To Fix or Not to Fix

Monday 09 March 2009

The banks follow the trend set by Bank of England, which cut the interest rate to 0.5%, and cut the cost of mortgage. For instance, Abbey offers a market-leading deal at 3.95% for borrowers with a 40% deposit (a fee of £595 applies), and HSBC hits the market with a five-year fix at 3.99% with a £999 fee. Both, HSBC and Abbey offer these great deals only for loans of £250,000 or less. The general public becomes confused as experts' opinions vary. Some experts have been advising borrowers to fix the rate in order to avoid possible rate rises. Others claim that although the bank's rate might have reached the bottom, mortgage rates will still go down. Brokers believe that after Bank of England's "quantitative easing", mortgage financing will fall further because the Bank will use the money to buy corporate bonds and governmental gilts, which in its turn will finance businesses and individuals. Although some banks, such as Lloyds, urge customers to fix as soon as possible because the rates are cheap, experts are determined that they will decrease even more in the next few weeks. Brokers suggest that borrowers wait or switch to a tracker rate, which allows a penalty-free switching to a fixed rate. The majority of financial specialists believe that the rate will not rise until late 2010, which means that there is no need to make rush decisions right now. However, a problem may arise from the fact that lenders will become very cautious in offering good deals to those homeowners, whose property price fell significantly. Borrowers are to consider all pros and cons and find a "happy medium". It is important to note that other experts are certain that the mortgage cost will go down no further, and although it will not increase until the end of the year, borrowers should switch to fixed rates as soon as possible in order to secure themselves from falling house prices. The rate might increase in a 6 months period, that is why the existing deals by Abbey and HSBC tend to be the best offers, several experts say. There's also a slight risk that inflation will hit the country and the prices will go up in a faster pace than they dropped, and many homeowners will be caught out.