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December Mortgage Market Overview

December 13, 2010

The Bank of England have kept the base rate of interest at the record low level of just 0.5% for the past 18 months and counting, with some people believing the rate will remain at this level throughout the majority of 2011 whilst the economy soaks up the Government spending cuts announced in November.

Other people in the industry are worried that the uplift on the forecasted economy growth figures for 2010 by the Office of Budget Responsibility might increase the possibility of an increase in the base interest rate a lot sooner than many expect. With inflation over the 2% target, a typical response would be an increase in interest rates. The Monetary Policy Committee of the Bank of England who decide on the level of interest rates have become split lately, usually a good sign of interest rate changes to come.

With the Bank of England Base Rate still at the low rate of just 0.5%, many borrowers are choosing to remain on their lenders Standard Variable Rate (SVR) rather than seek out a new deal. With many mortgage deals taken out prior to 2008 linked to the lenders standard variable rate plus a fairly small margin, many mortgage borrowers are enjoying low, low payments as a result.

With the base rate so low, there seems like only one way it’ll go whenever it does change – and that is ‘up’. Therefore, many mortgage borrowers are keeping an eye out for competitive Fixed Rate Mortgage deals and deciding when to make a move and secure stability of payments.

But fixed rates are presently set at a relatively high margin above the base rate, so signing up for a fixed rate now will mean a significant step-up in monthly payments for most. But are fixed rates likely to get better or worse as time passes?

If / when mortgage lenders expect interest rates to go up – or whenever they do in fact begin to go up – lenders will more than likely react by increasing the margins on fixed rates even further in response to the increased demand.

Lenders have been warning for quite a while that the cost of wholesale borrowing together with the withdrawal of government aid for struggling home owners may force mortgage rates up.

So it may well be time to start looking at fixing before rates go up. You will find a wide range of fixed mortgages on the market.

13th Dec 2010

Written by Richard Best

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