Clare Francis: With interest rates at an all-time low the next move in base rate, whenever it comes, will be upwards.
Against this backdrop, it might seem like the obvious time to fix your mortgage, but trackers and discounts are still looking attractive because the rates on the leading deals are lower than those on the leading fixed rates.
So this is leaving borrowers with something of a conundrum – do you go for the variable rate option in order to benefit from lower payments now, and accept that they’ll rise at some point in the future, or do you go for the safe option and lock into the fixed rate even though it might cost you more in the short term?
Well, there is actually a third way and that’s to put some of your mortgage on a fixed rate and some on a variable rate. It’s a concept few people are aware of here in the UK, but a lot of lenders will let you do it.
HSBC has just launched a new range of split mortgage products and I spoke to Martijn van der Heijden, the banks head of mortgages, to find out how it works and whether it’s something worth considering.
Martijn van der Heijden: We want to offer customers the opportunity to combine a fixed and a tracker mortgage, so they have the benefit of security of the fixed rate, but also the benefits of the low rate and flexibility to overpay on the tracker rate.
CF: And as a concept, you have been able to split your mortgage in this way, its not totally new albeit that you have launched a product that specifically enables people to do it, but its been very niche and a lot of people are probably not aware of it. Does this suit everybody?
MVH: It doesn’t suit everyone, but quite a lot of people. I think if people cannot afford – if base rate goes up at all - they should take a really good fixed rate and we have a few of those, but for most other people they are wondering what to do next, it should suit them.
We are trying to make it as simple as possible, so there is only one rate, one fee, one application process and that gets out of the niches – as you described it – that there was around the product in the past, so we are making it simpler.
I think now is also a different time in history - base rate is very low, we don’t know what is going to happen, we don’t know when the government schemes are going to end, we don’t know what is going on with the banks because they are in a unique situation, so we think it’s, the product is simpler and also the market is very different and quite suitable for it.
So, in general, I think for a large majority of customers this is actually a great product to talk about.
CF: And do you think this is ever going to become mainsteam, because obviously in Australia it is quite common to split your mortgage in this way? Do you think we are going to see the same here in the UK?
MVH: I think we are going to see more of that. So in Australia people are very keen in paying their money off earlier and I think there is no reason why Brits would like their mortgage to last longer then it necessarily needs to.
So, I think we will see an upsurge in popularity, the best time in history right now but I think it will remain as a good set of our products and probably some people will copy us going forward.
CF: Because that’s the other thing isn’t it, as well as the fact that with your rate, part of it is fixed and part of it is variable, the tracker element gives you greater flexibility in how much you can overpay?
MVH: Yes, and its not the same for everyone but our tracker allows unlimited overpayment, so if people have some extra cash – because base rate is low now – on a monthly basis or because there is a bonus or some other inflow, they can overpay and pay off that bit of the mortgage and that means going forward, they will either have lower monthly repayments, or they pay off their entire mortgage earlier.
CF: So, it is an interesting concept, it will be interesting just to see whether consumers get it and it is something that becomes popular?
MVH: Yes, I think talking to customers about a mortgage is important and explaining how this products works, but in general a mortgage is a big step in someone’s life, it’s a big financial commitment and lets face it its quite a complicated market so but its good to talk to our experts - we have quite a lot, the market has quite a few, and you provide a lot of expertise as well.
It is a difficult product, its good to talk to people about a mortgage; hopefully we are contributing by offering some innovation, so there is something that’s right for a large group of customers that’s in the market right now.
CF: Great, thank you Martijn.
MVH: Thank you.