Time to Look at Fixed Rate Mortgages?
March 14th, 2011 | 
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There are several ways to find your dream home. If you have the money, you can simply go out and find a property that is walk-in ready and ticks all the boxes. Alternatively, if you have an ambitious and creative imagination, but perhaps more limited financial resources, you can look for a property that needs work. If this work amounts to restoration, you are essentially purchasing a largely blank canvas through which to express yourself. Whichever approach you take, you are almost certain to need the prosaic assistance of mortgages to make your dream purchase a financial reality.
Mortgages are still a competitive market, even after the credit crunch and the resulting restricted lending practices of many of the banks. Most of the major players offering mortgages, like high street bank Santander, are now encouraging customers to look at fixed rate deals. This applies to both first time lenders, and those looking to remortgage. It would be foolish to dismiss this move as the banks simply trying to make more money out of customers currently enjoying low interest tracker deals. The base rate of interest set by the Bank of England looks set to rise in the near future, and when this happens, the change will have a knock on effect for mortgage holders everywhere – especially those on variable rate deals.
The simple fact is that your mortgage lender wants you to continue to be able to afford your mortgage payments. Not only does legal regulation require the banks to try and keep repossessions to a minimum, it also makes commercial sense to make sure that customers do not default on the mortgage. While repossession leaves the bank with a saleable property, there is no guarantee that a sale will realise market value in these challenging times. Add to this the administration costs of dealing with a repossession, and there are plenty of reasons that your lender wants to keep you in the deal until the end of the mortgage, before the human cost of losing your home is even factored in to the equation.
Fixed rate mortgages can provide a bit of certainty in an uncertain future when it comes to planning the family finances. Many of the deals currently on offer fix rates for around two years, making budgeting during this period a bit more straightforward. The Bank of England base rate, and therefore interest rates across the economy, can change a lot in two years. Rising inflation has been a persistent headache for several successive quarters. This means that there is every chance that the base rate will rise significantly in the short to medium term, as the classic monetary policy response to countering rising inflation.
However, the base rate currently remains at a record low, so now could be the time to fix. As lenders offer fewer variable rate mortgages, competition should increase in the fixed rate mortgages market. Look out for the interplay of arrangement fees, cash back and minimum deposits required when you start comparison, as these issues can amount to significant factors.
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