Time to fix your mortgage?
A lot of people have been asking me recently whether it’s the right time to fix their mortgage payment in light of the fact that rates have started to go up.
And it’s a very interesting question without a very straightforward answer, but here’s the main considerations to think about.
Firstly if you are on or about to go onto your banks standard variable rate, is it below the current fixed rates? Many banks haven’t passed on the full rate cut and there are SVR’s out there far higher than current fixes if you have a decent amount of equity in your property. There are fixed rates available around the 3% mark if you have 25-30% equity.
So if your current rate is above 3% then it’s well worth considering if you have the equity there however if you don’t have a lot of equity or if you have any significant adverse credit the picture changes considerably and it may be better waiting till rates are about to jump significantly, it largely depends on how much more a month you will have to pay in order to fix now.
If you have a very low standard variable rate then the really big question is when will bank base rate go up and by how much? And while Mervin King announced that it definitely wouldn’t go up this year, it’s well worth looking at inflation. You may have noticed petrol starting to go up again and crude oil prices have bounced back to $70 a barrel. This could have a big effect on the Retail Prices Index & Consumer Prices Index and very importantly swap rates, and if you look at prices of other commodities which eventually filter down to consumer prices such as prices for metals like steel and aluminium many are enjoying a boost at the moment as well.
Many lenders have just increased their fixed rates due to increases in swap rates. Unfortunately without a crystal ball it’s hard to know whether swap rates will continue to rise or if they may even fall again before the bank base rate changes. It is likely though that the swap rate increases are due to inflation concern and the anticipated rise in base rate so may continue to rise moving forward. Historically speaking a 3-4% interest rate on a mortgage is still low so this all points to now being a good time to fix for 2-3 years as long as your circumstances suit.