by Mark Johnston
Despite the Bank of England’s Monetary Policy Committee’s decision to hold current interest rates at 0.5% borrowers are still looking for ways to protect themselves from future rate increases.
Over the past few months the cost of mortgages has continued to rise despite interest rates being at an all time low. This is mainly due to swap rates increasing since the end of last year which as a result means lenders have to pay more to borrow fund on the wholesale market to be able to lend to their customers. This increase in then passed onto borrowers in ever increasing rates of interest on their home loans.
Many experts have been predicting an increase in the base rate for some time but one has yet to materialise. Those on variable rate mortgages have been benefitting from low rates which have enabled many to be able to pay more off their mortgage each month. The general view between analysts is that there will be a modest increase of about 0.25% in May but don’t believe the hype, many have predicted dates which have come and gone. The UK is still trying to recover from the global economic meltdown and government cuts are only just starting to take effect.
If interest rates do increase (and they will) only those that have fixed their mortgage rates will be protected from rises. The average two year fixed rate deal has risen to 4.59% whilst five year deals have climbed to around 5.66%. Many industry experts are even advising borrowers looking to fix to get a move on as offers are being pulled every day and being replaced by more expensive deals. On average the time deals are available has halved from around a month to just two weeks.
Expert David Hollingworth of London & Country Mortgages said: “Fixed rates are now higher than current variable deals.”
He went on to highlight: “Heightened anticipation of a hike in interest rates has led to a rapid shift in fixed rate mortgage pricing. Lender after lender has moved to increase its rates, often on more than one occasion. Borrowers eager to secure a fixed deal to protect against rising rates will find that they’ve missed out on the lowest mortgage rates, although the products still look good in historical terms.”
Andy Gray, head of mortgages at Barclays offered some advice to borrowers by saying: “We know other factors are likely to bite this year, but homeowners can’t afford to forget about their mortgage. The cost of petrol or rising energy bills may be beyond their control, but homeowners have a golden opportunity now to ensure they have made plans to ensure their mortgage remains affordable through 2011 and beyond.”
Another leading mortgage broker from Private Finance, Melanie Bien went on to say: “The cost of fixed-rate mortgages has soared since the start of the year as the money markets factor in a rate rise sooner rather than later. Those who have not yet secured a fixed rate will now find that the gap in pricing between trackers and fixes is significant, and likely to increase further still.
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