As we move into yet another year with the Bank of England Base rate still at its record low of 0.5 per cent the millions of borrowers with variable and tracker rate mortgages continue to benefit from low repayments at a level unprecedented in living memory. Many financial experts are expecting that the Base Rate will remain at this historic low maybe for as long as 3 more years. Even though unemployment in the UK is reaching close to the point where Mark Carney, the Governor of the Bank of England, suggested the base rate could be reviewed, other factors in the economy look likely to prevent any imminent rise.
So given the current economic situation in the UK one might expect that more home owners would take advantage of the low rates by taking out a variable or, at the very least, a tracker mortgage deal. It is rather surprising then that the Council of Mortgage Lenders have published data that indicates that more than 80 per cent of new mortgages were agreed on a fixed rate basis in 2013. Not only is this an unexpectedly highproportion of fixed rate deals being agreed but it is the highest proportion since these data began to be recorded overtwenty years ago so includes plenty of data from the pre credit crunch era.
Even in 2010 only 50 per cent of home buyerschose a fixed rate deal when the average interest rate was 4.44 per cent.
So why might so many peoplebe choosing fixed rate mortgages in preference to variable or tracker loans?
The simple answer could be that the best fixed rate deals are now at the same interest rate levels as the most attractive tracker loans. With fixed rates now as cheap as the equivalent tracker deal, it makes sense to opt for a fixed rate with the added security of knowing that repayments will not go up for the period of the fixed rate. The same cannot be said for tracker deals as repayments on this basis have the potential to rise and it may be this uncertainty governing the majority decision to fix and gain some protection. This could be seen as particularly important in the light of recent controversial decisions by certain banks - most notably the Bank of Ireland - to increase the margin above the Base Rate that they charge on tracker deals; something borrowers thought could not happen on a tracker loan.
The level at which fixed rates are set is partly determined by expectations of how the Bank of England Base rate will change in the coming months and years. With low rates anticipated for some years to come and with banks and building societies having access to less expensive funding through government schemes designed to boost the property market the effect has been to drive down the price of fixed rates.
For those about to agree a large mortgage, whether for a new home purchase or just to re-mortgage an existing home it appears that a fixed rate deal offers the least risk with equivalent monthly payments. But it is always worth talking to a mortgage broker and checking the small print of any agreement.
So given the current economic situation in the UK one might expect that more home owners would take advantage of the low rates by taking out a variable or, at the very least, a tracker mortgage deal. It is rather surprising then that the Council of Mortgage Lenders have published data that indicates that more than 80 per cent of new mortgages were agreed on a fixed rate basis in 2013. Not only is this an unexpectedly highproportion of fixed rate deals being agreed but it is the highest proportion since these data began to be recorded overtwenty years ago so includes plenty of data from the pre credit crunch era.
Even in 2010 only 50 per cent of home buyerschose a fixed rate deal when the average interest rate was 4.44 per cent.
So why might so many peoplebe choosing fixed rate mortgages in preference to variable or tracker loans?
The simple answer could be that the best fixed rate deals are now at the same interest rate levels as the most attractive tracker loans. With fixed rates now as cheap as the equivalent tracker deal, it makes sense to opt for a fixed rate with the added security of knowing that repayments will not go up for the period of the fixed rate. The same cannot be said for tracker deals as repayments on this basis have the potential to rise and it may be this uncertainty governing the majority decision to fix and gain some protection. This could be seen as particularly important in the light of recent controversial decisions by certain banks - most notably the Bank of Ireland - to increase the margin above the Base Rate that they charge on tracker deals; something borrowers thought could not happen on a tracker loan.
The level at which fixed rates are set is partly determined by expectations of how the Bank of England Base rate will change in the coming months and years. With low rates anticipated for some years to come and with banks and building societies having access to less expensive funding through government schemes designed to boost the property market the effect has been to drive down the price of fixed rates.
For those about to agree a large mortgage, whether for a new home purchase or just to re-mortgage an existing home it appears that a fixed rate deal offers the least risk with equivalent monthly payments. But it is always worth talking to a mortgage broker and checking the small print of any agreement.