AppId is over the quota
For many years long-term fixed rate mortgages have been the backbone of the UK mortgage market, ensuring your repayments remain the same for ten years or longer, allowing you to budget easily for your monthly repayments to the bank or Building Society. However, recent research shows that these long-term fixed rate mortgages have all but disappeared and those that took out such long term mortgages may have paid out thousands more than they needed to in interest charges over the years.
Figures for the UK from summer 2011 showed that there were just three fixed-rate mortgage deals available for for ten years or longer on the market, compared to 125 similar deals back in 2008. This is despite there still being a huge demand for such a product. When one particular UK Building Society launched a ten year fixed rate mortgage product earlier this year [2012], it had to close the offer after just 2 weeks having sold the full quota.
But while long term fixed rate mortgages offer security in terms of knowing what you will have to pay each month and for how long, there are drawbacks, mainly that the borrower ends up paying far more in interest than if they had taken a two year fixed term mortgage and then reverted back to the lenders variable rate after the initial fixed period. There are also usually early redemption charges. And of course most of us do not really know what we will be doing or what our financial position will be in 5 to 10 years time so is it really a good idea to lock yourself into a specific mortgage interest rate for this long a period.
On the other hand over a million people who had opted for a standard rate variable mortgage with Halifax suddenly found in March 2012 that the bank was significantly increasing its standard rate by 0.50%. The Royal Bank of Scotland/Natwest group also announced its Standard Variable rate would go up by around 0.25%, affecting around 200,000 borrowers and a couple of other lending institutions also announced hikes in interest rates. Fixed mortgage rates had been at an all time low back in the summer of 2011 but are slowly creeping back up. Those now looking around for a better deal and to switch their mortgage are finding that to benefit from a lower interest rate they need to be able to provide at least 15% equity, and in some cases as much as 40%.
Whether moving to a new mortgage product is the right more for you will depend on your personal circumstances. Certainly, if a borrower is paying a standard variable rate of 4 per cent or more and they have a reasonable amount of equity in their property, then a move to a life-time tracker mortgage could save a decent amount from monthly repayments and ensure the interest rate only rises when the base rate does.
No-one can really predict what will happen to mortgage interest rates over the next couple of years. The recent interest rate hikes by certain lenders has shown the risk associated with taking a standard variable rate and you are at the mercy of the lender. But with continuing economic gloom and doom, interest rates are likely to stay low, but a fresh recession dip or new credit crunch could see rates rise again.
The problem for borrowers is that there is no way of knowing whether interest rates have hit the bottom or whether they will continue to fall. There is no doubt still a little room for lenders to lower rates if they wish but lenders are boosting their rates to cover the risk of people not being able to afford their repayments and the fact that financial regulators are demanding the lenders have enough capital to cover themselves adequately for mortgage loans. The fear factor from both borrowers and lenders is currently the underlying principles dictating whether mortgage rates rise or fall.
Rachel Gawith runs TheTravelBug website for independent advice on buying in Bulgaria, gained for her 5 years experience in the property market there and on the ground experience of living in central Bulgaria for close to three years. Rachel also run a Permanent Property Exchange service to allow people to swap their UK terraced house for a place in the sun or help expats abroad move back home.
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