Good Fixed Rate A Thing Of The Past
With fixed rate mortgage deals having risen so much, it is now difficult to find one that is better value than a standard variable rate. While fixed rates offer stability, tracker rate deals may give better value currently.
Borrowers have increasingly liked to fix their mortgage rates over the past few years, as they try and get some stability into their mortgage repayments in what, certainly in the last nine months or so, has seemed an ever-more unstable area.
However, it appears that fixed rate deals are no longer going to give them the value for money that borrowers would like. Indeed, in some cases, borrowers would be better off going onto their lender’s standard variable rate (SVR) that onto a fixed rate, and SVRs have always been the big “no-no”.
Two-year fixed rates are now reported to have an average rate of 7.02%, according to research group Moneyfacts. This rate is exactly the same as the average standard variable rate. The difference between the two is that many people simply doing nothing with their old fixed rate would be put automatically onto their lender’s SVR at no cost, whereas moving to a new fixed rate would mean paying an arrangement fee of around £1,000.
Of course, the big reason for getting a fixed rate is that you know it won’t change for the duration of the fix. The risk with going onto an SVR is that you will be subject to fluctuations in that as determined by the lender. SVRs do not track the Bank of England base rate, but they will certainly go up if the base rate does. They may go up anyway at any time, and they are not guaranteed to come down if the base rate does! Add into that little recipe, the popular forecast that the BoE base rate’s next move will probably be upward, and you can see the risk of an SVR.
However, analysts are saying that the best of fixed rates are in the past.
The best move may be for borrowers coming off good fixed rates to go onto a tracker rate. At the moment trackers represent better value than fixed rate deals. Although the base rate may go up in 2008, the forecast is still for it to come down in 2009. Tracker rates do follow the base rate (plus a few percentage basis points).
