With the base rate at an all time low, is it the right time to look fixed mortgage rates? You can be forgiven for thinking that because rates are near enough rock bottom, then now is time to get a fixed mortgage deal. But be wary of remortgaging and take a mortgage broker’s advice before you try to compare best mortgage rates on your own!
Yes, the bank’s lending rate is lower than ever before, but at the time of writing, the banks have not said if they will reduce their costs of borrowing. If they do, that will be the variable rates that will reduce – the rate they impose on customers that are not on special deals. This will also follow onto capped rates and discounted mortgages.
But the lenders are not stupid. They know that with mortgage rates at a record low, rates are more than likely to recover in the future – especially over the duration of a 25-year mortgage. They will be calculating whether they think the central banks will maintain the low levels for a few months, lower them further or start to put them back up later this year.
If the lenders think there is any risk of interest rate rises in the next 12 months, then they are not going to tie their own hands by giving 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 . Or they will add a a small amount onto the rate and let it run into 2010.
So who out of the millions of mortgage payers are may be benefiting at the moment from the low base rate? Well the 30% on fixed rates most certainly are not – their fixed rates have stayed fixed. Variable rates, which also includes discounted and capped rates, might have found themselves better off, but with reports that only 19 of the 90 banks passed on last month’s cut in full, there’s a good probability that those on variable rates aren’t seeing great reductions either.
The borrowers saving at the moment should be those on tracker mortgages, but even some of these have lower limits built into them, meaing that if the central bank’s base rate falls below a given percentage they don’t have to keep following it, whilst other banks 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 best mortgage rates for these? Well with capped floors and an climbing gulf between base rate and rate charged, plus the chance base rates will climb over the next few of years, it is anyone’s guess what is best. It all relies 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 can budget what you will be paying? You really need to speak to a financial advisor who can assist you.
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