With two-thirds of homeowners now on an SVR, and interest rate rises expected, borrowers must decide when to fix
The number of borrowers on standard variable rate (SVR) mortgages has risen to two-thirds, according to a recent Bank of England report ? a huge rise on the more recent five-year average of about a half. It leaves thousands of households exposed to the risk of interest rate rises.
The Bank of England has also warned that homeowners need to prepare for a series of interest rate rises to about 5% ? the "normalised" level. If the base rate were to rise by 5% from its current 0.5%, households would need to reduce their debts by 15% to bring the proportion of disposable income spent on repaying their mortgages down to the long-term average.
Howard Archer, economist at IHS Global Insight, says any early interest rate rise in 2011 would be "bad news" for the housing market and for borrowers. So where does that leave the thousands of people currently with variable rate mortgages?
Melanie Bien, director of independent mortgage broker Private Finance, says there is much disagreement as to when interest rates will rise, with no one knowing for sure. The key is to look at your own circumstances.
"If you would struggle to pay the mortgage if rates were to rise, then a fixed rate is the answer," she explains. "They are unlikely to get any cheaper. Indeed, lenders are starting to increase their fixed rates, so you may want to secure one sooner rather than later. If you wait until interest rates are rising, you will find that fixed rates will be priced much higher."
This was echoed by David Hollingworth of independent mortgage broker London & Country. "Borrowers have to focus on their own position and not think about anything else. If they cannot afford base rate rises then they should think about a fixed-term mortgage," he says.
He adds that it might make financial sense to wait until rates start rising before taking out a fixed-rate mortgage, but acknowledges they would then miss out on the very cheapest deals. "Those that have managed to put aside most of what they saved from being on a cheap SVR or used it to reduce the size of their mortgage will be in a decent position now, especially as loan-to-value (LTV) is so crucial to getting a good mortgage these days."
Bien says lenders will let you secure a mortgage rate up to six months before you take it out, so if you are currently on a cheap SVR it is possible to book a fix now, which you could move on to in a few months while continuing to enjoy the low variable rate in the meantime.
"Although two-year fixes are cheaper than five-year deals, there isn't much in it and the latter makes more sense in the current interest rate environment," Bien says. "If rates do start rising in the second part of next year, as many believe they will, those who take out a two-year fix now will have to remortgage again just when rates are higher. A five-year fix, on the other hand, gives you security for longer."
She adds there are some excellent fixed-rate mortgages available, but the best rates are only accessible for those with sizable deposits (or equity) of 25% or 40%. "Other borrowers, particularly first-time buyers with deposits of 10% or less, will find it much more difficult to get a mortgage, never mind at a competitive rate. Those with a 10% deposit can expect to pay a premium on the rate of around 2 percentage points compared with someone with a 25% deposit."
For remortgagers, Bien suggests NatWest's 3.75% five-year fix, up to 50% LTV with a �699 fee (which includes valuation and legal costs). For first-time buyers or those with little equity she highlights Skipton building society's 5.78% five-year fix, up to 90% LTV with a �995 fee.
For those fixing on short-term deals, Hollingworth suggests Hanley Economic's 2.85% two-year fix at 75% LTV with a �449 fee (includes valuation and legal costs); HSBC's 3.49% two-year fix at 80% LTV with a �399 fee (free legal work for remortgages); and the same bank's 3.24% three-year fix at 60% LTV with a �999 fee (free legal work for remortgages), but this product only launches on Christmas Eve.
Hollingworth also likes Skipton's 4.28% three-year fix at 85% LTV with a �995 fee (free valuation and legal work for remortgages); Royal Bank of Scotland's 3.75% five-year fix at 50% LTV with a �699 fee (available on remortgages only with free valuation and legal work); and Darlington building society's 3.99% five-year fix at 80% LTV with a �1,074 fee (free valuation in your local area).
Television industry Dimitar Berbatov Hotels St Petersburg Social networking Self-catering
No comments:
Post a Comment