Mortgage Rates: to Fix or Not?

by Mark Johnston

When a home owner is coming to the end of their current mortgage deal they are then presented with the dilemma, whether their new deal will be fixed or variable!

Therefore it is important to check out all the possibilities there are and to also establish how the different kinds of deals work.

There are two main types of variable mortgages:

–          Tracker mortgages tend to be cheaper than fixed rate deals and mirror the base rate by a certain margin above.

–          Discount mortgages, while still variable they are linked to the lenders own standard variable rate (SVR) by a given percentage below, instead of the current base rate.

According to moneysupermarket.com, a comparison website, 3.5 times as many people search online for discount or tracker deals than fixed deals.

Over the last few years there has been a clear trend for home owners to revert to their lenders standard variable rate (SVR) or even to switch to often cheaper standard variable rates (SVR) rather than re-mortgage on to another fixed rate deal.

However, many lenders have now begun to raise the standard variable rate (SVR) and collectively this will lead to millions of households seeing their mortgage bills rise by around at least £30 a month.

The financial information service, moneyfacts says that the “standard variable rates for existing borrowers ranges from a very competitive 2.5% to 6.0%. The Bank of England’s figures show that the average standard variable rate (SVR) at the end of February 2012 was 4.17% and the Council of Mortgage Lenders (CML) added that “this remains relatively low by historical standards”.

Ray Boulger, of mortgage brokers John Charcol, said “a general upward movement in standard variable rates (SVR) is unlikely until the bank rate changes, which looks set to be at the very least 2 years away”.

Many experts have stated that the current low base rate of 0.5% has only one way to go and that is up, but just recently the international monetary fund floated the idea that the next move for the base rate could be down to 0.25% or even lower.

A suggestion of a base rate cut should be good news for those looking to re-mortgage but according to leading mortgage market observers it would only benefit those on tracker mortgages.

“with interest rates going nowhere, a discounted or tracker mortgage offers great value right now and is likely to for some time, but people concerns about the economy and the slowly imploding euro zone mean that many are choosing the security of a fix”, said Mark Harris, of mortgage brokers SPF private clients.

Therefore at resent fixed rate mortgages are at their most popular in more than 2 years. While fixed rate mortgages do provide the benefit of certainty, they do tend to charge a premium, although these premiums are fairly low.

Mortgage supply is still not meeting demand, which means prices have been going up and there is little evidence to suggest that this will change in the near future.



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