With interest rates at a record low of 0.5% there’s probably more chance of selling ice to eskimos than there is of convincing a borrower to take out a fixed rate mortgage at a rate of just under 5%.
Variable rate mortgages, especially trackers, are back in vogue. Indeed, anyone who took out a fix back in early 2008 will not be in the happiest of moods with our low interest rate environment set to continue for the next 12 months.
Indeed, the decline in popularity of fixed rate mortgages was recently highlighted by John Charcol’s Mortgage Activity Monitor when it revealed that just one in four people are now choosing to fix, down from eight out of 10 people in June this year.
Drew Wotherspoon, spokesman for John Charcol, puts the recent trend down to the rapid change in mortgage pricing and interest rate sentiment over the last year.
“With the outlook for interest rates little changed over the last month an even higher proportion of borrowers chose a variable rate mortgage, in most cases a tracker. The Bank of England’s announcement this month of an extension of the Quantitative Easing programme by a further £25bn is another indication that Bank Rate in unlikely to rise in the next few months,” he adds. “Even if longer term fixed rates don’t get much cheaper than those currently available at just under 5%, there seems a good prospect that borrowers on a variable rate will be able to benefit from rates more than 2% lower for the time being and then switch to a similarly priced fixed rate later.”
Interest rates may well be at record lows but that’s not necessarily the right reason to opt for variable rate mortgages. And as we have recently seen with the economic crisis in Dubai, markets can be volatile and you can never be sure just what’s around the corner. Should interest rates suddenly spike those on a variable rate could suddenly find themselves out in the cold.
While the majority of fixed rates don’t look that attractive compared to their variable rate counterparts deciding whether to fix or twist can have a serious effect on your lifestyle.
So what should you look out for?
Here are Money Hospital’s five reasons to consider fixing.
- We might be experiencing low interest rates at the moment but they are not going to last forever. While most pundits predict that interest rates will remain low for the next 12 months when they go up they are likely to shoot up drastically.
- Interest rates are at the lowest they are going to go and most pundits agree that the best time to secure against future rate rises is to look at locking in now.
- House prices are far from steady and price falls seem a real possibility for 2010. But if prices do fall further you may not be able to get the best deal when it comes to remortgaging. Each time prices drop it reduces the available equity in your property. Fixing now can ensure than you remain within the all important 75% LTV threshold and get the best deals currently available.
- Traditionally buy-to-let deals on variable terms have been the norm for investors. However with market movements so uncertain landlords might want to consider a fix for a prolonged period so they know what they have to achieve on rental income and price accordingly.
- Payment security is a real benefit in such an unstable economic climate. Those worried about job security, the possibility of being made redundant or the lack of a bonus at previous levels might want to look at fixing their payments now to insure against future losses. Planning a lifestyle budget will be easier if you can fix your monthly living costs and guard against future rate rises – short-term pain for long term gain.
Possibly Related Posts:
- Clearing up the confusion over house prices
- How students are boosting the property markets in university towns
- Do holidays really kill the property market?
- Are mortgages tied to current accounts really such a bad idea?
- Is this a good time to buy a house?
