The Big Mortgage Question - Is it Time to Fix?
We can report that a senior Bank of England economist has weighed into the debate by insisting borrowers should fix their mortgage. Richard Sharp, an external member of the Bank of England’s Financial Policy Committee, said rates are close to zero and he believes now is the time to fix.
Financial Conduct Authority data shows that in the last three months of 2012, 63.6 per cent of borrowers took out a fixed rate, rising to 77.3 per cent a year later. This shows many borrowers are uncertain about when rates will rise and are choosing to fix in greater numbers.
In April the Bank of England base rate will have been 0.5 per cent for five years. With the economy in full recovery mode many borrowers believe rates are on the brink of rising. It is the age old mortgage question of security versus risk, fixed or variable so what should you do?
What should I do?
We don’t know when rates will rise but can explore a wide and varied mortgage market to explain your many options. The truth is that Richard Sharp does not know when rates will rise easier but is making his best judgement.
Economic forecasting is often wrong and often costly. That is not to say he should be ignored because he has made a qualified assessment of the UK economic landscape. It is a tricky business. The best way to approach whether to fix or go variable to is to stress test your monthly outgoings and what you can afford.
If you have a variable rate what interest rate would become unaffordable? If it is 2 per cent then it could be seen as risky but if it is 10 per cent then you may be okay. You should the plan your next few years. Are you saving for an extension or university fees for your kids?
Perhaps a long-term fix of five years, or possibly longer, might suit you best as you will know the exact monthly outgoings and plan accordingly. Another option could be that you are earning commission, an uncertain salary or expecting a pay rise soon.
Maybe a short-term two-year fixed deal could suit your needs. You could ensure you pay a cheap short-term rate and then repay a higher level when you have more money.
There are so many permutations to consider that it can be overwhelming. There are offset mortgages, interest-only deals, remortgages, trackers and fixed rates.
It can be a minefield of complex jargon and impenetrable lenders so we are here to help and guide you through the process. Deciding whether to fix or go variable on your mortgage is one of the biggest – probably the biggest – financial decision you will make.
The interest rate landscape is confused at the moment. The Bank of England is cooling talk of rates rises but the quicker the economy recovers the more likely they become.
The key is to be ready and prepared for economic changes. Obtain professional advice from a whole of market mortgage broker. They should be best placed to handle the biggest financial commitment of your life.