Homeowners urged to fix mortgage rate

HOMEOWNERS coming to the end of their mortgage deal are being urged to sign up for a fixed-rate loan.

Homeowners are being urged to sign up for a fixed rate deal Homeowners are being urged to sign up for a fixed-rate deal

With interest rates held at 0.5 per cent last week, mortgage experts believe that fixed-rate home loans are the best longterm solution.

“Now is the time to move to a fixed-rate deal with at least a five-year term,” said Stuart Law, chief executive of property firm Assetz.

“Those homeowners with precarious finances in particular should avoid the temptation to continue enjoying low repayments on their tracker or variable-rate mortgage, as the next interest rate movement will almost certainly be up, before the end of this year.”

The action taken will depend on individual situations and risk profile, the loan-to-value (LTV) of the mortgage, as well as the existing lender’s standard variable rate (SVR).

Melanie Bien at Savills Private Finance said: “If you are on one of the relatively high SVRs of 4 to 6 per cent, you may want to grab a fixed rate, to give cheaper payments now and future security.

“If you have a high LTV you may also want a fixed rate now rather than wait until property prices fall further and you have even less equity in your home, which may make remortgaging more difficult.”

For those on a really cheap SVR such as Nationwide’s — currently 2.5 per cent — it may be worth staying put, says Bien.

“Once rates start to rise, you could consider a fix but fixes will also be rising by that time so you won’t get rates as cheap as you could now.”

Brokers favour longer-term deals at around five years because there is a growing feeling that interest rates will

remain low for the rest of this year and into next, but will then start to rise and could increase as rapidly as they have fallen.

Bien added: “If you are coming off a deal in two years, you may find that this is just the time when rates are increasing so you will have to fix again at a much higher rate. A five-year fix gives you security for the longer term and with rates at less than 5 per cent, deals are competitively priced.”

Those who need a 75 per cent LTV mortgage would qualify for Alliance & Leicester’s two-year fix at 3.49 per cent, or NatWest’s at 3.79 per cent. Those only needing to borrow 60 per cent, could lock in to HSBC’s fixed rate at 2.89 per cent.

Tracker mortgages, which rise and fall in line with the Bank of England base rate, are also appealing now, say some

experts, because they appear to be relatively cheap.

Louise Cuming, at Moneysupermarket. com, said: “The average two-year fixed-rate deal is 3.71 per cent, while the average tracker rate is 3.16 per cent.

“Some borrowers may prefer to take the gamble of opting for a lower, variable rate now. For others, the premium of a fixed rate will be worth the peace of mind it offers.”

Bien added: “The historic average for rates is around 5 per cent so while 3 per cent above the base rate now may look affordable, if rates did return to around 5 per cent would you still think the same?'

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