Given that the central banks have set the base rate at an all time low, is it time to be looking fixed mortgage rates? You can be forgiven for thinking that because rates are about as low as they are ever likely to be, then now is a good time to fix a mortgage. But be wary of remortgaging and take professional advice before you try to compare today’s mortgage rates on your own!
Yes, the bank’s lending rate is lower than it has ever sunk before, but at the time of writing, the banks have not said if they will reduce their interest rates. If they do, it will be the variable rates that will reduce – the rate they impose on customers that are not on special deals. This will also affect capped rates and discounted mortgages.
But the banks are not stupid. They know that with base rates at a record low, rates are more than likely to climb back up in the future – especially over the period of a 25-year mortgage. They will be comtemplating whether they think the central banks will hold the low levels for a short time, lower them further or start to put them back up later this year.
If the lenders think there is any risk of base rate rises in the next 12 months, then they are not going to tie their own hands by offering low rate fixed mortgages for 2, 3 or even 5 years. Instead, they will offer cheap looking fixed rates that go back to the variable rate at the end of 2009 possibly for a long tie in period. Or they will add a an increment onto the rate and let it run into 2010.
So who of the millions of mortgage payers are probably benefiting at the moment from the low base rate? Well the 30% on fixed rates probably are not – their fixed rates have stayed fixed. Variable rates, also taking in discounted and capped rates, might have found themselves better off, but with reports that only 19 of the 90 lenders passed on December’s cut fully, there’s a good chance that those on variable rates aren’t benefiting either.
The group paying less at the moment should be those on tracker products, but even some of these have floors built into them, stating that if the central bank’s base rate is reduced below a given level they don’t have to keep tracking it, whilst other lenders have increased the amount above the base rate their new tracker mortgages follow.
So are tracker mortgages the way forward and you should try to compare today’s mortgage rates for these? Well with capped floors and an widening gulf between base rate and rate charged, plus no doubt interest rates will climb over the next couple of years, it is anyone’s guess what is best. It all is dependent on your financial position and outlook. Are you wanting to take the risk of a low rate with trackers, but can afford to pay if they do go up? Do you need to budget carefully with a fixed rate mortgage so that you know what you will be spending? You must speak to a financial advisor who can help you.
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