The mortgage market in the United Kingdom is by far the most important and largest of all financial markets. After all, the United Kingdom has 11.1 million of them. This market in the United Kingdom is valued at more than £1.3 trillion. In terms of the quantity lent and the total value of outstanding loans, the United Kingdom is the largest in Europe. In 2016, buyers borrowed around £245 billion. But which mortgage is for you, from the varying types? Moolr took a brief look at your options.
Fixed Rate
The interest rate on a fixed rate mortgage remains constant during the term of the loan. The term of the arrangement is usually one to five years, though ten-year fixed rates are available. You’ll have the assurance of knowing exactly how much it will cost you for a specific length of time if you choose a fixed-rate option.
Pros
Even if interest rates fluctuate, your payments will not alter. This path provides you with stability and helps you to plan ahead of time. You know exactly what you must pay at the start of the term and throughout the repayment period. Thus, when looking at deals before you buy a home, you can do the numbers safe in the knowledge they will not change.
Cons
As previously stated, a fixed rate deal binds you for the duration of the loan. As a result, if interest rates drop, you won’t be able to benefit from it. If interest rates rise and you wish to change your contract, you won’t be able to do so simply. You’ll be charged a substantial penalty if you want to get out of the credit agreement before the conclusion of the term. Thousands of pounds in fines are frequently issued.
So consider about how long you want to be locked in before applying for a fixed rate mortgage. Consider shorter terms if this form of loan is good for you.
Tracker Mortgage
The interest rates you pay are connected to the market and the economy, which makes this sort of mortgage different from a fixed rate mortgage. As a result, they are subject to change. This form of mortgage has a lower level of stability. Simply said, if the Bank of England’s base interest rate changes, your mortgage rate will change as well.
Practical Example
As a result, a mortgage lender will agree with you on a rate that is linked to the Bank of England’s base rate. For example, if the base rate was 0.50 percent and you took a tracker mortgage with a rate that was 1% higher than the base rate, you would pay 1.50 percent in interest. Your mortgage rate would rise to 2.00 percent if the Bank of England raised the base rate to 1%. Your monthly payments would rise as a result. However, if the base rate falls, the monthly payments will fall as well. Trackers, like fixed rate mortgages, come in a variety of durations, the most typical of which are two or five years. There are also lifetime tracker mortgages available.
Pros Of A Tracker
The rates on the leading tracker mortgages tend to be lower than on fixed rate deals. Although trackers are variable they are easy to understand. Simply knowing the base rate at any time informs you of your interest rate. For much of the mortgage period, the rate will be steady, as the Bank of England does not tend to change the interest rate that regularly.
Cons Of A Tracker
Because the rate is fluctuating, a tracker does not provide the same level of security as a fixed mortgage. With this form of mortgage, you must be prepared for the possibility of rising as well as falling monthly payments. As a result, you should feel at ease budgeting for such an eventuality.
Discount Mortgage
Variable mortgages do not have to be trackers. Another type is discounts. The difference is that the interest rate for discount mortgages is not tied to the Bank of England base rate. It’s tied to the lender’s usual variable rate instead (SVR). Because lenders can adjust their SVR, this is a big difference. They can do this even if the base rate has remained unchanged.
Discount mortgages come in a variety of lengths, ranging from one to five years. If you wish to get out of the arrangement during the term, you’ll probably be charged a penalty, just like with trackers and fixed rate deals.
