It’s a Tracker!

Who dare not give, and ev’n refuse to lend
To their poor kindred, or a wanting friend.

I remortgaged in October. It’s a tracker. Factoring in the expected BoE interest rate rises over the coming two years, it’s very obvious that I’ve gone for the most expensive of the four options I looked at. And no, I’m not addled.

Since the beginning of October 2018, when I signed on the dotted line, the number and likelihood of BoE rate hikes have been revised down 😀 , albeit I suspect not enough to materially alter the numbers in my mortgage comparison spreadsheet. Because: Brexit uncertainty is grinding the economy to a halt.

Here’s the rest of my thinking:

  1. Assuming the Parliament does not pass Mrs May’s deal, and assuming a two-year time horizon:
    • If there’s a No Deal Brexit, I’m betting on a recession. The BoE will dare not raise the rates. Tracker = good call.
    • Even if it does dare, it won’t be by much. The pound will crash in the short term, so the global stock markets will be expensive for a British investor to buy into, and the best use for my money will be to overpay the mortgage. That’s when unlimited overpayments on my tracker will come in handy. Tracker = good call.
    • If there’s a second referendum and No Brexit, the rates will probably rise, albeit the BoE is likely to proceed with caution. But the pound will rally, which will make me very happy, as the global markets will be cheap again for any Earned O’the Mighty Pound. Hence any pain from my mortgage will be mitigated by a share-buying opportunity, plus the general happiness of their not being a Brexit. Tracker = bad call, but I don’t care.
    • If there’s a delay in Article 50, while the Tories sort out their shit, the most likely outcome is that the pound rallies a bit, but rates don’t rise until there’s clarity. Tracker = good call.
    • If there’s a Corbyn government and a delay in Article 50, my pension allowance and ISA allowance are likely to be slashed and taxes increased. The pound will probably stay about the same or fall a little, and there’s likely to be a further slowdown in the economy, if not a recession. Because: more uncertainty and the expectation of the same shit charade we’ve all been watching for two years now. So: (1) With less ISA and Pension allowance and higher taxes I’d have even more incentive to overpay the mortgage, and (2) I recon the BoE would probably put any rate increases on hold. Tracker = good call.
  2. Assuming the Parliament passes Mrs May’s deal (unlikely):
    • The pound will rally (How much? Nobody knows), which will put a lid on inflation and somewhat mitigate the need for the BoE to raise interest rates. Also, the current Brexit-induced stockpiles of inventory will have to be used up/ sold down, so the GDP numbers won’t be splendid (again, the BoE won’t be in a rush to raise interest rates immediately).
    • Eventually the rates will increase, and, assuming I make no overpayments, I’ll lose out on a tracker vs the best-buy two-year fix I could have had. However, I’ll be renting out my digs shortly, so some of the interest will be tax deductible, and that will take some bite out of any (eventual) movements in interest rates. Tracker = not great, but not a disaster, either.

It appears to me that there’s more on the upside than on the downside here. What do you think?

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7 thoughts on “It’s a Tracker!”

  1. Interesting. I’ve gone the other way and fixed my primary residence for ten year at 2.59%. My reasoning was purely with a fixed debt cost i can concentrate my assets in investments that earn more than this or are likely too. High interest saving accounts. S and s. P2p

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    1. Your reasoning makes sense. Would you be ok to retire with an unpaid mortgage balance? See, I don’t think I could do that, for emotional reasons 😉 And since I still hope to be able to retire in less than 10 years, fixing my mortgage for a long period, such as 10 years, is not an option. Then we’re looking at trackers vs 2-3 year fixes… We’ll see if I’ve made a mistake by choosing a tracker, but even if I have, it probably won’t be a big deal in money terms 🙂

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  2. Hi, good to see you posting again, thought your blog had been lost to the world of romance 😀 Congrats on moving in together, be interesting to see whether this alters your plans, mine got refined (for the better, of course 😄). The tracker obviously gives you more flexibility and you retain the option to fix at any time, which you lose with a fixed mortgage rate. Historically UK interest rates show it’s been been better to be in floating than fixed as the fixed rate overestimates how quickly rates will rise in all instances except when rates have reached the bottom of a cycle, when they rise much quicker than estimated. Unfortunately the fundamentals haven’t held true for a long time and calling the bottom with so many uncertainties is harder than ever. I think it’s tough for the BoE to raise rates quickly but am concerned about inflation post brexit (if it happens), which would likely see rates rise. If you are renting your place out, presumably you’ll be moving to a BTL mortgage (?) where rates offered are more expensive. Dependent on the amount outstanding it might be worth fixing a proportion of your debt, if you’re thinking of retaining some debt for the foreseeable (ermine writes well on this). The headline interest rate in my view is misleading as not many lenders will lend on an interest only basis now, so the all in repayment rate is what needs to be considered when comparing alternatives. You’ve got your head screwed on, farrow and ball paint, twigs in vases and all “the apparent essentials” that come with building a nest together don’t come cheap tho, some certainty might be worth considering on mortgage outgoings, particularly given the complete mess the country has created. All the best!

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    1. Thanks for stopping by 😀
      Well, you got me there… I’m not planning to switch to BTL mortgage. Yeah, I have to tell the bank if I rent the property out and according to their T&Cs I need their permission to do so, or the deal is off, but I’m not going to. The only time that’s going to be an issue is if there is an issue, when I can claim ignorance. The reasoning being:
      1. Yes, it’s a breach of contract
      2. What’s the worst thing they can do about it?
      3. The worst thing they can do is call in the mortgage, at which point I’d switch to BTL. I easily qualify, I’ve checked.
      4. So… the worst thing that could happen is … they find out, I act surprised, they make me switch to BTL. The best thing that could happen is they don’t find out and I get to keep the deal I’m currently on. It doesn’t sound like there’s much on the downside.

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  3. Worth checking the insurance too, might put a dent in the 3652 if anything goes wrong and they won’t pay out……. other than that go for it, “yolo” 👍🏻

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  4. You can get v cheap BTL rates, I was surprised how low the differential is. You also get tax credits on it and other maintenance is tax deductible.
    (I’m in process of taking a 2 year BTL fix at about 1.5% at the moment)

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    1. Yeah, they’re not bad. But at the end of the day, there’s little incentive to go out of my way changing the deal I’m currently on for a worse one, even if it’s only a little worse. Once the current deal runs out, I’ll remortgage to a BTL product, if I haven’t extinguished the loan by then 😉

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