Mortgage rates are on the rise, despite the Bank of England’s Monetary Policy Committee (MPC) putting the base rate on hold yesterday.
With credit proving harder to come by, even for mortgage providers, mortgage rates are being pushed higher than normal, as they are forced to drop their affiliation with the Bank of England’s base rate.
specialist, John Charcol has expressed its concern at the rapidly changing mortgage rates. Spokesman Ray Boulger said: "Conditions in the mainstream mortgage market are now rapidly deteriorating at a frightening speed, with lenders changing their pricing and/or criteria at the fastest pace in living memory, and probably ever.”
Some of Britain’s leading mortgage providers have already announced a rise in mortgage interest rates. Melanie Bien, director at Savills Private Finance, comments:
"Abbey, one of the biggest lenders, announced that it is raising its fixed and tracker mortgage rates from next week, even though the base rate is on hold. It proves that the connection between base rate and mortgage rates has been all but severed as lenders look to improve margins rather than market share. Even if base rates come down further, as expected, this won’t necessarily filter through to new mortgage deals. There is very little liquidity in the market and this is being reflected in less choice of products and higher rates."
Despite the bleak outlook, there are ways of minimising the damage; Fool.co.uk suggests trying to switch mortgages
for those whose fixed rate deals are due to come to an end in the next twelve months. David Kuo, head of personal finance at Fool.co.uk comments said that "Some homeowners will be able to negotiate new fixed-rate deals. For these borrowers, interest rates will be similar to two years ago, when the average tracker-rate mortgage was 5.25%."
However, for some, this will not be possible, and Mr. Kuo advises acting sooner rather than later: "People who can’t switch may have to drastically cut their household expenditure to afford the higher repayments. But rather than wait for the inevitable to happen, homeowners can overpay their mortgage now by exploiting the time before their fixed-rate deals end.
"Making additional monthly payments of £200 on a £100,000 mortgage will cut the outstanding debt to £95,550 instead of £98,000 after twelve months. Apart from reducing future repayments, it will put you in a better position when you remortgage."
The rapidly increasing mortgage rates will do nothing to quell the worries affecting one in five UK homeowners, who, according to the Financial Service Authority (FSA), are concerned they will not be able to keep up with mortgage repayments over the next twelve months.
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