People have been asking me recently whether it is the right time to fix their mortgage deal now that rates are increasing.
It is an interesting question without a very straightforward answer, but here are some things to consider.
If you are on a standard variable rate or will be soon; 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 fixed deals; if you have a decent amount of equity in your property.
Currently, fixed rates are available around the 3% mark if you have 25-30% equity. If your current rate is above 3% then it’s well worth considering switching to a fixed deal.
If you don’t have a lot of equity or if you have any significant adverse credit, the picture changes considerably; it may be better to wait until rates are about to jump significantly.
It largely depends on how much more a month you will have to pay to fix it now.
But for those with a low standard variable, the big question is when will the Bank of England Base Rate go up, and by how much?
And while Mervin King announced that it definitely wouldn’t go up this year, it’s worth looking at inflation.
You may have noticed petrol prices rising again, and crude oil has bounced back to $70 a barrel.
This could have a sizeable effect on the Retail Prices & Consumer Prices Index, and importantly on swap rates; if you look at other commodities which filter down to consumer prices such as steel and aluminium many are enjoying a boost at the moment too.
Swap rates drive fixed deals, and many lenders have just increased their fixed rates due to changes in swap rates.
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.
The swap rate increases are likely due to inflation concerns and the anticipated rise in base rate; so they 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.
Hello, and welcome to this first post of the broker’s blog.
As my first topic, I wanted to comment on Gordon Brown’s recent suggestion that there may be a move to regulate the affordability models banks and building societies use when determining how much to lend.
I am probably one of few people in an industry based around percentage commission to think this is potentially a good idea, but I am all too aware of the dangers of getting it wrong.
We currently have a dual regulation system with mortgages being FSA regulated, and non-residential or second-charge lending is essentially unregulated outside of the limited involvement of the OFT (Office of fair trading).
There’s no point regulating affordability on first-charge residential loans without bringing second-charge loans and buy-to-let mortgages into the same body of regulation.
Or the effect will be to encourage further the misuse of buy-to-let mortgages to get a larger loan, leaving the market open to abuse and encouraging people to take more expensive second-charge lending for debt consolidation.
It is important not to get carried away with the sentiment of the moment and bodge regulation just because it seems like a good idea to bring the banks into line with each other.
Perhaps the question should be; is it time to regulate all non-commercial lending under the same body? As well as limit the affordability calculation used (and I include buy-to-let lending within non-commercial).
The answer is probably yes.
However, even then, there is a difficult question to consider; how do you regulate that without leaving many people locked out of a re-mortgage?
Because whilst it is favourable to have control over the fire of house price inflation, it isn’t a good idea to lock people on existing 4 to 5 times income mortgages out of competitive new rates; whilst at the same time leaving them exposed to their variable rate and every change of bank base rate.
Whatever the government does decide, they need to think carefully about how to do it without leaving thousands of people in even more danger of mortgage default.
Another important aspect is it will likely further the reduction in house prices which would, at present, leave people deeper in negative equity.
There are still many areas where the average first-time buyer can’t afford to buy at four times their income. So the market is still generally overpriced, and bringing in this type of regulation could worsen the pain of the credit crunch for many, particularly for those who have pushed their income further and are already treading water with repayments.
So, in my opinion, whilst regulation is needed, a bull in a china shop approach could be disastrous.
