Fixed rate mortgage rates to increase

Wednesday, 10 June 2009 10:42

Fixed rate mortgage interest rates look set to increase in the coming weeks.

Over recent days swap rates - which are used by mortgage lenders in setting interest rates on fixes - have increased pointing to hikes for new borrowers.

Two-year swap rates have risen by 0.5 per cent, while three and five-year rates are up 0.62 per cent.

Ray Boulger at UK mortgage broker John Charcol said: "The scale of the increase [of swap rates] was large enough to be the straw that breaks the camel's back and as a result I expect several lenders to increase the cost of at least some of their fixed-rate mortgages over the next few days."

He added around 80 per cent of his clients were now opting for fixed rate deals.

"The message for borrowers wanting to take a fixed rate is clear; get in now or miss out on the current relatively low rates," he said.

However, for borrowers happy to sit on a standard variable rate, the move to take on a higher rate fix may seem hard to take.

Michael White, chief executive at Email Mortgages, said: "The question, 'Why should I fix when it will mean increasing my monthly repayments?' is often raised.

"We understand and sympathise that borrowers will want to pay as little as possible on a monthly basis. However, what might seem a 'no brainer' at present needs to be looked at in closer detail, preferably with a mortgage adviser.

"All this market needs is for Bank Base Rate to begin inching up and lenders to act accordingly before any short-term gain turns to long-term pain."

He went on to point to data from moneyfacts.co.uk showing a 0.2 per cent rise in fixed rate mortgage costs over the last year.

"Those who are contemplating remortgaging to a fixed rate should certainly consider their options right now rather than waiting," Mr White said.

"To hang on, even for a couple of months, could mean a further 30 to 40 basis points rise in pricing which over the course of the mortgage will add a significant amount to the overall payment."

He added a mortgage should be concerned as a long-term commitment and borrowers should look at repayments over a period much greater than the next few months.

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