Now that we have the base lending rate at a record low, is it time to be looking fixed rate mortgages? You can be forgiven for thinking that because rates are about as low as they are ever likely to be, then now is time to get a fixed mortgage deal. But be wary of remortgaging and take professional 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 are yet to announce if they will reduce their costs of borrowing. If they do, that will be the variable rates that will come down – the rate they charge to customers that are not on special deals. This will also follow onto capped rates and discounted mortgages.
But the banks are not soft. They know that with base rates at a record low, rates are more than likely to increase in the future – especially over the period of a 25-year mortgage. They will be deciding whether they think the central banks will keep the low levels for a few months, drop them further or start to put them back up later this year.
If the banks think there is any chance of interest rate rises in the next 12 months, then they are not going to tie their own hands by offering low rate fixed mortgages for 2, 3 or even 5 years. Instead, they will offer good looking fixed rates that go back to the variable rate at the end of 2009 possibly for a long tie in period. Or they will add a an increment onto the rate and let it run into 2010.
So who out of the many mortgage payers are probably benefiting at the moment from the low base rate? Well the 30% on fixed rates probably are not – their fixed rates have stayed put. Variable rates, also taking in discounted and capped rates, might have benefited, but with reports that only 19 of the 90 lenders passed on December’s cut in full, there’s a good certainty that those on variable rates aren’t benefiting either.
The borrowers seeing reductions at the moment is supposed to be those on tracker mortgages, but even some of these have protection for the lender built into them, meaing that if the central bank’s base rate is reduced below a given level they don’t have to keep tracking it, whilst other lenders have increased the amount above the base rate their new tracker mortgages follow.
Are trackers the way forward and you should try to compare mortgage rates for these? Well with capped floors and an widening gulf between base rate and rate charged, plus the chance interest rates will climb over the next few of years, it is anyone’s guess what is best. It all relies on your financial situation and outlook. Are you wanting to take the chance of a low rate with trackers, but able 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 must speak to a financial advisor who can help you.
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