Fixed-rate home loans on way down
Sunday 18 March 2007
In this period of uncertain interest rates - with another rise a distinct possibility in the next few months - you may be wondering whether now is the time to fix your mortgage.
After the unexpected base-rate rise in January, consumers rushed to get their hands on mortgages with low fixed interest before these were taken off the market.
But with the base rate remaining on hold at 5.25 per cent since then, some level of stability has returned. And the good news now is that cheap fixes seem here to stay.
Over the past week or so, several lenders have announced they are reducing their fixed rates - by as much as 0.4 percentage points. Britannia building society, for example, has dropped its three-year rate by 0.3 percentage points and its five-year rate by 0.4.
Abbey, Alliance & Leicester, Bank of Scotland, Direct Line, First Active, GMAC and Derbyshire building society have also reduced their fixes.
"Swap rates, which dictate the future movement of fixed-rate mortgages, have been falling in recent days and are now as low as they were at the start of January," says Melanie Bien of broker Savills Private Finance. "Lenders have been reducing their fixed-rate deals accordingly."
She adds that, with two-year swaps hovering between 5.52 and 5.6 per cent, the market has priced in one further rate rise, but no more than that.
Cheaper fixed-rate mortgages will be excellent news for those who want the reassurance of knowing exactly what their monthly repayments will be over the next few years. The latest figures from the Council of Mortgage Lenders (CML) show that 85 per cent of first-time buyers and just over 70 per cent of home movers chose a fixed-rate mortgage in January (see News, page 22).
Both the Halifax and Stroud & Swindon building society are offering a rate of just 4.89 per cent on their two-year fixed deals - though both have an arrangement fee of £1,999.
"You can now get deals below 5 per cent, but these come with hefty fees, so you have to do your maths - although the fees do drop as the rates get higher," says David Hollingworth of broker London & Country.
Bradford & Bingley, for example, has a two-year fix at 4.99 per cent with a fee of £1,299, while Alliance & Leicester is offering two years at 4.99 per cent with a fee of £999.
If you don't need the certainty of a fixed rate, cheaper tracker deals are available: a two-year tracker from BM Solutions, for example, comes at 0.81 per cent under base rate.
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