Should I take out a fixed-rate mortgage?

Deciding which type of mortgage to take out can be a difficult decision - especially taking the recent base rate cut into consideration. Your choice of mortgage can potentially save you a lot of money in the long run - or it could cost you more, depending on which way the base rate goes.

Fixed-rate mortgages are a popular choice amongst homeowners, since they ensure you consistently pay the same amount over a set period of time. But are they necessarily a good choice in current housing market conditions?

Advantages of a fixed-rate mortgage

• Offers security. You know how much you will pay towards your mortgage every month - unlike variable-rate mortgages, which are liable to change.

• Increases in the base rate will not affect your mortgage - meaning you could save money compared with a variable-rate mortgage.

Disadvantages of a fixed-rate mortgage

• You will normally have to pay a mortgage arrangement fee. These are normally a few hundred pounds, but for the very best mortgage deals you may have to pay over £1000.

It is common to spread the mortgage arrangement fee across your mortgage payments - but this will of course mean higher monthly payments.

• Just as it is possible to save money, a fixed-rate mortgage could potentially end up costing you more than if you had chosen a variable-rate mortgage. Even if interest rates fall, your mortgage payments will remain the same.

Fixed-rate mortgage in the current housing market

With the base rate recently falling to 3%, and several signs pointing towards further cuts, fixing your interest rate at a level above the current base rate may seem illogical. However, while a fixed-rate mortgage may cost you more in the short term, it’s important to remember that the base rate could go up again.

In short, it’s impossible to predict with 100% certainty what the base rate will do, so choosing a certain type of mortgage is always a gamble, whatever your decision.

Even if you pay more than would have on a variable-rate mortgage for the first few months, a fixed-rate could save you money in the future. Your decision on a fixed-rate mortgage will depend on whether or not you think that may be the case - and how able you are to cope with any changes in your monthly payments.

This article was written by Melanie Taylor, a mortgage expert for Think Money. If you are thinking about getting a mortgage click here.

How homebuyers can get the best from the latest interest rate cut

First time buyers David Hollingworth of mortgage broker London & Country says it is possible to get a mortgage with a 10% deposit but the cost will be high: “You can easily be looking at the high end of 6% on fixed rates at a 90% loan to value ratio, and even then you will have to be a pretty sparkling borrower.” The best deal on offer yesterday for borrowers with just 10% to put down was a loan from C&G fixed at 5.69% for two years. Prospective borrowers can reduce the amount they have to pay by building up as big a deposit as possible (try saving in a regular high interest savings account).

Read more

Bank of England Base Rate Cut

Economists are predicting a Base Rate Cut from the Bank of England tomorrow… those of you with Tracker Mortgages are probably hoping the same!

A third of second home owners own less than a quarter of their home

A third of second home owners have mortgages of 75 per cent loan to value or higher, with a fifth owing more than 90 per cent on their home, according to a survey of holiday home owners conducted by holidaylettings.co.uk. Furthermore, three quarters paid more than £100,000 for their second home and 37 per cent have euro mortgages.

These figures tie in with nearly half (43 per cent) of the same survey respondents stating they let their home to paying guests ‘out of necessity to cover mortgage repayments and running costs’. Furthermore, the number of holiday home landlords entering the lettings marketplace has grown 84 per cent in the last 12 months when compared to the previous six.

The hard cash reality of owning a second home, whether in the UK or overseas has hit home in 2008. For example, a €200,000 interest only mortgage on a 6% deal will cost the home owner around €1,000 per month. Paying this via a currency transfer from pounds to euros would in 2007 have been at a rate of around 1.45 euros to the pound, equating to £690. Based on the current pound to euro exchange rate of around 1.2 it would cost £830 – a monthly increase of almost £140 expenditure.

Ross Elder, managing director of holidaylettings.co.uk comments: “It has been a tough year for any second home owner with a mortgage, which in part explains the growth in the number of owners letting out their properties in the first 10 months of the year. However, I believe there is also a transition of appreciation for the added value a second home has, not just as pension or capital gains income, but ongoing rental income.”

CML welcomes base rate cut

The Council of Mortgage Lenders welcomes today’s decisive move by the MPC to reduce the Bank rate to 3%.

CML director general, Michael Coogan, said:

“This is a strong and decisive move by the Bank of England. They have grasped the nettle in a worsening recessionary environment.

“What is important is how this feeds through to lenders’ borrowing costs- and lenders will need to balance the interests of savers, as well - but such a sharp downward movement provides more room for lower borrowing costs more quickly.”

The Bank of England Base Rate: How are mortgages affected?

The Bank of England’s base rate is a very important figure at the heart of the UK economy. It determines how expensive it is for banks to lend and borrow money, and it influences interest rates on consumer loans and saving accounts.

With the current economic situation looking uncertain, there has been much talk about which way the base rate will go. On the one hand, the Bank of England recently dropped the base rate to encourage mortgage lenders to offer cheaper deals and reignite demand for mortgages.

Read the rest of the article here