Anyone thinking of buying a home would be wise to consult with a mortgage advisor first before making a decision on what deal to go for, but the importance of speaking to the experts has been increased by recent hikes in the cost of borrowing.
Earlier this month, the Bank of England’s Monetary Policy Committee (MPC) raised the base rate to 0.75 per cent, the third increase since the start of December. The measure has been implemented in an effort to curb rising inflation, which is at its highest in 30 years and at risk of soaring further due to the impact of the war in Ukraine on the prices of commodities such as oil, gas and wheat.
This raises the question of whether to go for a fixed rate mortgage. A tracker mortgage will always change when the base rate does and while it is at the discretion of the lender, standard variable rate (SVR) ones usually do. That means that with either of these deals, your mortgage costs could go on rising if the MPC feels it necessary to impose further base rate increases in the coming months.
A fixed rate mortgage will avoid this, but it is important to note that the set repayment rate for this will start off higher than any tracker or SVR. In effect, it bakes in the assumption that rates will rise. However, it will provide protection against unexpectedly sharp increases in the base rate.
Fixed rate deals are usually available for a period of between two and five years, after which it will revert to an SVR or you can look to remortgage. Therefore the judgement to be made is whether this is likely to be a time that you need to protect your wider finances from the impact of higher payments, when rates may have to be raised significantly to curb persistent inflation.
Given the uncertainties about Ukraine, Covid and much else, it makes sense to talk to the experts and understand the pros and cons before deciding if a fixed rate mortgage is the right thing for you just now.
