Last week the Bank of England held the base rate at 0.5% for a record 19 months. The base rate we currently enjoy is the lowest rate we have had for over three hundred years. Unfortunately all good things have to come to an end and rates will eventually start to move up from these levels. The big question is when will this happen and how much will rates start to move up by? It is very difficult to answer the first part of this question with regard to the timing of rate rises. However we can be sure that as each month goes by we are getting nearer to a rate rise with risk increasing for borrowers.
However we can take steps to minimise risk on an individual basis by stress testing how far rates will have to rise before your mortgage becomes unaffordable. If the answer is that rates would have to rise a lot before you are put under pressure, and you are prepared to allocate considerably more of your income to your mortgage payments then you may wish to do nothing. In effect you are prepared to take the rough with the smooth and if you are a borrower with a lifetime tracker rate of around 2.5% with no tie-ins this course of action is understandable.
If you feel you are not able to risk rates rising considerably or you do not want to commit to considerably more payments there is an alternative for many borrowers. This takes the form of long term fixed rate mortgages that will bring both security of payment and peace of mind during what we know will be very difficult times. It is also worth considering that not only could interest rates rise during the next few years but it is also possible that real income could fall as the government imposes cuts to help us payback our debts. This has already happened in Ireland with cuts in wages of up to 15%, even before their latest crisis.
The good news is that fixed rates that have remained stubbornly high during the credit crunch have now started to ease. For example ING are offering fixed rates at 3.69% for five years with an arrangement fee of £1750, and Coventry are charging lower fees of £999 for rates of 3.75% over 4years and 3.99% over 5 years. These rates are historically highly competitive, and even though they may be a little higher than best buy trackers security of rate could be very important to most people. If you are worried about managing when interest rates rise or just want security of rate it is worthwhile contacting an Independent Financial Advisor (IFA) who specialises in mortgage to help you make your decision. 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
18th October 2010
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