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What to do in the face of a potential for increasing mortgage rates

[ Posted May 25th, 2011 ]

Bank of England Chief Economist Spencer Dale is worried that families are not preparing correctly for the increase in the Bank base rate that will cause home mortgage rates to rise along with it due to the fact that if the last few years have taught us anything, it is that borrowers tend to prefer to ignore debt then deal with it head on.  His advice is that now is the time to prepare for the expected increases so that monthly mortgage payments do not suddenly jump and leave many families short-changed when it comes time to figure out the budget.

At the moment there is a sharp divide in opinion over when interest rates will start to increase with some believing that this event will occur by the time autumn roles around and others expecting that it will still be in farther in the future.  What is known is that at the moment inflation has been rising at a rate of about 5.2% annually according to the RPI (retail prices index) and financial markets are expecting to see at least a .25% increase this year with another 1% occurring every year forward until the economy begins to stabilize again.

This will make a major impact on those with track mortgages, but there are some who have fixed mortgages who will be protected from the impact which has led many to switch in advance.  Despite this fact, there are some standard variable rates that will not increase given the fact they are already more than 5%.  With this thought in mind, the best advice is for homeowners to do some research and make the appropriate actions so that they protect themselves and their homes for what the future may bring.

Lenders are advising that responsible homeowners should contact their mortgage broker to find out what is available to them so that an application can be placed for the best type of loan which is likely to take a few weeks to process making the need to start work paramount.  This is a concern for those with a commercial mortgage or those who have buy to let mortgages as well since these rates will be impacted as well once the base rate changes and immediate action is needed in order to protect one’s assets fully.

The debate over tracker and fixed mortgages

[ Posted May 25th, 2011 ]

Homeowners are once again getting nervous over the threat of an interest rate increase that will likely increase mortgage rates and put pressure on family budgets that are already squeezed to their breaking point only compounded by the fact that there is a high potential for benefit cuts and tax hikes.  chief economist for the Bank of England, Spencer Dale, stated that he believes that it would be better to increase the base rate immediately so that the adjustment could be properly dealt with instead of looming over mortgage owners heads and to help protect the fragile economy.

However, his vote is outnumbered by other MPC members, which is good news for those who are worried about what will happen to their mortgages if they do not have the time to apply for fixed mortgages. Dale believes that inflation has the potential to hurt the economy if something is not done correctly to correct the problem.  At the moment, homebuyers are also in the middle of the debate as they do not know exactly when interest rates will actually be increased by the Bank and thus are struck worried about an unknown hike at an unknown date.

In most cases homeowners are reluctant to make the switch from tracker mortgages to fixed mortgages before until they have to due to the fact that there is almost a three percent difference between the two loan types. Therefore, many are playing a dangerous game by guessing that they will be ok to hold onto their tracker mortgages a little longer and one that may turn against them sharply if the rates hike before they have a chance to do something about the situation.  The fact that mortgage rates are likely to increase slowly is another reason that many borrowers are inclined to wait to see what happens.

Those who do decide to change their mortgages may want to take a good look at five year fixed rates for the best deals over time, but in order to secure this type of mortgage that will lock you into a good deal you also need to have a deposit on hand that is at least 25% of your LTV which is something that not many people can afford at the moment. Plus, those who just purchased their homes in the last five years will not even have the equity to be applicable for these deals.

Weekly bills increase by £54 causing fear for those watching the mortgage rates

[ Posted May 21st, 2011 ]

The typical British family saw their weekly bills jump by about £54 per week due to the combined impact of rising energy costs and the fall in the retail prices Index.  Add in the fact that the 2% inflation target was missed this quarter for the sixth time and it is only a matter of time before the interest rates are forced to increase bringing with them an increase in the cost of the average mortgage rate attached to a fixed or variable loan.  For those that have already been hurt by the price of fuel increasing by 16% over the last year, and owning a home may soon become impractical for many on stretched budgets.

Moneysupermarket, the comparison website, compiled the cost of weekly bills and factored in the new pressure that has been placed on families due to the increase in petrol affecting energy bills.  Head of banking for the website, Kevin Mountford, stated that many families are starting to feel as if their budgets cannot be stretched anymore which has caused a deep fear to set in for many that owning their home is simply not going to be an option for much longer.  This caould stall the already fragile economic recovery as unemployment and bankruptcy is expected to rise soon along with this point.

The official figures from the Office for National Statistics released this week show that inflation jumped again by another 4.5% over the course of April which is much higher than the Government’s hopeful goal of just 2%.  This means that homeowners with variable mortgages will see their monthly mortgage payments increase at a time when any bill increase could be devastating.  The same is true for those who hold a commercial mortgage set on variable terms given the fact that most businesses are struggling to stay afloat as well and monthly operating costs could be damaging as well if increased.

It is not only the commercial mortgage rate that many business owners are concerned with, as the price of air travel also jumped by 29% over the course of March when compared to April and the costs of extras increased by another 5% in general.  Even those who wanted to escape the stress of everyday life were hurt as the price of cigarettes and alcohol increased by 5.2% as well which is the highest month on month increase seen in 15 years for this genre.  Opposite this, the average worker has only seen an increase of about 2.5% which is not enough to keep ends meeting.

Base rate may go up over fear of inflation affecting mortgage rates

[ Posted May 21st, 2011 ]

The increasing costs of food and energy bills will continue to push contribute to inflation which in turn will create higher interest rates forcing the Bank to increase the rate as expected. For mortgage holders that are already strapped with their current base rate, this added change to the mortgage rate may be all that is needed to push them towards foreclosure.  The thought is devastating, but according to many analysts likely to happen before the end of 2011 for many people.

The Bank of England announced that after two weeks of interest rates staying at a historic low that inflation will cause a rise of about 5% before the end of 2011 which will cuase the interst rates to be increased.  However, the good news is that bank rates will simply return to normal which will be okay for those who have fixed mortgages and have budgeted accordingly, but those on variable mortgages or tracker mortgages may be hit harshly by the fluctuation if they have not budgeted for the anticipated change due to the expected change in the mortgage payments that will follow.

Just a 1% increase in the base rate will cause the average £150,000 mortgage owner to be faced with an increase in their mortgage payment of £43 every month for a total of £513 by the end of the year extra.  If the rate were to increase by 5%, then these figures would multiple by fiv which will leave some eight million households with much higher bills to tackle along with other increases in bills elsewhere.  For many this will be too much, which is why the picture is a bit beak at the moment and many expect to see economic growth start to stall.

Savers on the other hand will welcome the rise in the interest rate given the fact that they have been losing out on their investment since March of 2009.  Therefore, while borrowers may be living in fear of the impending base rate and rise in the mortgage rate, those who have some money in the banks will welcome the change as they are not likely to be affected by the change for at least a few months at which point the news will be completely positive instead of something to dread.

Mortgage rates down for first time home buyers

[ Posted May 12th, 2011 ]

May has been an excellent month for those who watch the mortgage rates in an attempt to secure an affordable deal on a home as both buy to let mortgages and first time home buyers are seeing a drop in the mortgage rates and more attractive deals being offered to them by lenders.  In fact, the typical mortgage rate for first time home buyers that can afford to put down a 10% deposit on their home has dropped by another 6% which is the first time that such a large drop has been observed in over three years.

Compared to May of last year, the drop is still notable at 4% with the average cost of a 90% mortgage for those able to pay the despoit sitting at 5.98% which is a much more affordable mortgage rate over what has been available in the past to credit worthy applicants.  The drop is due to an attempt by banks to get first time home buyers back into their doors and onto the property ladder with the amount of deals that are available to these buyers jumping by 41% overall up to 229 during the last year.

There are a number of factors that banks will have to overcome however before they can expect to see first time home owners return to the mortgage market at the same rate that did prior to the credit crunch as a higher mortgage rate is not the only factor that has kept them away. Uncertainty about employment, future prospects, and the impending increase of the interest rate are all factors that have kept potential home owners from making a purchase.  The increased lending criteria and tough lending practices have also kept many first time home buyers from securing the same mortgage that they may have back in 2007 prior to the banking and property market collapse.

Many experts are also warning first time home buyers that just because are more options on the mortgage market for home owners does not mean that they will qualify for them with given the fact that the CML figures show that most first time buyers still must pay at least a 20% deposit in order to secure a home.  The Financial Services Authority also reported that during the last three months of 2010 only 2.2% of mortgage buyers were able to secure mortgage lending with a 10% deposit down.

Banks are reducing buy to let mortgage rates

[ Posted May 10th, 2011 ]

Mortgage lenders are taking another look at landlords as the rate of renting continues to increase in an effort to attract attention to their offerings by offering a wide selection of deals with lower buy to let mortgage rates. House prices may be falling overall, for landlords with the increase in demand, void periods down, and rents continuing to raise the new deals on mortgages may make the present the best time to acquire a few new properties if they have the investment funds to do so.

Although many believe that with house prices down purchasing buy to let properties is not a great idea, but with the prices low those who are able to make a long term investment would do well to look over their funds and consider taking advantage of what is now essentially a buyer’s market if short term falls are not a concern.  Adding to the allure is the fact that buy to let mortgage rates are generally better right now than the rates offered to first time buyers and any other commerical owners making the allure hard to avoid and with rents to use as deposit and equity, the time to act is now as far as many experts are concerned.

Over the last few weeks several lenders including the large banking firms of Llyods, Santander, Northern Rock, and Mortgage Trust have all offered lowered mortgage rates for those looking into the buy to let market in an effort to get landlords to look their way.  Director of Private Finance, an independent mortgage broker, Melanie Blen, stated that lenders are starting to feel confident once again in the BTL market for the first time since 2007 with many banking institutions that avoided it now starting to look at ways to attract landlords in.

This sentiment has been echoed in the marketplace with the amount of BTL mortgages that are available or uptake doubling over last year alone with new figures reporting that at the moment there are 463 different BTL loans available across the UK which is significantly higher than the 215 choices that were available at the of 2010 and even the 330 that were available during last month alone showing a sharp increase in a very short period of time that is expected to continue to grow as landlords are purchasing properties that normally first time home owners would buy.

Interest rates still hanging in the balance according to new BBC survey

[ Posted May 5th, 2011 ]

Last week a poll was taken among all of the top economists that showed that most financial market experts believe the earliest that the base rate will increase will not be until August which means that those who are thinking about changing their variable mortgages into fixed mortgages have a bit of time before they start to panic.  Out of the 22 economists that were part of the BBC survey stated that they believe the bank base rate will not increase until August with another four stating it may happen in May and the last four stating that the increase will not be seen until either June, July, November, or as late as February of 2012.

In addition, the experts revealed what they thought the base rate increase may sit at by the close of 2011.  Out of those included in the survey, 12 of the respondents thought that the base rate will only go up by a mere 1% which should have little bearing on mortgage rates compared to what many analysts were predicting just a few months ago.  Another six of the respondents believed that it would increase by 1.25%, one believed it would increase by 1.3%, two by .75%, and one felt the increase could be as small as .5%.

Despite the survey, mortgage rates are still standing steady at the moment with the Mortgage Strategy shadow of the Monetary Policy Committee voting to keep interest rates at their current rate of .5% for this month at least.  Executive director for the Mortgage Lenders Association and the shadow MPC chairman Peter Williams stated that there is still a great deal of confusion surrounding when the interest rates will rise which has impacted business and has also impacted the way that people are approaching securing a new mortgage.

Williams continued to explain that at the beginning of 2011 businesses were already nervous about the increase in the base rate and were making suggestions about how to proceed with most economists expecting to see the increase in August while at the same time others confuse the issue by predicting the rise to hold off until 2012.  He further added that this confusion simply highlights concerns of those looking into buy to let mortgage rates as they try to balance the concerns of inflation with concerns over slow economic recovery with an invisible pendulum swinging between the two.

46% of home buyers are not able to answer simple questions about their mortgage rate

[ Posted May 2nd, 2011 ]

A new survey from Zillow reports that 46% of all home buyers are not really prepared to take out a mortgage because they are not aware of very simple mortgage facts which may change the type of mortgage rate that they can get.  In fact, the fact that they do not have the knowledge they want may even mean that they are not getting the best deals for themselves compared to what they actually would qualify for.

The mortgage marketplace survey was conducted by the Zillow real estate hub and found that almost half of the time respondents were not able to get the basic questions correct. Making matters worse, 44% of those who were out there looking for the best mortgage rates admitted that they did not know much about the mortgage process or even about general mortgage facts.  When asked if their adjustable mortgages would reset after a five year period most answered yes, but in reality the interest rate will adjust to the rate after the fifth year even if the rates have declined making it possible for a real change to occur.

Another question that was included in the Zillow survey pertained to lender fees.  34% of those in the study wrongly believed that lenders all charged the same amount for appraisals and credit reports due to uniform law, but the truth is that these fees are not regulated and are up to each individual lending agent.

Therefore, when you approach securing a mortgage rate it is in your best interest to shop around for the best rate and the best package fees when it comes to additional charges that you must pay as part of the application and processing portion of the mortgage interview. Director of Zillow mortgage, Erin Lantz, commented that most people would not be quick to jump out of a plane in midflight if they did not know how to correctly use a parachute.

But every year buyers are quick to secure the largest loans of their lives without even taking the time to make sure they understand how mortgages work and find out the differences between fixed mortgages and variable mortgages and what stipulations are attached to both.  This in itself can attribute to the increase in foreclosures due to the fact that more homes are lost due to poor lending decisions. aims to provide every client with cheap, affordable and best mortgage loans in the UK market, however the actual mortgage rate available will depend on client's financial circumstances and credit history. Although, has made every effort to ensure that the mortgage rates listed are correct, it bears no responsibility in case of an error. 
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