Fixed-rate mortgages - is now the right time?

13 June 2011

Picture 5Poor old George has been under fire recently. All sorts of industry spokespeople have been coming out of the woodwork to suggest that his ‘austere’ measures have pushed the green shoots of recovery (remember that old chestnut) back into the ground from whence they came.

But it appears that the plant stomping has had an effect that will please mortgagees and drive savers to despair once again. Poor economic performance, coupled with the departure of the ‘hawk’ from the Bank of England interest rate committee means that those in the know are now predicting an increase to the bank base rate will be delayed until at least January 2012, with a further quarter percent rise to 1% in August 2012, according to The Sunday Times.

At the same time, some lenders have come out with some of the most attractive mortgage deals we have seen, provided (of course) that you are blessed with a deposit of at least 25%; the Bank of England said two-year fixes for those with a 25% deposit were the lowest on record, at 3.47% in May, down from 3.66% in April.

And we now have the return of five-year fixed-rate mortgages for less than 4%, including Yorkshire building society, the second-biggest mutual lender, who announced a five-year fix at 3.99% for borrowers with a 25% deposit last week, providing you stump up £995 cash as well. Yorkshire-owned Chelsea building society also cut its five-year fix to 3.89%, but this needs a 40% deposit and has a £1,995 fee. A mere 0.1% lower rate but an extra £1,000 to pay and a fatter deposit? Er thanks, but no thanks.

But where one lender leads, others are sure to follow, and this does lead to a quandary- is now the right time to fix? Will better deals come along? And most importantly, will it actually save you money?

Whether it will save you money or not depends crucially on the deal you currently have- for example, if your existing mortgage is a £200,000 capital repayment mortgage on a standard variable rate of 2.5%, fixing at 3.99% would mean your repayments would rise by £90 a month. However, over five years, assuming standard variable rate would increase to 4.75% by the end of the five years, in line with expected base rate movements, the total saving would be around £800. Nice, but not great.

However, using the same calculations by brokers L&C,  if you are currently paying an average standard variable rate of 4.8% on your mortgage, your repayments would fall by £150 a month and they reckon you would save more than £17,260 over five years fixing at 3.99%, assuming the SVR rose in line with Bank rate. Much more tasty.

But even if you don’t want to fix, there are good tracker mortgage deal about too. Abbey for Intermediaries, has just introduced a two-year tracker at  just 1.49 points above Bank rate, so currently 1.99%. However, it is only available through brokers, for those with a 30% deposit and it has a £999 fee. It is also only available until Friday.

But beware- Ian Gray at largemortgageloans.com warned that borrowers with smaller loans may not benefit enough in the two years to outweigh the fees.

And that is really the point. No-one can know for sure what interest rates are going to do, and the best anyone can do is offer a best estimate, but you can compare the estimated savings with what it would cost you to move your mortgage. Simply put, the higher the fee, the greater the savings need to be, and the shorter the period, the greater the differential between your current rate and your new rate needs to be. If the figures don’t add up on best estimates, no matter whether it works for your neighbour, or his dog, it probably doesn’t add up to a good deal for you.

TOPICS:   Mortgages   Economy

4 comments

  • MrRobin
    You scoffed at the £1,000 extra fee for only a 0.1% reduction in interest rate, but if you're borrowing £207k or more then you would be better off with the Chelsea deal after 5 years.
  • Ricky R.
    Its always a gamble no matter what you do and the only ultimate winners are the banks, but, they are gambling as well, its a bit like going to a shit casino really, when most of the odds are weighed in the Casino Houses (Banks) favour. But if you fancy a punt fuckit, just do it I fixed my mortgage for five years back in January of this year at a rate of 3.89%, cost me £99 with first direct. I'm paying out more per month now than I was before I took the mortgage out. But, and this is my point, I know exactly how much I'm paying per month for the next 5 years, giving me piece of mind in these uncertain times. So it all depends on what your 1st consideration is towards your financial circumstances . I hope at worst to break even on this gamble, to which I will be happy. If I save money i'll, be delighted. Just remember kiddies " THEY FUCK YOU WITH THE BANKS!!!"
  • Andrew R.
    I bought my first house 3 years ago on a tracker. I was sort of lucky, mortgage started out at ±£850 a month, is now down to £440. As soon as there's talk of interest rate rises from my IFA I'll swap over to fixed. I've done quite well out of this recession so far!
  • andy y.
    Fix if you want to know what your costs will be. Variable if you can take an upside hit. It's not that complicated.

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