I went for a two-year tracker because the interest rate is so low, and if you look at interest rates over the last 10 years, the base rate only seems to increase by 0.25% at a time. So even if it ends up equalling the fixed rate you'll still have saved money over the period. The advice I've been hearing is that the rates won't have gone up significantly until end of 2011.
However, nothing is certain, and I'd hate to influence you too much - but I did do a lot of research, and this seemed the best choice. I'm sure plenty on here will offer completely different, and equally informed, advice!! Good luck!
It depends on your circumstances. If you're a first time buyer you're going to be unfairly penalised with a rate somewhere around 5 1/2 - 6 per cent. Other wise, with interst rates where they are at the moment and, we're told, likely to stay there for the short term, it's just as simple to pay the lenders standard rate. E.G., Nationwide are offering a two year fixed at 4.68, but their standard rate is only 3.99. As Caro says, rates have been tending to move at only 0.25 per cent, when there have been movements, and they hasn't been for months. So if that trend continues there would have to be more than three hikes within the next two years before you're losing out against a fixed rate deal. Again, I'm no expert and wouldn't like to give you bum info. With rates where they are at present they can only go one way and that is up.....eventually. When that will be, however, is anyone's guess. But the mood seems to be that they won't be doing much in the short term. Once the rates do start moving I personally would then look for a fixed rate. The down side of that of course is that those fixed rates will not then be where they are now. Jungle or what???
I thought about the standard rate issue, and I think it's a very good point so I've decided to stick with Abbey, as their standard rate is 4.2%, but I'd only be getting around 3.5% if I switched, and would have to pay around £1000 as an arrangement fee.
With respect, have you double checked re the arrangement fee? Many lenders, including Nationwide who I'm with, don't charge any fees if you keep an existing mortgage with them. Having said that, I still think that in today's climate you're no worse off going on to the standard rate, but a 'no fee' deal may influence your ultimate choice.
I haven't checked, I'll have a look at their website. I really resent paying a grand to take out a mortage, so I'd be quite pleased if they didn't charge.
I'm still a bit wary about committing to a mortgage at the moment, in case some better mortgages appear just around the corner, but I've been thinking that for months, and they haven't yet, so it's probably not gonna happen.
I don't think the mortgage market is going to 'thaw' dramatically in the near-term so assuming you have found a property you love/really like and/or you are on an unfavourable SVR rate now, I'd be tempted to go on a tracker. My feeling is that interest rates will stay low for at least another 12-18 months, but there is the risk that quantitative easing is overdone and inflation rises very quickly with interest rates following. It depends on (a) your risk appetite and (b) how much headroom you have. If you go on tracker could you afford the monthly repayments at 5, 7, 9 per cent?
Good luck. Perhaps worth speaking to a whole of market broker like John Charcol or London and County and also checking out the moneysavingexpert web site.