Equity Release and Injection Increased

by Mark Johnston

According to the Bank of England statistics, homeowners have continued to inject equity into their homes but not as much as last year. At the start of 2011 the figures showed that borrowers have increased their financial stake in properties by £5.8 billion, far lower than the £7.1 billion in the previous quarter.

Helpfully the Bank of England has suggested that the lower figures for the first quarter this year is due to the lack of activity in the housing market. The fall in figures shows a fall in the number of sales rather than the increase in prudence of homeowners paying off their mortgages earlier. Over the last 10 years homeowners have borrowed an extra £328 billion against the value of their homes. Insolvency practitioner at HW Fisher and Company, David Birne said “The days of the house doubling up as a cash machine are well and truly over,” “With interest rates at their current negligible level and inflation so high, borrowers know that they are better off paying down their mortgages with any extra cash than putting money into a savings account.”

The Yorkshire Building Society has thankfully brought a quite competitive rate into the market, they offer a five year fixed rate below 4 per cent, with a 25 per cent deposit. If you have up to a 40 per cent deposit then the rate goes up to 3.89 per cent.

First Direct have weighed in where borrowers with a 35 per cent deposit can take advantage of a 3.99 per cent rate with a £899 administration fee. Nationwide offer a 4.29 per cent mortgage rate requiring a 30 per cent deposit and a administration fee of £400.

‘The very cheapest deals are still trackers, and if the base rate stays low, these will be cheaper in the long term. However, if you are looking for peace of mind, then fixed rates are getting more competitive. I would expect to see other lenders reduce rates soon, as well.’ David Hollingworth broker from London and Country.

Market insiders have seen the Bank of England keep the base rate at a record low for over two years and now there is a suggestion that the rate will only increase next spring. And then, it will only be an increase of about 0.25 per cent if at all.

Fixed rate mortgage rates give you the benefit of a consistent and predictable monthly outgoing, lending themselves to slightly higher interest rates to compensate for the currently lower tracker rates. Trackers on the other hand give you the benefit of tracking the Bank of England Base Rate with a few per cent added on top. This gives borrowers a break while interest rates are low but this is equally as dangerous as it is generous in time of good. As the base rate goes up, so will the interest payment on your lending. This is often unpredictable and can lead to significant increases in monthly repayments and in some cases may lead to customers defaulting on their loans.

The best fixed rates are often accommodated by high fees but keep a view for the best rates and middle of the road fees, over the long term, these could present the best value for money over the long term.

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