Fixing is always a Gamble

by Mark Johnston

City experts are expecting that the Bank of England base rate will be left at 0.5% but many now see a rate hike in the next few months. Some news reports are suggesting that the Bank of England may increase the base rate up to 8% but market watches including mortgagerates.org.uk have slammed this as nonsense.Most city experts are predicting a rise by the start of 2011 which will leave many borrowers asking the old questions of whether to fix their monthly payments or hold out on cheaper variable rates. Fixing at the wrong time could prove very costly and many borrowers are already strapped for spare cash.

Lenders are now offering some great deals in a bid to attract a larger proportion of the UK mortgage market. The uncertainty in the market and the extent of any base rate changes means that the best deals are for the shorter term mortgages fixed over a two or three year period.

Many borrowers are looking to fix their monthly payments to enable them to budget over the medium term. It also protects them from any changes in the Bank of England base rate. The main issue with fixing at the moment is that the base rate may not change for some time this would result in borrowers paying a lot more in monthly payments than they need to. Any home owners who find themselves in this position would need to pay high early redemptions fees to switch before the mortgage matured.

The low base rate has resulted in many borrowers sticking on with their lenders standard variable rate (SVR) when there previous term ended. This has been a great ideas whilst base rates are low but any future increase will mean that the variable rate will increase causing monthly repayments to increase and the overall cost of fixed rate products to go up.

The alternative is to take out a discount or tracker mortgage. Again, these types of deals are well priced at the moment but may well increase in price with any increases in the Bank of England base rate.

Deciding on a specific type of mortgage has always been a gamble that many borrowers struggle to accept. Its always worth keeping up to date with news in the mortgage market by visiting mortgagerates.org.uk but its impossible to predict what’s going to happen with the UK interest rates. Any report or research telling borrowers otherwise is not being honest as for every reporting confirming increases there is another suggesting that rates will remain static for a while. Either way it’s safe to say that rates will rise at some point but the question is when and to what level.

The best advice is to research the market and keep up to date with developments on mortgagerates.org.uk. its also worthwhile carrying out s stress test to see just how much you can afford. Using your monthly budget calculate how much of a base rate increase can be sustained before a mortgage becomes unmanageable.



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