If you don't fix now, you'll regret it

Time is running out if you want to secure a decent fixed rate.
When it comes to fixed-rate mortgages, I’ve no doubt some readers view me as a complete broken record. Despite base rate lingering at its record low of 0.5% for the best part of two years, and a succession of base-rate trackers being launched with incredibly enticing low rates (at least initially), on and on I went, urging borrowers to ignore the siren-like charms of the tracker and stick with the safety of a fixed rate.
The dangers of a variable mortgage
My thinking was always fairly simple (as my thinking tends to be on all subjects, not just mortgages!). It wasn’t just base rate that hit a record low – the fixed rates on offer also dropped to levels that historically looked incredibly cheap. However, they were overshadowed by the variable deals on offer.
My view was that it made sense to cash in while fixed rates were so low. Sure, a two-year tracker looks great at the moment, but what happens if base rate increases faster than expected? In two years' time when you need to remortgage, the rates on offer may be far higher, and you’ll be whacked in the wallet. What’s more, if house prices drop (as I suspect they will), then the equity you own in your property will fall too, further restricting your choices!
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See the guideHence, my belief all along has been that it’s a good idea to fix, and fix for a long time.
Lenders getting jittery
That’s looking like an even more sensible move following the behaviour of certain lenders over the last few weeks. Various lenders, including First Direct, Yorkshire Building Society, Skipton Building Society have either announced rate rises, or have withdrawn their entire fixed rate ranges, only to release a new raft of products boasting a higher rate of interest.
That’s not just a coincidence. It’s a sign that they realise the cost of offering those mortgages is about to rise, and so they are protecting their margins.
Inflation figures will make it worse
What’s more, we should expect a whole raft of similar moves from the other lenders active in the market following this week’s dreadful inflation figures.
John Fitzsimons explains why the best mortgages offer you a bit of flexibility
Inflation last week was revealed to have jumped to 3.7%, far higher than the Bank of England’s target of 2%. And the primary way to slow down inflation is of course to make spending more expensive – in other words, to put up interest rates.
Once lenders believe interest rates are going to start heading northwards, they’ll start raising their fixed rates. Indeed, that’s likely what we are already seeing.
If you have been sitting pretty on a variable rate for a while, enjoying those mega-low repayments and waiting for rates to start rising before moving, now is the time to act. It may hit you hard in the pocket if you don’t get a move on!
The role of the broker
I’m a big advocate of using a broker when arranging a mortgage anyway, but they become even more useful if you know you face something of a race against time in order to secure a great rate. That’s because they know (sometimes from all too bitter experience) just how fast or slow a particular lender is at approving your application.
For example, at the moment, HSBC has some absolutely fantastic rates on offer. However, the lender also has a reputation for taking its time over giving you an answer on your application.
Whether this reputation is well-deserved is difficult for us to say. HSBC claims that, for the vast majority of borrowers, it can give a decision in principle to lend at the time of application. We'd be interested in hearing about the experiences of lovemoney.com readers using the comments box below.
Of course, HSBC isn't the only lender to have this sort of reputation. The fact is, that the more popular the rates, the more overwhelmed a bank's customer service is likely to be. And time is money. After all, if the most popular lender comes back to you with a “No”, the deals from other lenders that are just as good may have long since been repriced, leaving you out of pocket.
Unless you utilise a decent broker, you’ll have no idea of how good certain lenders are at moving quickly, or even of how keen they are to do business with a borrower in your circumstances. I’ve been writing about mortgages for a long time now, but I’d still never dream of taking out a mortgage without the use of a broker.
To pick the brains of our fee-free mortgage team, head over to our mortgage centre where you can speak to them over the phone, via email or even instant messenger.
Get help from lovemoney.com
For great how-to guides, explaining everything from how to cut your mortgage costs to how to make money in every room of your house, head over to our Guides section.
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At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
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Silly article (I am losing faith in quality journalism on this site - I would prefer a solid weekly email rather than regurgitated or rushed articles). Anyway...... Those on very low % mortgages (mine is 0.97%), the ideal solution is NOT to fix at say 3-4%, but to keep the low rate. Firstly, you will instantly save the difference. Secondly, if the BOE goes up, I have to wait 'til it goes up by 2-3% to match the current fixed rates - it will be some time before they do that. Thirdly, in the interim, basically instead of paying the monthly mortgage payment at the lower level, why don't people pay at the higher level. So when rates go up, it will not be a shock because you are already paying more but also, you are actually paying off the capital much quicker allowing future rate rises to have lesser impact. Simple maths !
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To be serious, I think fixing your mortgage is useful if you are just starting out or anticipate being really stretched financially in the future. However the fixed rates tend to have horrendous fees, and it's hard to get long-term deals with higher LTV rates. Many existing homeowners can't get anywhere near a 60-70% LTV as they have so little equity left in their homes because of the collapse in house prices, so they are trapped on their variable rates. I'm fortunate to be on a base rate + 1% deal, so it would take a really serious rise in interest rates to make me move or look at fixed rates, and I probably couldn't move anyway as I have so little equity in the property.
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Aquasponge - you can't be serious - surely we need much more than a recession! Since you seem to feel you have the right "to change people's perceptions of reality", destory their livelihoods and make them homeless, why not forment a world war and aspire to have gangs of militia criss-crossing the country murdering people at will? Or perhaps your mention of the guillotine means you prefer a French Revolution? That will have a healthy effect on the housing market and really reduce house price inflation.
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31 January 2011