Mortgage Borrowers Faced With Fixed Rate Dilemma

The decision by the Bank of England to keep interest rates on hold at 0.5% on Thursday is creating a dilemma for mortgage borrowers. Should they move to a fixed rate mortgage or not?

With interest rates at an all time low for the 22nd month in a row, there is a growing feeling amongst economists that inflationary pressures are bound to force base rates up this year.

A small rise in mortgage interest rates could lead to large increases in monthly repayments.

For example, someone with a 25 year term £150,000 repayment tracker mortgage at 2.17 per cent will currently be paying £648 per month. A 0.25 per cent increase in Base Rate would see their repayments rise by £19 a month. However if Base Rate climbs by one percentage point they would be paying £725 a month – an increase of £77.

Should rates rise further than this towards the end of the year, research from MarketGuard, a specialist insurer, shows that 2.7 million variable rate mortgage holders would struggle to pay an extra £100 per month.

So mortgage holders should seriously think about fixing their mortgage now, whilst they are available at competitive rates, advises price comparison site, moneysupermarket.com.

Time may be of the essence as a number of lenders including Lloyds TSB and Newcastle and Skipton building societies have withdrawn some of their fixed rate deals in recent days.

Newcastle is launching some new, higher rates today. NatWest also increased some of its fixed rates last week.

“It’s still possible to get a two-year fix under 3.00 per cent and you can fix your mortgage payments for five years at under 4.00 per cent.”, says Clare Francis, site editor at moneysupermarket.com.

“However, most fixed rate mortgages have early repayment charges so borrowers will face a hefty penalty if they need to get out of the deal during the fixed term. This is something to bear in mind when deciding what length fixed term to go for.

“Anyone unsure about what mortgage to go for should get advice from an independent mortgage broker.”, she added.