Expert warns homeowners ‘be wary’ when fixing mortgage rates

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After the tenth consecutive Bank of England Base Rate rise was announced at the start of the month (February 2), many mortgage holders may be concerned about what this may mean for their monthly repayments. spoke to experts to find out whether it’s a good idea to fix mortgage rates now.

Israel Moskovitz, property expert and founder of Avon Group, said: “For those with existing mortgages or those looking for one, this means further uncertainty. Mortgage experts at Uswitch are suggesting that despite the hike, this could have a minimal impact.

“Mostly because mortgage rates have been reported to fall and stabilise since the autumn, and are now expected to rise further and then fall later this year as the market peaks and troughs.”

Looking at London, Mr Moskovitz said: “We’re expecting there to be a lot to watch over the coming months. Just this week, we’ve heard reports that monthly mortgage payments outside of London could drop by 25 percent if interest rates and house prices dip as expected. Within the London market, although payments are expected to drop, the decrease is expected to be less drastic.”

For those exploring options to keep their rates as low as possible, there are a few routes people can take and it depends on which contract they opt into.

Mr Moskovitz said homeowners may want to “avoid” tracker rates as these are linked to the Base Rate, which is forecast to marginally increase again within the year.

He noted: “If you are nearing the end of your current agreement, it might be worth fixing your mortgage rate to negate worries over rising interest.”

However, Thomas Jackson, managing director at Cooper Associates Mortgages, pointed out: “Trackers or variable mortgages are currently slightly less than fixed rates. With the Bank of England expected to raise interest rates again in March and May, these will probably prove to be slightly higher than longer fixed rates today.”

Mr Jackson continued: “If you are remaining with your current lender, processing times could be nearly instant. With this, a tracker or variable rate may prove best for the majority of the year. The challenge comes if or when you wish to come off a tracker and go onto a fixed rate.”

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He explained that if a borrower does this “too late” or if a major event takes place which causes changes, such as a mini-budget, “lenders will inevitably be quick to react or even have pre-empted and factored in these rises”.

Mr Jackson added: “Fixed rates provide stability and allow careful budgeting. For many this is crucial. But there are many factors to consider at an individual level so advice should be sought.

For those worried about locking in a fixed-rate agreement, a shorter-term contract is always worth exploring. However, Mr Moskovitz said: “Always be wary of initial cheap rates too. Although they seem appealing, they can work out more expensive due to the fees involved.”

Adrian Anderson, director at Anderson Harris, weighed in: “We have been spending a long time discussing the pros and cons of fixed versus tracker rate products. Since the former Chancellor’s mini-budget delivered by Kwasi Kwarteng in September 2022 sent the financial markets into turmoil, causing fixed rate mortgages to spike, many of our clients who can tolerate the risk have opted for a variable rate mortgage as the pay rate has been significantly less than the fixed rate pricing.”

However, he continued: “We are now at a stage where there is near parity between fixed and tracker rates. The expectation is that there may be further increases in the Bank of England Base Rate before it reduces while at the same time, the expectation is that fixed rates will continue to fall.

“I would not be surprised if some borrowers opt for a variable tracker rate and overpay in interest in the short term with a view to switching onto a fixed rate after they have fallen further in the hope that they will save interest over the longer term.”

But, Mr Anderson noted that this “could be a fairly high-risk strategy” and borrowers “should remember” they may incur further fees to switch a rate.

When is the best time to fix your mortgage rate?

According to Mr Jackosn, the best time to fix a mortgage rate is six months before the person’s current rate comes to an end.

He continued: “Predicting rates is rolling the dice. Upon an application being submitted, the rate has been secured. If interest rates rise before your deal ends, you have secured a lower rate. If interest rates fall, you can cancel your application and re-apply.

“Some lenders even allow a material change to your application and the new rate to be applied upon request.”

However, Mr Jackson noted that processing times by lenders at the moment are slower than pre-pandemic, so suggested not to leave it too late.

He added: “Standard Variable Rates are currently very high and would see a large increase in your monthly payment if your mortgage reverts to these.”

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