Someone told me the other day that I don’t seem to be as controversial as I used to be. I don’t think that is strictly true but maybe I have mellowed slightly now I am in a better work environment. I don’t generally believe in being controversial for the sake of it just to get headlines, but perhaps not being as young or as angry as I used to be has dampened my revolutionary ardour?
I must try harder.
Anyway, I was going to write a bit about fixed rates and the fact that I still think not enough people are taking them.
In fact, I do get a little peeved when I keep reading commentators saying that trackers are better value or their latest survey of an undisclosed amount of people suggests that 85.357% of people are opting for trackers. First of all, what sample rate of people is that a survey of? 10? 100? 10,000? Surely, we need a bit of perspective to assess the impact of these things? For all we know it could have been a survey of 2 people and a tin of spaghetti!
Coupled with the “better value” statement, doesn’t this play a part in leading people who should go down the fixed rate route slightly biased before they go off to get advice, or worse still go direct to a lender to not get advice?
If rates do end up rising higher and quicker than expected could this statement be construed as advice rather than just an opinion?
You can imagine the letter – “Mr X of Blah Ltd. stated clearly in The News of the Times that trackers were better value than fixed. As he is a qualified advisor, (we assume), I took his advice and now rates have risen too much. I do not call this better value”.
Ok, maybe I am getting a little carried away here, but it does seem a little too easy for people just to opt for the cheapest option at the moment rather than really analysing their future needs and how they would feel when rates do begin to rise.
This week, for example, 5 year fixes have reached a level that to be honest I did not expect to see again for a while, either just under or slightly over 4%. This is lower than or equivalent to a fair few lenders current Standard Variable Rates, (SVR’s) and should be affordable to many. In fact, arguably if it is not affordable in the near future then you should not take a tracker rate product out anyway as rates will, in my humble opinion, rise by at least 2% in the next couple of years or so, (the best tracker rates now at 2.39%).
In fact, we actually believe that we could see Base Rate at 2% by the end of this year or first quarter 2011, whilst a recent OECD statement suggested that the Bank of England should increase base rate to 3.5% by the end of 2011!
With no real consensus view on where interest rates will be in a year or 2 years time I just think that we should be a little more guarded with comments that are a generalisation.
Are trackers better value than fixes? No, they are cheaper at present, but value can only be accurately recorded from a historical perspective. 2% above a Base Rate of 0.5% is great, (although remember this was an uncompetitive commercial rate a few years ago), but 2% above a Base Rate of 3% is more uncomfortable and 2% above a Base Rate of 5% positively ghastly.
What is true however is that for those lucky enough to have a decent deposit / large equity, mortgage rates in general do appear to look very attractive, but the absolute truth, is that decent advice, not throw away comments, is more important than ever.