Switching to a fixed rate mortgage should be considered carefully.
A rise in interest rates would mean more expensive mortgage repayments for many householders on variable rate mortgage agreements.
Mortgage holders have been warned to think twice before they take the advice of brokers and sign up to a fixed-rate mortgage, according to Nationwide Building Society.
The current 0.5% interest rate means that householders on standard variable rate (SVR) mortgages have been paying out smaller repayments to their lenders. However, the latest inflation figures, that were much higher than experts had predicted, have increased the prospect of an interest rate rise before the summer.
Lenders base part of their fixed-rate deals on the bank rate – if it goes up many mortgages will become more expensive. Therefore brokers have been urging people to fix their mortgage before it becomes too late.
Chris Rhodes, Nationwide’s product and marketing director, said home owners should be wary that some brokers have their own interests at heart. He said: “Churning mortgages gets [brokers] a fee”.
He added: “No one knows where rates are gong to go. It has to be down to your judgement what you decide to do. That is not to say that you don’t fix. If you are on a standard variable rate of 2.5% and you are offered a two-year fix at 4.5%, you have to comfortable paying that extra 2 percentage points as insurance. You may feel that you can afford to take the hit if rates rise – even if they rise by as much as 1.5 points, for instance”.
However, Melanie Bien, of mortgage broker Private Finance, said: “Borrowers considering switching to a fixed rate should do so as soon as possible as there is every likelihood that fixed rates will rise further in the coming days. But those who are on a cheap variable rate, and who could cope with a few quarter-point rises in Bank Rate, may consider staying put for now”.
