The mortgage market may have turned a corner in giving purchasers and people remortgaging long term security, without having to commit to higher long term fixes rated. Until now borrowers have had the option of opting for either long term fixed rates costing often in excess of 5% per annum or selecting a tracker rate that may have been in the range of 2.5% to 3% per annum.
Unfortunately although the tracker rates are cheap at present they do not offer long term security. Many borrowers are budgeting fairly tightly at the moment and a sudden spike in rates could cause hardship for many, and for some who are presently balanced on a knife edge it could signal repossession. We have witnessed the fall in base rates fall 5.5% to 0.5% in a little over a year and have now seen these rates remain at this level for the last 16 months. However I think because we want to mentally protect ourselves, many of us are convinced that rates will remain low for some time and that when they do eventually rise rates will rise in small 0.25% increments. This may well be the case, but with recent data showing that the economy has grown at a faster pace than we first thought over the last six months, and with inflation rising it is possible if this trend continues that rates will rise sooner rather than later. Also in addition to this there is also the possibility that rates could also rise faster than we first thought, as they did come down very quickly and they have been held at historically low levels for a long time now.
Capped mortgages are in theory the ideal product in the environment we find ourselves in as these plans can be tracker rates, moving up and down like most mortgages. But then a cap is placed on the mortgage rate to stop it rising past a certain point during the term of the deal. Traditionally we have had a capped rate market but unfortunately during the credit crunch they had all but disappeared. However as mentioned earlier they have made a comeback with two lenders offering long term capped rates The Stroud and Swindon and the Hanley Economic are offering tracker rates from as low as 3.09% with the rates being capped for at least five years at 5.99%. These deals are unlikely to be around very long, but hopefully these mortgage deals may alert other lenders to offer the product of the moment for many.
Kieron Bassett Financial Services have two Independent Financial Advisors. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.
Kieron Bassett CertPFS