Despite the base rate cut in December, which lowered interest rates from 5.75 per cent to 5.5 per cent, fixed rate mortgage
prices continue to rise. Meanwhile, house prices are falling rapidly, with some likening the decline to the housing crash of the early 1990s.
According to moneysupermarket.com, the average fixed rate mortgage is higher than the average a month ago and, as fixed rate mortgages currently account for more than 70 per cent of new mortgages taken out, the impact of higher rates will be far-reaching.
Head of mortgages, Louise Cuming, comments: "Our data shows, on average, unless you are a low-risk borrower, a new fixed rate mortgage will cost you more. I shudder to think what would have happened to the average fixed-rate mortgage if the Bank of England hadn't cut rates."
In early December, the average fixed-rate was 7.30 per cent, while it is now 7.31 per cent. Although borrowers with excellent credit ratings may be able to find deals that are 0.39 per cent lower than a month ago, most people will be paying more. "Many homeowners who waited until after the interest rate cut to get a fixed-rate deal will be worse off, much to their annoyance," says Ms Cuming.
Some mortgage lenders
are suggesting that offset mortgages
could be a viable alternative as, although rates tend to be a little higher, mortgages can be paid off more quickly using savings to offset the mortgage balance. Providing you have fairly substantial savings, offset mortgages could be a "sensible move" according to London and Country spokesperson David Hollingworth.
Falling house prices may also add to concerns surrounding the housing market. According to a study from the Royal Institution of Chartered Surveyors (RICS), 49.1 per cent more surveyors reported a fall in average prices for December than those reporting a rise. This is higher than the November figure, when 40.6 per cent more reported a fall than a rise.
While Scotland was the only region to experience property price increases, the worst affected areas were the West Midlands and East Anglia, according to the survey.
RICS spokesperson Ian Perry says: "While sentiment seems to have reached its lowest ebb, the underlying economic conditions are vastly different to what the country experienced in the early 1990s.
"However, the coming months will be of great importance to the market and many would-be buyers will be watching the Bank of England's interest rate decisions while lenders remain reluctant to part with finance.
"The Bank of England may have to cut rates further if the market is to remain in a stable condition."
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