With interest rates remaining uncertain, borrowers are turning to so-called ‘drop lock’ mortgage deals in increasing numbers.  Santander and Woolwich have reported an uptake in ‘switch and fix’ mortgages in recent weeks whilst The Independent reports that brokers have also seen an increased demand for this type of product.

Drop lock deals offer a ‘wait and see’ option

Drop lock or ‘switch and fix’ deals allow borrowers to start out on a low priced tracker rate product.  In addition, they also offer the option to switch to one of the lender’s prevailing fixed rate products at any time.

With prospects for interest rates uncertain, many people are seeking to benefit from a low Base rate with the added safety net of being able to fix their mortgage should interest rates start to rise.

Chris Gardner, director at mortgage brokers Obligo, told The Independent that “switch and fix deals have certainly become more popular and it’s easy to see why they are attractive to borrowers in the current uncertain interest rate environment.”

Lenders including Skipton, Nationwide, Santander, Woolwich, Royal Bank of Scotland and the Yorkshire Building Society now offer such deals.

The Independent highlights Royal Bank of Scotland’s 2.59 per cent variable rate to 31 August 2013 as a good deal.  This is available to 60 per cent LTV with a £999 fee.  The newspaper also highlights a Santander drop lock remortgage deal at a variable rate of 2.19 per cent for two years.  This is available to 60 per cent LTV with a £1,495 fee.

Fix now or fix later?

Whilst drop lock deals offer some excellent benefits, there are some disadvantages to these types of product.

Mr Gardner continues: “The problem with the switch and fix deal is that fixed rates will always go up faster than the base rate curve, and by the time the borrower wants to fix, the best rates will have long gone.

“When a borrower does decide to fix, the deal on the table won’t necessarily be the best on the market, but by then they are tied to that lender and have little choice but to go with the rate on offer.”