Mortgage News Cost Of Fixed Rate Mortgage Highest For 8 Years 1733
Cost of fixed rate mortgage highest for 8 years
11 June 2008 / by Rachael Stiles
In May, homeowners with a 25 per cent deposit were paying an average rate of 6.27 per cent for a fixed rate mortgage, up from 6.06 per cent in April. Mortgage rates continue to rise, despite there being a base rate cut as recently as April and the rate remaining static for the past two months.
In 2007, two year fixed rate mortgages were the most popular product and dominated the market, making up for the majority of new lending, but more and more borrowers are now opting for a mortgage that tracks the base rate.
Mortgages with longer term fixed rates have also become more expensive, with five year fixed rates rising from 5.85 in April to 6.11 in May, and three year fixes, which were at 5.67 per cent in April rose to 6.13 per cent a month later.
Market analysts believe that the Bank of England will be forced to raise interest rates several times in the next year in order to curb inflation, and this speculation is pushing up swap rates – the costs of funding fixed rate lending.
While the credit crunch is tightening lending criteria and pushing up rates for many homeowners, two million homeowners and buyers are taking advantage of the subsequent fall in house prices.
Almost four million people plan to wait and see what happens before buying or selling, but 1.2 million hope to upgrade to a larger house for a bargain price as house prices continue to fall, according to research from Abbey Mortgages.
More than 800,000 homeowners are getting out of the market before prices fall any further, opting to sell up and move into rented accommodation until conditions improve.
Meanwhile, those worst affected by the credit crunch who are finding their budgets stretched to breaking point, are downsizing to a smaller home in order to combat the effects on their finances and free up some capital from their property.
The majority of homeowners will stay put, waiting out the storm and making home improvements or extending their homes to add value as prices fall, or to create more space.
“For some people a falling house price environment is not necessarily bad news.” Phil Cliff, director of Abbey Mortgages, commented. “While the majority of homeowners are planning to stay put and wait for the current volatility to end, two million think that house price falls are a good reason to move.
“This could be because house price falls bring a larger property within their grasp or because they think they can cash in if they sell up now and wait for the market to hit its bottom. However, it is always worth getting advice before making this sort of move as, for most people, their house is their largest asset.”
© Fair Investment Company Ltd