The average rate for fixed mortgages set on a long term basis dropped by about 4% this week; weighing in at about 3.98% on average this week.  Home owners that are looking for the security of a fixed mortgage long term due to the uncertain economic situation in the EU would do well to take advantage of the rate as mortgage rates in general have been increasing this week and slowly over the last month as it seems that the housing market may have reached its final low.

This is good news for those willing to sign into a long term mortgage and good news for the Housing Secretary who has been asking banks to consider offering more long term fixed mortgages in response to the economic uncertainty that has kept many first time home buyers from purchasing a home.  However, despite this fact, evidence still proves that most home owners do not like the idea of making such a long term commitment when the housing market is so unstable that standard variables look like the best option to most home owners who are contemplating how to get the lowest rate on their mortgage.

In fact, outside of two weeks over the course of this year the average mortgage rates have sat below five percent making this a great year for taking out a low interest mortgage.  A combination of factors have kept mortgages low including the economic recession, the low home buying ratios, the low Bank of England base rate, and the fact that banks have had to heavily compete for the small amount of mortgages that they actually gave out this year.  In fact, this year will possibly be the worst in terms of home sales in the past twenty years.

Yields fell farther this month and week as most investors are choosing to move their money into different treasuries amidst fears that the economy is going to fall into a double dip recession, the uncertainty of the stock market, and the debt crisis in the Eurozone.  Low unemployment rates, increased redundancies, and the high deposits needed in order to secure a mortgage have also kept many first time home buyers from buying a home which has in turn turned the housing market in the UK into a rental market making it harder for banks to lure consumers into a long term mortgage.

While the old saying denotes that the castle of an Englishman is their home, the UK has a problem with house price inflation because house prices have risen exponentially year over year up until the recession making the housing market prime for those who made their purchases at the right time but horrible for those who were not able to secure the best mortgage rates. As the housing prices continued to increase people got used to spending and borrowing well beyond their means, a behavior that single handedly caught up with Britain causing a recession in all definitions of the word.

Most people are quick to blame the recession and the banks for the poor housing market that exists now, but most people do not take into account the fact that the UK had the second to largest LTV ratio of any developed country before the credit crunch and ensuing financial crisis occurred.  It should have come as little surprise that first time buyers with 125% mortgages found themselves with negative equity when house prices crashed, but it should come as a surprise that we considered this unsafe form of lending to occur.

Now, the nation is faced with thousands of people rushing to get fixed mortgages to avoid rising mortgage rates again and thousands of other people homeless that lost their homes during the recession.  The even worse news is that as house prices start to edge back up it is expected that many more people will lose their homes due to increased inability to pay for their monthly mortgages.  In other words, a great deal of those who lost equity has already lost their homes, and those who were able to hold on are still at risk of losing their room.

Over the past forty years four housing bubbles have burst in the UK which have all led to economic problems but it seems that the housing market and the general lending society still has not learned its lesson.  Now experts are predicting that the next generation will be composed almost solely of renters which will change the socio-economic nature of the county and the housing market once again.  It seems that our addiction with house prices and mortgage rates will catch up as only the super wealthy will actually be able to afford homes, which used to simply be a rite of passage.

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.

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.

Although the housing market has not yet been officially deemed stalled again, it is showing signs of returning to pre-recession levels with new figures released from the British Bankers’ Association that show year on year there has been a 10% drop in lending.  In March of this year mortgage lending by banks fell by 11% when compared to March of 2010 totalling up to only £7.7bn which is also lower than the last six month average of £7.9bn.  Also falling were mortgage approvals which also casts doubt into many people’s minds that are already frightened by the potential for an increase in mortgage rates.

Overall the mortgage approvals for March were slightly higher than the month before, but when compared to March of 2010 were still down overall by 10% as well.  Even those seeking remortgage approvals were out of luck last month as the number of approved remortgages fell by 7% in March compared to the previous month even though they were higher than in March of 2010.  These figures are not only for the residential market, but also affected those who hold a commercial mortgage.

Another piece of bad news for home owners is the fact that the BBA reported that the average house price has now fallen by about .5% when compared to 2010.  CEO for Crown Mortgage Management, Eric Stoclet, stated that approvals have fallen by about 11% based on year by year figures which will start to affect growth figures over the next couple of years.  Stoclet added that annual prices were static for awhile during the recovery from the recession, but now that mortgage rate approvals have started to quiet the price growth drops may drag the housing market back into a double dip recession.

Stoclet continued to emphasize that this will be a large problem over the next six months due to the expected rise in the bank interest rate and the increase of unemployment over the next two quarters of the year.  If both of these impacts are as harsh as predicted, mortgage lenders will continue to be tentative turning down previously qualified homeowners which will drive down the housing market even more and possibly hurting the banking industry again in the coming months.

Although the threat of higher interest rates and thus higher mortgage rates continues to linger over the mortgage industry March saw an increase in the amount of people applying for mortgages.  Overall in March mortgage applications jumped up by 11.6% when compared to February and when compared to the year on year change seen since March of 2010 was up by almost a full 20%.  While this can be seen as good news, most likely the surge is the result of consumers attempting to beat the anticipated increase in interest rates which will negatively impact the housing market.

Unsurprisingly, the majority of new borrowers that applied in mortgages over the course of March chose fixed mortgages with almost 80% of all new applicants choosing to take fixed rate deals; which is about the same ratio that was seen in February.  This overwhelming sentiment proves that more consumers are now thinking about the long term ramifications of their borrowing and that the short term gains of a variable mortgage is no longer in anyone’s best interest except for perhaps the banking industry.  Although when compared to the potential for default, even the banks are likely to prefer to see individuals taking the fixed rate mortgages.

The average loan amount requested in mortgage applications for March also increased slightly by about 3%, compared to the previous month; coming in at £127,500 on average over the £123,500 seen in February.  On the other side the average mortgage application LV dropped down about 2% compared to the previous month sitting at just under 70% and the average deposit stayed about the same at a little under £50,000 for fixed mortgages and tracker mortgages alike.

On the other side of the coin, remortgage applications fell by about 2% during March although the numbers are still a full 32% higher when compared to March of 2010 offering hope that the housing market has still improved quite a bit since the credit crisis.  Those seeking remortgages also choose fixed mortgages over the variable rate counterparts with the average loan size for remortgages dropping by about 7% down to approximately £132,000 instead of the £142,000 that was requested during February.  Overall, the age of the average mortgage applicant during March was 37.

Although they are only small signs, there are a few notes that have led some analysts to predict that house prices may finally be slowing down in their decrease which will hopefully remain the same even if mortgage rates jump up in the next six months.  Two surveys from property market analysts show that the crash of house prices is finally starting to bottom out and ease up meaning that eventually prices may start to rise again having hit rock bottom with no direction left to go.

One of the surveys conducted by Daft.ie reported that asking prices for the year were down by about three percent during the first quarter of 2011 compared to the first quarter of 2009 which is still a small decline when compared to the way that prices have fallen since the property crash started in 2007.  While most people would not consider smaller drops to be a positive sign, for those who are hoping to make a good sale of their home while the mortgage rate is still down this could be good news.

Those with fixed mortgages will be more likely to appreciate this news since it means that they will not have to worry about the increase in mortgage rates but can benefit from the fact that finally their homes will stop falling in value.  Another survey conducted by MyHome.ie that looked at the Dublin area also found that while prices dropped in the area over 2009 when compared to previous years it was still the lowest fall seen annually since 2007.  Since the property crash began the national average home price has dropped by a total of 43% with the average home price standing still somewhat at 210,000 euro.

At the moment the average time to complete a property sale stands at nine months which is the same as it was in 2008-2009 which is encouraging news for property investors.  Within the main cities of the UK home prices only fell by a little under three percent as well making it their smallest reported decline as of yet as well which may help boost the confidence in the commercial development market and bring many developers back into the market to secure a commercial mortgage.

According to a new report carried out by Legal & General Investment Management firm around 90% of all mortgages in the UK are set on a variable rate which is a much higher rate than most analysts have predicted.  In fact, many surveys show that fixed mortgages are the more popular of the two but this survey revealed otherwise.  Economist for LGIM, Tim Drayson, stated that there are only about ten percent of fixed rate deals on the market as most people thought that the market would be safe when they first secured their loans.

According to Drayson, the reason that other research has pointed otherwise is due to the fact that the researchers have not looked at the amount of people who choose to move from their fixed mortgages to variable deals was high as many fixed rate terms ended over the last decade while the mortgage rates were still low and tempting.  However, these people are now locked into variable deals that may end up hurting them since the credit crisis has made securing a new mortgage tough and the interest rates are not looking the least bit tempting to most home owners.

Drayson added that their survey took a look at the many variable borrowers who did not remortgage their loans which brought the ratio of actual fixed rate mortgages up much higher.  According to the LGIM, they believe that the FSA has not correctly tabulated the amount of people who will be affecting by the rise in mortgage rates and the amount of foreclosures that are likely going to occur as a result of deadly variable rate mortgages.  He added that cash flow and budgets are going to take a sharp hit which will in turn affect spending in the economy as well given how many homeowners are likely to get hit.

As banks continue to hike up their lending rates fixed mortgages are once again climbing for the ninth month in a row as borrowers are shying away from more risky loans such as variable mortgages.  In fact, borrowers who wait until next month to secure their final mortgage loan may find that rates will increase by an additional half a percent which may seem small, but is in fact an additional £35 for the average £150,000 home.  As most budgets are now stretched, these small increases can make a large difference over the course of the year and is one of the reasons that analysts are predicting the average household will have thousands of pounds less of spending money this year.

The only thing keeping buy to let mortgage rates within reason is the fact that the Bank of England base rate has hit a low of just .5% over the past two years, but as inflation continues to increase most economists predict that the base rate is going to hike over the next few months leaving very little room for those with variable mortgages to attempt to keep up.  This is also a reason for the increase in fixed mortgages as those with variable mortgages are switching their mortgage interest types of they have the credit history in an effort to avoid the hike before it happens.

Swap rates also predict that the base rate of the Bank of England is set to increase as the dictating rates for fixed mortgages have risen up to 1.88% for two year fixed mortgages over 1.77% at the close of January and up to 2.99% for five year mortgages compared to 2.94% back in January.  Once again, while the percentage changes may seem quite small, as mentioned above every half percent increase is a large chunk of change when placed in front of a tight budget.

The news looks poor for almost every homeowner as last week large banks Skipton BS, Principality BS, Abbey, and Clydesdale Bank all increased their mortgage rates and most other banks are predicted to soon follow suit.  For this reason borrowers that want a secure interest rate are advised to act quickly so that they get locked in to a reasonable rate before the interest rates jump again.

Amidst the threat of a double dip recession and a sharp rise in mortgage rates is the fear that many people who purchased their homes with low interest rates attached will soon face possible foreclosure given the fact that interest rates are slated to sharply increase over the next few months.  For those that are unable to alter their variable mortgage rates the change in interest rates attached to mortgages may mean that their monthly payments will soon skyrocket out of control causing the market to drop once again for the second time in just a few years.

Those who should be concerned are those who acquired their mortgage in the last two years at low rates and are not able to switch to fixed mortgages due to the tightening of the lending criteria.  Heather Keats a prominent member of a debt charity stated that those who were lucky enough to purchase their homes with the rates were down are now teetering on the very dangerous edge of an abyss and went on to say her charity, Community Money Advice, expects to have a large problem on their hands due to the fact that many people are not taking appropriate proactive action.

Keats continued to explain that the situation is looking even worse than it did at first now due to a combination of factors that are really tightening consumers budgets such as the continual rise in inflation, the public sector redundancies, and the most recent increase in the VAT.  Even worse, due to overtime bans and wage freezes many people are now getting paid wages that are closer to what the average was in 2005, half a decade ago, even though the inflation rate has skyrocketed since then.

Therefore, homeowners should take the time to look over their mortgage rates now according to financial experts instead of idly sitting by so that they are prepared for what may be coming.  Those who borrowed at a loan-to value are recommended to look into fixed mortgages and look into their options before foreclosure is the only option left.  Those that cannot get approved are recommended to consider downgrading before they lose their investment in the property all together or consider letting out a few rooms in their home if possible.