Fixing your mortgage
By Neil Stephens, Head of Mortgages at Welbeck Group.
There has been a huge amount written about the state of the housing and mortgage markets over the last 2 years and given how inextricably linked the two are it is of no surprise that waves made in one pool impact the other.
The current press commentary is really shouting “Fix your mortgage now!” and is something strongly encouraged by banks, building societies and mortgage professionals alike. However, I think that there are definitely points of view here and these are dependant not only on your financial situation but also your outlook on the economy.
For those looking at their finances and thinking that they want longer term protection, fixed rates provided now mean that is definitely a great time to consider fixing. Rates are at historical lows and those with good levels of equity can fix for up to 7 years at rates below 4%. Lenders are playing hard ball with their credit scoring process and assessment of income and expenditure, so while the best rates may look fantastic they are controlling how much they lend quite aggressively.
Another point to bear in mind here is the ability to move during the fixed period. Whilst a lender may offer a fantastic long term fix today, a key consideration should be the cost and availability of the extra borrowing that many need when they move. Will your provider offer that when you need it?
Those looking at the economy will perhaps take a view of "why should I fix when the economy is on its knees?" I take a slightly contrarian approach here; if a lender is offering a fantastic fixed rate they feel that rates will not rise, conversersly when they are encouraging you to take a tracker its because they are really confident rates will rise. Now, while that’s not particularly scientific it does seem to match economists forecasts for the next few years. Indeed Royal Bank of Scotland’s economists do not believe the Bank of England will raise base rates until the start September / October 2013…….. So why change to a fixed rate if nothing will happen with your current rate?
Of course sitting on a lenders Standard Variable Rate does have its dangers if its not linked to the base rate but with homeowners struggling financially, I cannot see too many lenders raising rates at this time.
Moreover, another side issue is the availability of mortgage finance in the coming years. The impact of regulatory changes and base rates remaining on the floor will mean that they have little capital to lend. We have seen lenders pulling back this year as they struggle to attract deposits from savers and to build their capital balances to meet the requirements of the regulator.
For now I think that the key point is to seek advice from a professional and then make a decision you are comfortable with.
