Tracker-to-Fix or Switch-to-Fix – you decide?!
New five-year mortgage products have been introduced by Barclays last week, with one particular deal allowing contractors to take advantage of the current low interest rates with the security of a fix in the future.
Barclays has now launched a new five-year tracker-to-fix mortgage deal that comprises a two-year tracker rate followed by a three-year fix. These hybrid deals have become more popular with contractors that want the benefit of a tracker rate while the base rate remains low, but also want the security of fixing their rate for the future.
Another option could be a switch-to-fix mortgage, also known as “droplock” loans, which work in a similar way but do not specify the future fixed-rate.
These mortgage deals enable contractors to take out a tracker rate but then move on to a fixed-rate deal – with the same lender – without incurring any early repayment charges (ERCs). But the potential downside is that the lender’s fixed-rates are likely to have risen by the time the borrower decides to switch, and may not be the most competitive on the market.
We believe that the Barclays Hybrid tracker-fix deal offer greater benefits over the switch-to-fix option, as it provides you with a predetermined fix so that you know where you stand with future payments.
Contractors that do not expect interest rates to rise significantly over the next five years might be better off selecting a lifetime tracker deal with a low ERC, or an offset discount variable deal with no redemption penalties.
Trying to “beat” the market is always difficult and it is wise for First Time Buyers to look at the fixed hybrid deals for security.
Unlike most banks and building societies that assess your affordability based on a very narrow margin of salary and dividend drawings, which is unlikely to give true reflection of your earnings potential, Barclay’s assess your affordability based on retained profits held in the company. This enables most contractors to borrow substantially more than they would if based on salary and dividends drawn. In some cases, Barclay’s will accept one year’s accounts, but this will also be based on the individual merit of the contractor.
If you have any questions about Barclay’s Hybrid mortgages please contact us on 020 8421 7999.
Freelancer Financials are Contractor Mortgage Specialists and financial services to freelancers. We are Financial Advisers that are directly regulated and authorised by the Financial Services Authority.
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