When in doubt, fix the future
Would-be buyers are still searching for the right home, even if finding one is proving elusive, given the unwillingness of potential vendors to put their properties on the market. But according to experts, borrowers looking for a mortgage also want to avoid what many believe will be an inexorable upward movement in interest rates. They are therefore looking for the best fixed or discounted rate, to provide shelter from likely rate hikes in the next two or three years.
Sally Laker, general manager at Mortgage Intelligence, says: "Our members find that their clients know we could be at the bottom of the interest rate cycle. Their priority is to try to limit the effect by locking into one of the many deals available for two, three or even four years ahead."
The evidence of previous general elections shows that sheltering in this way makes sense. Figures from MoneyFacts, the specialist financial statistics provider, show a common pattern to interest rate movements before and after the most recent elections.
In September 1992, a few months before the April 1983 election, mortgage rates dropped from 12 to 10 per cent. A month later, they rose again to 11.25 per cent, then moved steadily up to 12.25 per cent in November 1986 before falling to 11.25 per cent in May 1987, just before the June election.
Again, it may just be a coincidence, but in 1992, ahead of the last election, rates moved down once more from 13.75 per cent the previous year to a more reasonable 10.95 per cent. Thereafter, they reached astronomical levels in September 1992 and have been coming down ever since. Of course, economic factors have a dominant influence on the rate cycle. But anyone who has observed the regular monthly tussles between the Chancellor and the Governor of the Bank of England knows that political factors can play a part in it, too.
Mortgage Intelligence argues that if borrowers want to play the game, it makes sense to lock into a four-year fixed mortgage. By coming out of the fix a year or so ahead of the next election, they may be in a position to benefit from the next downward cycle.
The network's 400 brokers are offering a loan pegged at 7.09 per cent over that period, and at variable rates thereafter, on loans of up to 90 per cent of a home's value.
There is no up-front application charge, but a pounds 275 arrangement fee will be made if the application is successful. Penalties involve repayment of six months' interest if redemption takes place within the first five years.
John Charcol, the UK's largest mortgage broker, offers a different approach. Ian Darby, the company's marketing director, says: "We have consistently argued that we believe rates will move upwards this year and I still feel comfortable with a prediction of 8.75 per cent by the end of the year. That said, rates are still very sharp."
John Charcol is offering a mortgage pegged to 6.49 per cent until March 1999, with no redemption penalties and the option to fix again at the end of that period. It also has a range of five-year fixes, including an own-brand loan pegged at 6.99 per cent on a loan-to-value of 75 per cent. Alternatively, it markets a Northern Rock five-year loan at 6.89 per cent. But here there is a pounds 565 arrangement fee, plus compulsory buildings and contents insurance.
Finally, FirstMortgage, a telephone lender, has launched a two-year discount of 2.5 per cent of its already low 6.2 per cent APR variable rate, giving an effective rate of 3.7 per cent over that period. However, if rates do move up, so will the cost of this loan.
FirstMortgage (0800 080088); Mortgage Intelligence (0800 246000; John Charcol 0800 718191).
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