SimplyFinance - Fixed Rate Mortgage

Study Shows Increased Interest in Fixed Rate Mortgages

2007-12-01T00:00:00Z

Recently, Abbey conducted a study to discover homeowners' feelings on fixed rate mortgages, and their findings are rather surprising. Despite rumors that the Bank of England will be reducing interest rates in the coming months, approximately one third of the respondents said that they will look for a fixed rate mortgage when they are ready to buy a new home or to remortgage.

Nici Audhlam-Gardiner, head of Abbey mortgages, says that, "For most of us, our mortgage is the biggest financial commitment we make, so it's understandable that we want to know just how much we're going to have to fork out each month." It seems that for that very reason, many borrowers and potential borrowers are planning on choosing the security of a fixed rate mortgage over the other options available.

According to the study, 14 per cent of those who would choose a fixed rate mortgage said that they would opt for a 5 year fixed rate, 6 per cent said they'd go for a 10 year fixed rate, and another 9 per cent said that they'd want to find a 15 year fixed rate mortgage.

It's rare in a study to find that the desire for a longer term fixed rate loan is greater than for a shorter term loan. Audhlam-Gardiner justifies this finding by saying that, "You never know what's going to happen in the future, but at least if you've committed to a long term fixed deal, you know where you are going to stand with your repayments."

Of those who responded to the study, 65 per cent said that regardless of the Bank of England's base rate, they'd prefer to know what their payments are with a fixed rate loan instead of having that uncertainty looming as they would with a variable or tracker mortgage. Aside from the payment uncertainty, other reasons for borrowers' desire for fixed rate loans include predictions of interest rate increases in the future, as well as general confusion about how tracker mortgages work and how a tracker mortgage could benefit them.

Bank of England Cuts Rate to 5.25%

2008-02-07T00:00:00Z

Today, the Bank of England (BoE) decided to lower the base rate from 5.5 per cent to 5.25 per cent because of the weakening UK economy. The BoE had already reduced interest rates by 0.25 per cent on 06 December 2007, but in an effort to keep near the targeted 2% inflation for the term, taking into consideration higher food and energy prices, they have acted again. In addition, several business polls have reported that consumer spending is continuing to slow. Also, according to a BoE statement published by FT.com, the credit situation for personal and business ventures is becoming more dire.

Ian McCafferty, the Chief Economic Adviser to CBI, said, ?The Bank?s own forecast in November suggested that two rate cuts of 0.25 per cent would be required to meet its inflation target in 2009, and today?s cut brings the base rate down towards a more neutral position. This should help ensure that there is a soft landing to the slowdown now underway.?

Unfortunately, not all mortgage lenders intend to pass this potential savings on to their borrowers. BBC News reports that Lloyds TSB, Cheltenham&Gloucester, Woolwich through Barclays, HSBC, and First Direct plan to ignore the BoE?s lead, whereas Halifax, Nationwide, Abbey, NatWest, and Royal Bank of Scotland are among those that plan to lower their standard variable rates (SVRs). A similar situation occurred after the rate cut in December of 2007. Only a handful of mortgage lenders decided to pass the rate cut on to their borrowers.

Keep in mind the sort of mortgages available: variable rate, fixed rate, and capped rate. With a variable rate mortgage, your interest rate will increase and decrease according to the lender?s base rate, which is related to the BoE?s base rate. A variable rate mortgage would be beneficial to many consumers in the current mortgage market because their rates would decrease along with the recent BoE rate cut.

With a fixed rate mortgage, the lender will offer a rate that is based upon the BoE?s base rate, which is quite low and which does not seem as though it will be reduced again in the near future. Consumers concerned with the possibility of a rate increases in the near future may want to consider finding a fixed rate mortgage now, as the base rate is lower than it has been in a while.

Finally, the capped rate mortgage means that you will pay an SVR with an upper limit. Now, with rates having been cut, you will pay less. And when they increase in the future, you are assured not to have to pay above a certain percentage.

If you are interested in finding out more about a low rate mortgage, take a moment to fill out our short mortgage form, and SimplyFinance will connect you with an experienced mortgage adviser who will talk you through your options and help you find the mortgage product that is most suitable for your personal circumstances.

Happy Birthday to the Fixed Rate Mortgage

2010-02-25T00:00:00Z

Originally introduced in the late eighties, the fixed rate mortgage has recently celebrated 21 years in the mortgage marketplace. Back in 1989, when there were a mere 12 fixed rate mortgage products on the market, the average UK house price was 68,933GBP and the average earnings stood at 12,678GBP, according to UK lender Halifax.

Since then, fixed rate mortgage products have come to dominate the UK market, with a total of 68% of UK mortgage lending based on fixed rate products in 2009, according to figures from the Council of Mortgage Lenders. We take a look at the fixed rate mortgage, and why it may be a suitable product for you.

What is a Fixed Rate Mortgage?

A fixed rate mortgage is a mortgage product that offers an introductory rate of interest for a fixed number of years, before the loan interest reverts to the lender's standard variable rate (SVR). If you take out a fixed rate mortgage, you are tied into the mortgage contract for the duration of the fixed rate, and are charged a fee for changing products. However, once this initial period has ended you are free to remortgage to another product or another provider.

You can get a Fixed Rate mortgage for almost any length of time from 1 - 30 years. Usually you'll find that the longer your fixed rate period, the better the interest rate on the loan will be. This is because it is in the lender's interests to keep you tied into a Fixed Rate mortgage for as long as possible, to stop you from going elsewhere.

Click here to request a callback from an experienced fixed rate mortgage adviser.

What are the alternatives to a Fixed Rate Mortgage?

If you did not want to fix your mortgage rate for a set period of time, there are a number of different products to choose between. Another product that offers new customers an attractive introductory rate is the discount rate mortgage or discounted rate mortgage. Unlike the fixed rate mortgage, this product offers an interest rate that is directly linked to the lender's standard variable rate, usually several percentage points higher.

For example, if the lender's standard variable rate (SVR) mortgage was set at 5.5%, the discounted rate mortgage might be available at 3.5% for the first 2 years, after which time it would revert to the SVR. As with the fixed rate mortgage, you would be tied into the mortgage contract for that initial 2 year period, and would then be free to look around to potentially improve your deal either with the same provider or a completely different one.

Tracker mortgages, that track the Bank of England's base rate (again, usually offering several percentage points above this rate) have been a popular choice in recent years with the base rate being held at a historic low rate. There is a certain element of risk involved with a tracker mortgage, since the rate will go up within a month or two following a base rate rise, and you are tied in for an initial period at the start of the agreement. If you have savings you can also choose a mortgage product known as an offset mortgage, which usually must be from the same provider, which reduces the interest rate that you must pay according to the amount of interest you would otherwise be earning from your savings.

Why would you choose a Fixed Rate over a Tracker Mortgage?

People choose a fixed rate mortgage when they want the financial security of knowing exactly what they will be paying towards their mortgage repayments each month. Over the initial fixed period at least, they can guarantee that these repayments will not change. If you choose to fix your rate over a long period of time, say 30 years, you may find that in the short-term a tracker mortgage would work out cheaper. However, low rates always rise again and so the overall repayments for the two mortgage products are likely to work out to be similar over the 30-year period.

The type of mortgage product you choose depends on how risk-averse you are when it comes to your finances. Tracker mortgage interest rates have the potential to rise significantly, according to factors that are out of the control of your mortgage lender, and as customers of some smaller UK building societies found out recently, even standard variable rates that are 'guaranteed' to be capped at a maximum rate can go up in special circumstances. A fixed rate mortgage is really the only mortgage product where you can be certain about how much your monthly repayments are going to be and budget accordingly.

Are you looking to buy a property or improve on your existing mortgage? Click here to fill out our short mortgage form and request a callback from an experienced mortgage adviser.

Why Now is a Good Time to Consider a Fixed Rate Mortgage

2008-02-07T00:00:00Z

There are several different types of mortgages available to potential homeowners, but it is the fixed rate mortgage that has potential mortgagers interested as of late. A fixed rate mortgage uses a set interest rate (a certain percentage above the BoE base rate) for a predetermined period of time. Due to the increased security offered by a long-term fixed deal, some fixed rate mortgage providers, have begun to offer products from a 15 year fixed rate mortgage upwards.

After the fixed rate term ends, you will pay a variable interest rate for the remainder of the mortgage term. A variable rate mortgage tracks the base rate up and down as the BoE alters it, which can be good or bad for the home owner depending on their personal financial situation and on where the base rate is at that particular time. With this said, the biggest advantage of a fixed rate mortgage is that you know exactly how much your monthly payment will be, and this allows for better and more thorough financial planning.

As the United States is in the midst of a financial downturn, the UK is watching. Because of the increasingly difficult financial environment, the Bank of England has lowered the base rate in order to free up more capital for consumers. In fact, according to FT.com, mortgage approvals in December in the UK fell to the lowest level since 1999, putting pressure on the Bank of England to lower interest rates in order to keep the mortgage market on its feet. After the rate cut, Dunfermline offered a two-year fixed rate mortgage at a low 5.29%, which sold out in only four days.

Many people have been wary of fixed rate mortgages in the past because of some of the fees involved. With a fixed rate mortgage, the initial fees are often higher, but you need to keep in mind that you are paying for peace of mind. According to FT.com, a new poll by Nationwide shows that consumer confidence is at a low and that people are looking for stability. Due to this, many consumers are willing to look past the initial fees associated with fixed rate mortgages.

In addition, if you want to repay your mortgage before the scheduled end date of your loan, there are often early repayment fees associated with fixed rate mortgages. However, this is changing. Many lenders are increasing the amount of over payments allowed annually on fixed rate mortgages, which makes the repayment plans more flexible. To aid in lowering costs for consumers, this past October the chancellor proposed to help lenders by working on measures that would lower the number and the amount of fees on fixed rate mortgages.

With this said, now is a great time to consider a fixed rate mortgage because rates are at a low level, and they may be getting lower in the near future as another BoE rate cut has been predicted by industry analysts. Whether you're in the market for your first mortgage or you're looking to remortgage at a lower rate than what you're currently paying, now is a great time to consider a fixed rate mortgage.

If you're interested in finding out more about a fixed rate mortgage, take a moment to fill out a short mortgage form, and SimplyFinance will connect you with an experienced adviser from the SimplyFinance network who will provide you with information and a great rate on a fixed rate mortgage.