Why you should lock into a fixed-rate mortgage now

By April 25, 2017Articles
With the option of fixed-rate mortgages looking to be vanishing from lenders’ books, now is the time to lock yourself into a cheap, fixed-rate mortgage. Take advantage of the lower interest rates it can provide for longer before interest rates start to rise, as is predicted by mortgage lenders.

Low current rates are set to rise sharply

The mortgage interest rates have been consistently dropping for the past few years, due to low bank rates and an increase in lending competition. And with the new relaxed criteria for lending – especially to first-time buyers – more people are now able to afford a mortgage at these low rates. But they are set to rise in the near future, and those on a current fixed income may be better off with a fixed-rate mortgage to make sure they do not suffer in the interest rate rise.

How to qualify for moving to fixed-rate mortgages

To qualify for moving to a fixed rate mortgage, the buyer has to first be on a variable-rate mortgage. There are several types of variable-rate mortgages, including the tracker mortgages, which rise and fall with the variation of the official Bank rate. Many lenders also have their own version of the tracker, with rates that are loosely based on the bank rate. These often come into play when short-term fixed-rate mortgages come to the end of the fixed term.

Mortgages are already going up

Fixing your mortgage rate now makes real sense, and now is a time of urgency for buyers to lock into that fixed rate for as long as possible. And with the gap between 2-5 year fixed terms and 10-year fixed terms getting smaller, a longer term fixed rate looks promising.

Data from the Bank of England has shown that the cheapest deals for two-year fixed rates have already gone. November 2016 saw a rate of just 1.31 percent, but by February 2017 it had already risen 0.4 percent to 1.35 percent on average. And with the inter-bank lending rates almost doubling in recent months, this is a sure-fire indication that more interest rate increases are on the way.

Inflation set to hit 2.7 percent

The Bank of England has set the target for inflation for the first half of the year at the normal 2 percent. However, the Office for Budget Responsibility (OBR) has stated that, based on the consumer price index from the last quarter of 2016, inflation could reach as high as 2.7 percent. A weak pound and the rising price of oil is set to force the consumer price index higher over the coming months, according to the recent budget. And the subsequent increase in the cost of living will force the Bank of England to increase its Bank Rate from the lowest it has ever been. Once that happens, any fixed rate mortgage taken after that would be a lot higher.

Politics can affect your mortgage interest rates

With the political uncertainty that follows Britain’s upcoming exit from the European Union, being locked into a five-year fixed-rate now will prevent the increases that are predicted once the 2-year countdown to “Brexit” has passed. The first few years after the exit could be unstable for the economy, causing interest rates to rise steeply.

Potential limit to future borrowing after budget

With the announcement from the Chancellor to increase National Insurance (NI) rates and lower the tax-free threshold for business owners and the self-employed, incomes for millions could be drastically reduced. This would mean less chance of getting a new mortgage, especially at the expected higher rates. It would also push lenders to be more strict in the processing of applications according to the buyer’s ability to afford the mortgage at higher rates, restricting the amounts new buyers could borrow.

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Source : http://www.telegraph.co.uk/personal-banking/mortgages/four-reasons-lock-cheap-fixed-mortgage-today/

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