Fixed or variable rate? Barclays new ‘drop-lock’ mortgage facility offers both

Barclays’ new ‘drop-lock’ mortgage facility may help those struggling to choose between fixed and variable rate mortgage deals.

When it comes to taking out a mortgage, the decision between a variable rate mortgage and a fixed deal can be a tough one. Variable rates are attractive because they allow the borrower to take advantage of low interest rates, but fixed rates provide security in the event of rate hikes.

Barclays’ new ‘drop-lock’ option has been introduced to all its new Woolwich mortgage customers, just as it has also reduced its interest rates on a number of mortgage offerings.

Essentially, the ‘drop-lock’ allows those on a tracker or offset mortgage the chance to later switch to a fixed rate deal without having to pay an early repayment charge for the privilege.

This means that borrowers can take advantage of the current low variable rates, and as and when interest rates start to rise, borrowers can choose when they want to switch to the fixed rate available at that time. This sort of facility would help take away some of the panic that borrowers can feel in choosing the right time to fix their mortgage rate.

Generally, most experts in the media appear to agree that the base interest rate will probably stay at its current rate for some time yet. Many homeowners coming to the end of their mortgage deal are choosing to stay on the lender’s standard variable rate for the time being. When interest rates start to rise, many will turn to a mortgage advisor to help them find the right deal for them at that time. Remortgaging can take a little time to arrange. With this drop-lock, the move to a fixed rate should be faster and easier because borrowers already have the option.

Many mortgage advisors welcome this new facility from Barclays and hope that other lenders will offer suit. In the past, lenders such as NatWest and Lloyds Bank Group have offered this sort of thing, but many later removed the option.

The main points to check with flexible features such as the drop-lock are things such as higher arrangement fees upfront or arrangement fees when you do switch, restrictions on what deals you can move to (such as limiting the options to only one or two fixed products that might not be competitive at the time) and the time it takes to make the switch.

Those training to become a mortgage advisor will learn about these considerations on their CeMAP course.



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