Is It Time to Fix Your Mortgage?
financial services, Property Mortgages, short lease mortgage
Our position on fixed rates is changing and we are now looking towards the more attractive tracker rates.
You can check out some of the current fixed and tracker rate deals by following the links below:
Current Fixed Rate Mortgages
Current Tracker Rate Mortgages
For some months we have been urging clients to fix and as a Company we have successfully approved fixed deals for clients at 2.29%. The fact is we have also been suggesting clients should act swiftly given our concerns that national lenders were taking advantage of the decrease in lender competition and were significantly increasing margins. We noted that Chancellor Alistair Darling recently called in the banks to ascertain why short term money was so expensive when the rate banks buy in money (LIBOR rate) was at 1%. The Banks replied in their inevitable way stating it was all about risk as well as return.
The fact that even with deposits of 40%, high credit scores and incomes of £100k plus, many of our High Net Worth clients are being offered fixed rates at 3.99% and above.
There appears little associated risk with these customers and a lot of reward for lenders. The rate is 3.49% above the Bank of England's own base rate and there is anecdotal evidence that lender margins are now seven times higher than they were in 2007. In other words, they are making 7 times more money on each mortgage than they were two years ago.
We have long been suggesting that fixed rates are on the increase and at this stage given the 'recent' predictions for Bank Base Rate remaining low for some time, we believe we may be approaching a crossroads whereby despite the likelihood of further Bank Base Rate increases, tracker rates are starting to look more attractive given the available rates.
For example, we have one client considering a 3 year fixed at 4.58%. Whilst this is very much a market leading product, it remains at 4.08% above the bank base rate. We have current tracker rates at 2.47 % above Base. The call remains therefore as to whether rates in the next 3 years will rise by 1.85%. They may significantly rise but the issue remains as to when they actually will rise. If they don't rise significantly for 6-18 months then clients will significantly overpay for this period. Any overpayments may not be compensated by a rise in rates later.
The announcement from BDO Stoy Hayward on Tuesday indicating the Bank of England will be forced to keep rates at 0.5% to balance low inflation and counter expected tax rises makes the issue if fixing in a very difficult call.
The answer to the fix or track dilemma does involve an element of clairvoyance. We vividly remember the headline in the Evening Standard in May 2008 announcing that the then Governor of the Bank of England, Eddie George was stating that base rates at that time 5.75% would not change for at least 2 years. Who would have foreseen the banking crisis and world recession to befall us later that Summer?
We are equally as suspicious of "experts" calling low interest rates for long periods and we ourselves, whilst not economists, anticipate the first rate increases to be in March, April or May 2010. However, we are not expert guessers-and really know one knows.
Capital Fortune can only advise on whether a tracker or fixed rate is right for you based on whether you want the guarantee of knowing your exact monthly payments for a fixed period or whether you are willing to take the risk.
We do have a number of clients paying 0.76% below the Bank Base Rate and given that it's currently 0.5%, they are paying zero to their lender. They have however followed our advice to continue with their standard mortgage repayments in order to pay down the capital and overall reduce the level of interest on the full term of the mortgage.
We also have client who followed our advice and fixed in at 2.29%. To fix or not to fix is a real dilemma and should only be based on your individual circumstances.
The decision will depend largely on attitude to risk and the desire for security. Borrowers paying relatively little on a variable rate will have to decide whether they want to risk sitting tight on their current rate and securing a fixed-rate deal later, when rates could be much higher. Some may choose to pay more for their mortgage now with a fixed-rate deal, hoping to avoid sharp increases in the future.
The risk is trying to predict how long the Bank of England is going to keep interest rates as low as they are, and timing a change to a fixed-rate deal before they do go up. The wait-and-see strategy can be a precarious one.
, financial services
, Property Mortgages
, short lease mortgage