Is now the time to fix your mortgage?
Sep 23, 2011
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For many Britons, the eurozone sovereign-debt crisis might seem a bit remote given we are not part of the single currency. However, our banks might be about to bring it straight to us. Until now the record low Bank of England base rate has encouraged mortgage providers to come up with some excellent deals. Yet while the base rate doesn’t look like it’s going anywhere just now, Europe’s troubles could panic the banks and push up lending rates.
The early warning has come from private banks, which often act faster than their high-street peers. In recent weeks several British private banks have started to increase rates for the first time in two years. “Uncertainty in the eurozone over a default by Greece and the downgrading of Italian sovereign debt is starting to push up the rates at which the lenders finance home loans,” says Lorna Bourke in CityWire. So far the increases have been gradual, but things could get worse very quickly.
As Ray Boulger of mortgage broker John Charcol told CityWire: “If, or when, Greece defaults and comes out of the euro, the banks will be wary of lending to each other and there will be a shortage of mortgage finance. Lenders will push up mortgage rates – first because they can, and secondly to stop being swamped with business.” Of course, a Greek default isn’t inevitable, but it’s a fair bet that Europe’s sovereign-debt nightmare will get worse before it gets better. So what to do?
If you’ve got a variable mortgage you should consider switching to a fixed-rate deal and taking advantage of rates while they stay low. Similarly, if you were planning to remortgage it makes sense to do it sooner rather than later. If you have a 30% deposit, Chelsea Building Society is offering a five-year fixed rate at 3.29% with fees of £1,495.
If you want to go really long-term then Chelsea also offers a ten-year rate of 3.99% with the same deposits and fees. You can get a lower rate of 2.69% from ING Direct, but it is only fixed for three years. You need a 40% deposit and fees are £1,945.
If you still want to go with a tracker then Boulger recommends a lifetime product rather than those that track for a set number of years. That’s because some of the best deals do not levy an early repayment charge, meaning it costs less to switch to fix later if you want.
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