Your questions answered
This is a decision that you must reach on your own, depending on our financial circumstances and attitude towards risk.
Choosing whether to go for a fixed-rate mortgage or a tracker mortgage isn't always an easy decision to make. However, ultimately, you need to decide what suits you best and how your finances are looking.
A fixed-rate mortgage charges a fixed amount of interest for a set period. Typically, fixed-rate mortgages last for two, three or five years. In comparison, the interest rate on a tracker mortgage is usually linked to the base rate and may therefore fluctuate.
Typically trackers will charge the base rate plus a certain percentage - say 1.5%. As a result, they are generally cheaper than fixed-rate mortgages and that's the main attraction - particularly right now while the base rate is so low.
If your finances are tight, you may think the obvious solution is to go for a tracker mortgage because your monthly payments are cheaper. However, you need to bear in mind you'll be taking a risk.
Although base rate isn't expected to rise anytime soon, at some point, it will. And you need to assess whether or not you can afford for this to happen. If a rise in interest rates would result in you being overstretched financially, you'd be better off sticking to a fixed-rate mortgage. If, on the other hand, you can afford for rates to increase, it may be worth taking that risk.
However, it's also worth noting that while interest rates for tracker mortgages are obviously low at the moment, so are fixed-rate mortgages. For example, one of the best paying tracker mortgages is from first direct, charging 1.99% for two years.
If you had a mortgage of £200,000, your monthly repayments would be £852.67. But if you were to take out a two-year fixed-rate mortgage with HSBC at a slightly higher rate of 2.54%, your monthly repayments won't actually be that much more at £904.74.
Admittedly, this does add up over time, but if you'd prefer to have the security of a fixed-rate mortgage, it also means you won't be paying out much more each month.
If you're still not sure which option to go for and you'd like a compromise, some mortgages now allow you to have a low rate tracker for a few years and then move onto a fixed-rate with the rate set at the outset, or they allow you to switch from your tracker penalty-free onto one of a range of fixed-rate mortgages with your lender when you choose. So you get the best of both worlds.
For example, Accord Mortgages has a hybrid mortgage that offers a two-year tracker followed by a three-year fix. So you could choose a tracker rate at 3.09% for two years followed by a three-year fixed-rate at 4.09%.
This type of mortgage is ideal for those of you who want to enjoy low rates now but still have the reassurance that you can fix later on. The downside is that you won't be getting the most competitive interest rates on the market and you will have to stick with your lender when you choose your fixed-rate deal, unless you pay a penalty.
To read more about these options, take a look at Mortgages that keep your options open. Finally, don't forget that as well as comparing interest rates on mortgage deals, you should also always take a look at the fees which can vary dramatically.
SVR stands for standard variable rate, which is the interest rate usually charged by a lender when the fixed, discounted or tracker period of a mortgage deal comes to an end.
Unlike the base rate, which is set by the Bank of England, the standard variable rate (SVR) is usually set by your lenders and is entirely in their hands. It can change whenever your bank, building society or mortgage company wants to so they can vary significantly from one mortgage provider to another.
They are loosely linked to the base rate as lenders tend to adjust them after changes in the Bank of England base rate, but there is no guarantee they will rise or fall in line with the official rate.
For example, a number of lenders including Halifax, Royal Bank of Scotland, Bank of Ireland and Clydesdale and Yorkshire banks have recently increased their SVRs despite interest rates being frozen at 0.5% for the last three years.
Similarly, when base rate dropped from 5% to 0.5% between October 2008 and March 2009, only one out of the top 20 lenders cut its SVR by the full 4.5 percentage points. This highlights how unpredictable SVRS can be.
For a while after the base rate plummeted SVRs were good value, often under-cutting other mortgage deals, but this is not usually the case. As a rule of thumb, you should avoid your lender's SVR, unless of course the rate being offered is the cheapest one available.
Even under these circumstances, you should always remember that the rate is variable so it can change at any time with very little warning.
You need to get in touch with your lender as soon as you can if you are going to fall behind with your mortgage.
First, don't panic. The fact that you realise you have a problem that needs sorting is a step in the right direction. Ignoring the issue will make matters worse - and abandoning your home doesn't mean you avoid paying your debts.
You need to tell your lender as soon as you can if you are going to fall behind with your mortgage. Don't assume they will be unhelpful: lenders have procedures in place and won't judge you. It's in their interests to keep you in your home if that is at all possible.
Being behind with your mortgage doesn't mean automatically losing your house: lenders these days have a policy of forbearance which means they will try not to repossess unless they have no choice.
They will have a variety of options open to them to alleviate your costs such as lengthening the term of your mortgage to cut monthly repayments or letting you switch temporarily to an interest-only loan.
You should seek advice from one of the free money advice organisations designed to help those with money troubles. If you don't want to approach your lender direct, then you can ask the debt advice organisation to do it for you.
You also need to find out whether you have access to any financial help - you might qualify for benefits or government schemes which can help.
Again, a free debt advice agency will be able to help you. The main benefit is Income Support for Mortgage Interest (ISMI) which you can get - with limits - if you are on various benefits.
It's all down to their different methodology. Each has its strengths and weaknesses - none is infallible but all can give a picture of the market.
There are two government indices, one from the Department for Communities and Local Government and the other from the Land Registry. The first is based on mortgage valuations from lenders but it does lag by a couple of months.
The Land Registry index is in many ways the most accurate as it covers all actual sales - not just valuations - but it only covers England and Wales.
In addition, it comes out at least a month after the Halifax and Nationwide indices and as it is on completed sales, not when mortgages are approved, it's more of an indicator of the health of the market a couple of months before its figures are produced.
Both the Halifax and Nationwide indices are based on the lenders' own mortgage approvals. As Halifax has around 10% of the mortgage market, that's a large proportion of the market.
However, the downsides of both these indices is they don't take into account properties bought without a mortgage and around 40% of UK homes are owned outright. And they are not based on completions, but approvals.
The Hometrack index is based on the opinion of around 4,000 estate agents as to what's happening with house prices. Rightmove's index is based on the selling prices on its site.
And the other main index - that from the Royal Institution of Chartered Surveyors - has been going since1978 and is based on what its members say is happening to home prices in their area.
The amount of stamp duty you pay will be determined by the price tag on the property.
Stamp duty land tax (SDLT) is a levy paid on purchase of land or property. The rate it's paid at depends on how much the property or land you're buying costs.
Until 24 March 2012, there was a special concession which meant first-time buyers did not have to pay stamp duty if the homes they were buying cost less than £250,000.
Now everyone pays stamp duty if the property they are buying costs £125,000 or more. But if your new home happens to be in an area designated by the government as 'disadvantaged', then you may escape paying the duty.
Homes in areas that meet the criteria qualify for Disadvantaged Areas Relief, which raises the threshold from £125,000 to £150,000. Even though there is no duty payable, you must complete an SDLT return and send it H M Revenue and Customs.
Then it is tiered. So, if you buy a home costing between £125,000 and £250,000 the rate is 1%; between £250,000 and £500,000 it is 3%; between £500,000 and £1 million it is 4% and over £1 million it is 5%.
What confuses buyers is that the payments aren't tiered: so if you buy a home for £249,999 then your stamp duty bill is £2,499 (1%) but if it's £251,000 it's £7,530 (3%): which is why you'll see homes on the market with price tags close to the tier limits.
Stamp duty has to be paid within 30 days of completion of the sale, although in practice your solicitor will usually settle the bill at the time of the purchase.
Because there are concerns that some borrowers may not be able to repay the mortgages upon maturity of the loans
Already this year, Santander, Lloyds Banking Group and Nationwide have cut back access to interest-only mortgages. And it's not only new borrowers who are being affected as existing borrowers wanting to move may need to provide a bigger deposit than those wanting repayment loans.
Lenders have turned against interest-only because of concerns over the safety of these loans: namely, that borrowers may not have enough money to repay the capital borrowed when the loan matures.
With interest-only mortgages, borrowers pay only interest over the mortgage term with the original capital borrowed having to be repaid when the loan matures. With a repayment mortgage, interest and capital are repaid over the term of the mortgage.
Nationwide has become the latest major mortgage lender to dramatically pare back access to interest-only mortgages. Interest-only mortgages became popular in the 1980s when borrowers were encouraged to take out these loans while also paying into an endowment policy which was meant to repay the capital, although many failed to do so.
Today's problem with interest-only loans is that borrowers were allowed to take them out with no method of repaying the capital in place. Interest-only loans cost a lot less than a repayment one - a £200,000 mortgage at 5% on interest-only costs around £830 a month; on repayment it would be £1,180.
Some borrowers switched to interest only to save cash in the current financial crisis. Around 40% of UK mortgages are on an interest-only basis, and most of these have no vehicle in place to repay the capital.
Martin Wheatley, chief executive designate of the Financial Conduct Authority told MPs recently that interest-only mortgages are a "ticking timebomb".
The typical criterion is three or four times annual income, although there are many other factors that influence a lender's decision.
This used to be very easy as back in the pre-credit crunch era, lenders would stretch as far as they could using income multiples, often exceeding the typical three or four times salary calculation.
These days, it's all about affordability - plus how much hard cash you've got to put down as a deposit.
There are lenders offering mortgages for more than 90% of the purchase price (this is expressed as 90% loan to value or LTV) they are few and far between and you'll pay more interest the smaller your deposit.
But as well as the size of your deposit in relation to the value of the home you want to buy, your lender will also look at your credit score. If that shows that in the past you've had a problem repaying debts, then lenders may turn you down or offer to lend you less.
Lenders will also look at your income and your outgoings. They will want to make sure you can afford the repayments if interest rates rose or your income was cut temporarily.
They are unlikely to approve a mortgage that will account for more than a third of your net income and will take into account any existing borrowing you have such as credit card debts.
They will still use income multiples as a guide - so if two of you are buying together you might get three times your joint salary - but they will want to be sure that if you take out a large mortgage, you can actually afford it when you take into account other expenses of being a householder such as insurance and council tax.
This largely depends on your financial circumstances the cost of your current rent and how different it is from a potential mortgage.
Let's assume you have the choice: in other words, you have a sizeable deposit and a salary large enough to support a mortgage. If so, it comes down to what you think will happen to house prices and the costs of renting a home.
Rents have risen fast over the last year, thanks to fewer would-be first-time buyers able to climb onto the housing ladder. But it now seems that this could have turned and landlords are demanding smaller rents for homes.
Renting gives you the flexibility to move when you wish and you avoid some of the responsibilities of homeownership, namely maintenance.
However, it also means you have less security as your landlord could change their mind and want to sell up. Also you still have costs when you move – you'll need to stump up a large deposit when you take on a tenancy.
House prices fell in most places last year and this year the consensus is that there will be little movement although the end of the stamp duty holiday will have created a short term boost.
However mortgage rates are a good deal and over the long term, housing usually provides a good return.
Unlike renting, the big advantage of buying is that you own an asset which should rise in price, rather than just lining your landlord's pocket - and as long as you keep up with your mortgage, you'll always have a roof over your head.
This depends on your circumstances, but equity release should only be considered after a lot of thought and legal advice.
Equity release is a way for homeowners aged 55 or over to raise cash from their homes without having to move. The usual way of doing this is by taking out a lifetime mortgage.
With these, the homeowner does not make repayments. Instead, during their lifetime the loan rolls up, with interest, and is repaid when the homeowner dies. Then the home is sold, and the equity release company repaid with added interest.
Equity release is not an easy option and should only be considered after a lot of thought and legal advice.
While it does offer a way of raising money for elderly homeowners who have suffered from compromised income thanks to low savings rates, you are giving up a lot for a little.
You may be able to remain in your home but your children will not be able to inherit it and if you live for a long time, then the interest rolled up will be large.
While you can't end up owing more than your home's value (plans come with a no negative equity guarantee) your children's inheritance can be severely affected.