The Bank of England base rate remains at 0.5% for the third consecutive month there are warnings recommending that higher fixed rate mortgage deals are on the horizon. Borrowers are reluctant to remortgage now due to the low interest rates they have with their current mortgage deals. This benefits borrowers on tracker rate, discounted and standard variable rate products; but does not apply to anyone on a fixed rate deal at present. Some homeowners have seen their mortgage payments halved whilst others have seen their monthly payments reduced to a fraction of their normal amount. This has caused apathy with homeowners to find a better mortgage deal as they have benefited from the extra money in their pockets.
According to Ray Boulger, the Senior Technical Manager at John Charcoal it seems that mortgage lenders are about to increase the cost of some of their fixed rate mortgages. Since the middle of May the swap rates in the mortgage market have risen sharply and this has pushed up long term fixed rate mortgage deals. Swap rates are the borrowing rates used between banks and financial institutes when they lend money to each other. Leading business and finance analysts believe that the banks and finance institutes are anticipating a strong upturn in the economy which will allow them to absorb these increases.
This may all sound like bad news for anyone looking to find the best remortgage deal or for first-time buyers looking to buy their first home in the current climate. But let’s not forget that even if the best two, three, five or ten year fixed rate deal do go up we will still have some of the lowest interest rates in the last twenty years. Economist Professor Patrick Minford of Cardiff University has suggested that the increasing costs of fixed rate mortgage deals are a “symptom of recovery”. He further suggests that there are quite clear signs of recovery around at the moment compared with the doom and gloom of a few months ago.
Bank of England has started Printing Money !
Spare a thought for the printing machines at the Bank of England that have churned out over £75 billion so far in an effort to boost the money supply in the UK economy. The Chancellor of the Exchequer and the Bank of England now have a major headache after having dropped interest rates to almost zero in order to boost the financial system by reducing the cost of long term borrowing. They have also introduced the seriously risky and unproven monetary policy of quantitative easing or printing money to help stimulate the economy. The last time this was used was in Japan by the Bank of Japan in the early 2000’s. The impact of quantitative easing is still uncertain today and it is only in the last few years that any information has actually emerged.
This strategy of quantitative easing was designed to drive down interest rates and to increase the money supply in order to get the banks lending again and to encourage us to start spending money on the high street again in an effort to spend our way out of this recession. These steps have demonstrated that their initiatives are ineffective in controlling long term fixed rates and that they have lost control of interest rates over the long term.
Money Saving Expert suggests:
The cautious approach if you are looking for a fixed rate mortgage should be a five or a ten year deal depending on your individual circumstance. Anything less will possibly cost you more than you might pay off your initial mortgage balance during the two or three year period. Remember interest rates have never been this good, irrespective of the fact that they may be going up soon.
Whichever scheme you select you will have to pay the mortgage lenders arrangement fee of up to 2% and you should expect to pay for Solicitors and Valuation fees depending on whether or not these are free with the scheme. The chances of interest rates being this low again are slim. It’s the first time in 314 years of the Bank of England’s history. I’m sure you would agree with me that we may all be dead before interest rates fall this low again. They cannot go lower than zero can they?
My personal recommendation is that you should find the best fixed rate mortgage that closely matches the date your mortgage finishes. Make sure that the mortgage is portable so that you can move home in the future without a penalty. This way you will only pay once for the mortgage lenders arrangement fee, solicitor’s and valuation fee and you will save thousands of pounds in the future by not paying these costs every two or three years – guaranteed! Always talk to a Mortgage Adviser who use the ‘Whole of the Mortgage Market’ when arranging the best remortgage or first-time buyer mortgage for your personal circumstances.
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