Interest-rate jitters may lead you astray

With Labour odds-on favourites to win the next general election, many homeowners are wondering if this is the time to fix their mortgage rate to guard against interest-rate rises.

Phillip Cartwright of Bath-based mortgage brokers London & Country says: "A lot of people take the view that [because] there's going to be a Labour government, rates are going to go up. They forget that, in the early Nineties, it was a Conservative government that put rates up to 15 per cent."

In fact, a general election usually brings a rise in rates no matter which party wins power.

This happens for three reasons. First, governments are reluctant to raise rates in the run-up to an election, as they know this will be unpopular. The Government will also tend to let public spending run a little more freely as the election approaches, creating a need to dampen down the economy once it is over. Lastly, incoming governments like to make unpopular moves - such as raising interest rates - as early as possible.

Most commentators agree that interest rates are at, or very close to, the bottom of their cycle. Ian Knight of independent financial adviser Berry Birch & Noble says: "The one thing I don't think is going to happen is that base rates are going to fall much further. They may fall by another quarter to a half percentage point before the election, but that would certainly be reversed immediately thereafter - irrespective of who wins."

Equally, few expect dramatic rises in rates. But some borrowers will still appreciate the peace of mind which a fixed-rate mortgage can offer. The problem is finding the right deal.

Your existing lender should be the first stop, but don't be surprised if the most attractive deals are reserved for new customers. Remortgaging to a new lender can cost you up to pounds 1,000 in legal and other fees, and you may have to pay an early redemption penalty to close your existing loan.

Ian Darby of John Charcol, a London-based firm of mortgage brokers says: "By the time you add up the all the costs of remortgaging to a new lender, it's unlikely that it's going to be worth your while. The first call you should make is to your existing lender to see if they'll do anything spectacular to keep you. Staying with the same lender wipes out redemption penalties and a good chunk of the costs of remortgaging."

The best fixed rates available at the moment are around 4.75 per cent for two years, about 6.5 per cent for three and about 7.75 per cent for a five-year fix. After the fixed-rate period, the loan reverts to the lender's standard variable rate (see table of Best Borrowing Rates on page 18).

When studying the deals available, make sure you read the small print. Most two- and three-year fixes will impose a hefty penalty on you if you go to another lender for as long as five years after your fix has expired. This could leave you vulnerable just at the wrong time. Rates may not go up a lot in the next couple of years, but there is more uncertainty after that.

An alternative to a fixed-rate deal is to go for one of the discounted variable-rate mortgages on the market. While the interest rate you pay will still move up and down in line with the base rate, at the outset it will be lower than the lender's standard variable rate. These mortgages can be very cheap while the discount period lasts, but it may come as a nasty shock when your interest rate reverts to the lender's far higher standard rate.

Arts and Entertainment
books
Voices
Caustic she may be, but Joan Rivers is a feminist hero, whether she likes it or not
voicesShe's an inspiration, whether she likes it or not, says Ellen E Jones
Arts and Entertainment
The Doctor and the Dalek meet
tvReview: Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Sport
Diego Costa
footballEverton 3 Chelsea 6: Diego Costa double has manager purring
PROMOTED VIDEO
Life and Style
3D printed bump keys can access almost any lock
techSoftware needs photo of lock and not much more
Arts and Entertainment
The 'three chords and the truth gal' performing at the Cornbury Music Festival, Oxford, earlier this summer
music... so how did she become country music's hottest new star?
Life and Style
The spy mistress-general: A lecturer in nutritional therapy in her modern life, Heather Rosa favours a Byzantine look topped off with a squid and a schooner
fashionEurope's biggest steampunk convention heads to Lincoln
News
Dr Alice Roberts in front of a
peopleAlice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
News
i100
Arts and Entertainment
Star turns: Montacute House
tv
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
i100Steve Carell selling chicken, Tina Fey selling saving accounts and Steve Colbert selling, um...
Arts and Entertainment
Unsettling perspective: Iraq gave Turner a subject and a voice (stock photo)
booksBrian Turner's new book goes back to the bloody battles he fought in Iraq
News
The Digicub app, for young fans
advertisingNSPCC 'extremely concerned'
News
i100
Arts and Entertainment
Some of the key words and phrases to remember
booksA user's guide to weasel words
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Law Costs

Highly Attractive Salary: Austen Lloyd: BRISTOL - This is a very unusual law c...

Network Engineer (CCNP, CCNA, Linux, OSPF, BGP, Multicast, WAN)

£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...

DevOps Engineer (Systems Administration, Linux, Shell, Bash)

£50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...

Data Scientist (SQL, PHP, RSPSS, CPLEX, SARS, AI) - London

£60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...

Day In a Page

The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor
She's dark, sarcastic, and bashes life in Nowheresville ... so how did Kacey Musgraves become country music's hottest new star?

Kacey Musgraves: Nashville's hottest new star

The singer has two Grammys for her first album under her belt and her celebrity fans include Willie Nelson, Ryan Adams and Katy Perry
American soldier-poet Brian Turner reveals the enduring turmoil that inspired his memoir

Soldier-poet Brian Turner on his new memoir

James Kidd meets the prize-winning writer, whose new memoir takes him back to the bloody battles he fought in Iraq
Aston Villa vs Hull match preview: Villa were not surprised that Ron Vlaar was a World Cup star

Villa were not surprised that Vlaar was a World Cup star

Andi Weimann reveals just how good his Dutch teammate really is
Bill Granger recipes: Our chef ekes out his holiday in Italy with divine, simple salads

Bill Granger's simple Italian salads

Our chef presents his own version of Italian dishes, taking in the flavours and produce that inspired him while he was in the country
The Last Word: Tumbleweed through deserted stands and suites at Wembley

The Last Word: Tumbleweed through deserted stands and suites at Wembley

If supporters begin to close bank accounts, switch broadband suppliers or shun satellite sales, their voices will be heard. It’s time for revolution