Borrowers may find there has not been a better time to take out a fixed rate mortgage, even though many lenders have recently begun to increase the interest rates on their fixed rate products, writes Ben Marquand.
Abbey National, Woolwich, Halifax and Cheltenham and Gloucester have all raised their fixed rates by between 0.3 and 0.4 basis points in response to the increased cost of borrowing funds from the money markets. Lenders usually take this as an indicator that interest rates are set to rise in the near future. Sharon Makin, press officer at Abbey National, said: ‘Our fixed rates are now marginally higher because the long term money markets have raised their prices. We buy our money in tranches of funds and the cost depends on where the traders see the interest rates being in a few years time.’
‘We are now at the bottom of the interest rate cycle and if someone is looking at taking out a fixed rate mortgage then now may be the right time to buy, because the long term likelihood is that interest rates are going to rise.’
One of the latest lenders to raise its fixed rates is Halifax. Ian Stuart, head of mortgage marketing at Halifax, said: ‘Most of our funding is at a variable rate base rather than fixed rate, and is linked to the bank base rate. However, with fixed rate mortgages we have to hedge our bets slightly. If we fixed at six percent for five years and then the interest rate moves up to ten percent we would lose money.’
This seems to suggest that borrowers would be well advised to fix now, before rates rise further.
Stuart said: ‘When interest rates are low, more people take out variable rate mortgages because they have to pay a premium for a fixed rate. No-one really knows what interest rates are going to do in the long term, but this does not mean that people should not take a fixed rate mortgage out. Now might be the best time to buy.’