Mortgage Best Rate

The current mortgage market is a difficult one for buyers, with rising interest rates causing considerable consternation among homeowners. But for those on fixed rate mortgages, the next few months could prove particularly painful, as deals come to an abrupt end and mortgage payments shoot up. In some cases, monthly mortgage bills are expected to leap as much as 40%.

In the summer of 2005, tens of thousands of people took out a two-year fixed rate mortgage, making the most of interest rates as low as 4.25%. Since then, however, the Bank of England has raised interest rates four times to an uncomfortable 5.5%; and some economists are predicting a further rise in July, with a possible 6% interest rate before the end of 2007.

Investment bank Credit Suisse has estimated that one in five British homeowners switched mortgages to fixed rate mortgages in August 2005. If you are one of those borrowers, you may now face a shock as your two-year arrangement ends, and you move onto your lender’s far steeper standard variable rate (SVR) – generally around two per cent above the bank rate. Some are even predicting that payments could rise by a third or even more for those who took out interest only mortgages – with repayments on a £400,000 interest only mortgage increasing from about £1,400 a month to about £2,000, a staggering rise of 43 per cent.

Even if you signed up to a good fixed rate mortgage that now allows you to shop around for new deals, you may struggle to re-finance the purchase of your home for anything less than 6%. In addition, banks and building societies have hiked their arrangement fees to £1,000 or more, a hefty increase on the fees charged in June 2005, when the best fixed rate carried an arrangement cost of just £389.

Such tales of doom and gloom, however, should not overly deter the canny homeowner. Lenders may offer good fixed rate deals in the hope that you will forget to move your mortgage at the end of the fixed term. You will then find yourself paying potentially punishing rates on their SVRs. The obvious advice is to keep a close eye on your mortgage arrangements and shop around for the best deal.

In addition, be wary of fixed rate deals that lock you in, charging a fee if you want to move the deal within a certain time-frame. For example, a two-year fixed rate deal might have a ‘collar’ that stops you from switching deals for a further three years or even more. With the interest-rate hikes of the past 10 months, many homeowners on such locked-in deals might now be finding themselves forced to face stiff payments. To avoid such pitfalls, avoid fixed rate mortgages with extended redemption penalties. You will then retain your freedom to shop around for the best deals once the fixed rate comes to an end.

Also be wary of merely looking at interest rates. Some lenders will offset low rates with higher arrangement fees. Or lenders might offer substantially lower mortgage rates to customers who also buy buildings and contents insurance from them. If those insurance premiums are high, they offset the low rate – the lender makes a profit, but you may have unwittingly missed out on a good mortgage rate.

“Many existing borrowers now face substantial payment increases as their favourable fixed rate deals of old come to an end,” said Sophie Neary, product director at BeatThatQuote.com. “In this market, it has never been more important to shop around the mortgage lenders and plan ahead carefully.” BeatthatQuote.com has extensively researched the market, locating the best mortgage products and lenders for individual circumstances. Using a service such as this could help you better manage current uncertainties, ensuring you get the best out of your finances now and well into the future.

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