Recent weeks have seen lenders increase their fixed rate offerings. This comes despite the Bank of England base rate remaining at 5%. Many of the fixed rate deals are now over 6% with the average 2 year fixed rate now standing at 6.75%.
Many experts are predicting that the Bank base rate will rise, resulting in prospective and current home purchasers rushing to secure a fixed mortgage deal. In March 54% of borrowers secured a fixed rate mortgage product, this increased to 59% in April.
In uncertain conditions, people are opting for the security of the fixed rate deal, hoping that this will see them through the credit crunch period. The forthcoming weeks and months could see this trend changing.
As fixed rated have increased, the variable ‘tracked’ rates are increasingly looking much more appealing. Presently tracker products are as much as half a percent lower than the fixed rates currently on offer. A tracker is a variable rate which moves in line with the Bank of England base rate.
What should you do? Do you pay a higher rate from the start to get the security of a fixed rate? Alternatively do you pay a lower rate at the start but with the knowledge that your rate could increase? It is a fine balancing act and one which an experienced adviser will be able to help you with.
What Needs To Be Taken Into Account
There are many things that need to be taken into account. Firstly there are the hard facts.
What is the actual difference in rate between the best fixed or the best variable rate? How much would the variable rate have to increase by, to be paying more than the fixed rate, and what is the likelihood of that happening?
Your adviser will look at your personal circumstances; could you afford a hike in your mortgage payment? Are you cautious in nature or are you happy to pay less now and face the consequences should rates rise? The size of your mortgage and the amount of your income are also factors to be considered.
Why are some People Still Opting for Fixed Rates?
Even if the initial payment is higher, many people like to know exactly how much they are paying for a set period of time. This can give you peace of mind and will stop you worrying every time the members of the Monetary Policy Committee in the Bank of England, meet have their monthly meeting.
If you are stretched financially, or if you are taking on a much larger loan, a fixed rate could be just what you need. Many people actually pay extra each month for the financial stability a fixed rate can bring.
Whatever your circumstances, a good advisor will be able to explain all of the options and will make sure that whatever rate you take, it is exactly the right one for you.
For further information and advice about fixed-rate products or on any other mortgage/ financial matter, telephone Express Mortgages & Loans on 01273 276 904.
Express Mortgages & Loans is an appointed representative of Cotswold Mortgage Service Ltd, which is authorised and regulated by The Financial Services Authority. Your home is at risk if you do not keep up the repayments of a mortgage or any other loan secured against it.
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