.59 per cent loading on the bank base rate, with a £968 arrangement fee. If we then look at the average of mortgages that aren’t charging a fee then Abbey’s new mortgage is sitting plumb centre in terms of interest rate charged.
“The amount of any mortgage sought has a significant impact on the choice of which interest rate and fee mix of the mortgages available is the optimum pick. Looking at what is available, there are three 75 per cent LTV 2-year base rate trackers that stand out and, it is a pleasure to note, all of them are available through intermediaries.
“The Mortgage Works charges 1.69 per cent above the base rate – an initial pay rate of 2.19 per cent until March 31, 2013 with a 2 per cent fee and a £99 booking fee. Accord Mortgages is offering a 1.79 per cent loading on the base rate – an initial pay rate of 2.29 per cent until May 31, 2013 with a £1,995 fee. Accord also offers 1.99 per cent over base – an initial pay rate of 2.49 per cent – with no fee.
“It’s certainly good to see more choice in the number of no fee mortgages available. However, I can’t help thinking that they are more valuable at the high LTV end of the market where they could really assist those struggling to amass the requisite deposits.”