MORTGAGE UPDATE: The rates game
To fix or not to fix? That is the question, as Andrew Montlake of Coreco explains.
Borrowers are currently in a fix as they determine whether now is the time to wave goodbye to their trackers. Lenders continue to cut the costs of fixed-rate products, especially for those with decent deposits or equity levels.
A number of commentators argue that trackers remain better value than fixes, but I think this misses the point of the advice process.
Are trackers better value than fixes? No. While they are cheaper at present, value can only be accurately recorded from a historical perspective.
Longer term fixes, for example, have reached a level that I did not expect to see again for a while, with a couple of lenders offering a four-year fixed or five-year fixed at just 3.99%. This is lower than, or equivalent to, a fair few lenders' current standard variable rates, and should be affordable to many.
With the best tracker rates now at 2.39%, a realistic 2% rise in the next couple of years means that a five-year fix represents better value.
I believe that Base Rate could hit 2% by the end of the year or at leat Q1 2011. Meanwhile, a recent OECD statement suggested that the Bank of England should increase base rate to 3.5% by the end of 2011.
While headline rates are currently incredibly competitive, it is important to continue monitoring the small print of deals, which could be quite different and potentially more expensive.
Take Cheltenham & Gloucester's new product, for example. It is a worrying return to the low-start mortgages of which I was never a particular fan.
It is aimed at first-time buyers, with the first six months set at a lovely 0.01% below bank base rate. So, a new property looks wonderfully affordable, until of course the deal switches to a whopping 5.49% above BBR for the next 18 months.
If the base rate rises to just 2.5%, a borrower could easily end up paying 7.99% by the end of the term, which I'm sure will come as a huge shock to the majority of borrowers.
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Andrew Montlake is communications director for Coreco.
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