- Written by John J Bloomfield
Should I fix my mortgage rate now while rates are low? It’s a question that I am asked at least a couple of times a week, and not always by clients, but simply by anyone who knows what I do for a living. People have been asking me this question for a few years now.
It is true that UK interest rates are at historic lows and have been at just 0.5% since 2009 which for most people means that mortgage rates are pretty cheap. And being so low it seems likely to most people that when the rates do start to move it will be up.
When I talk to be people about it I find they watch the news and listen to the radio hoping for a hint of when the rates are due to go up. The press speculates about comments made by Mark Carney (governor of the Bank of England) and the public watch for signs of change in the UK economy.
It’s not about the economy it’s about you and your family.
How the UK economy is doing should, in my opinion, have no real bearing on whether you fix your mortgage. It shouldn’t matter how local job prospects are, how well your company is doing or the economy of your town. The UK, Houghton le Spring (or wherever you live) economy is irrelevant.
Personally, it’s about the economy of your house. That is all that matters, how far would rates need to rise before you couldn’t cope with your mortgage payment anymore and are you willing to take that risk.
Right now the Bank Of England base rate is 0.5% and has been for 6 years. 10 years ago the rate was 4.50% and 20 years ago it was 6.6250%. If you want the full history you can view it on the Bank of England Website the point I am trying to make though is that we live in unusual times. So what you need to ask yourself is what would it mean for us if the rate went up.
A quick look at my mortgage sourcing system right now shows that if you have a £150,000 mortgage on a £200,000 property with 20 years to go you can get a low rate re-mortgage variable rate of just 1.89% giving a monthly payment of £751.04 per month. Well if rates go up 1% the standardised illustration you get these days tells you your payment will rise by £73 per month to £823.66 so maybe you drop your Sky TV package and tighten your belt a bit. What if they go up by 2% and your payment is £900.30, 3% and you're at £980.84, what if it doesn’t stop there 5% and you're at £1,116. I’m not trying to scaremonger here or suggest rates will suddenly jump to that level (though they have been there before) my point is this, work out what you and your family can handle when deciding whether the extra a fixed rate costs is worth the security that your family will get.
Can we cope with a 1%, 2%, 5% or even more increase in rates, this is the question you should be asking yourself (and your adviser) when you decide whether to fix your mortgage rate or chance it on a variable, not what the economy and the jobs market are doing.
Out of interest in the same scenario above our family with the £150,000 mortgage could have had 2 years fixed at 1.99% payment of £758.11 per month just over £7 more per month than the variable rate. Fixing for 5 years they could have had a rate of 2.65% giving a payment of £805.86, almost £55 per month than the variable but 5 years of stability.
The rates I have quoted above are all real but not necessarily the very best deals available, as I have just had a brief look for this blog post and will probably be out of date by the time I hit publish. If you’d like to chat about your mortgage options and I will find the very best deals for you then just give me a call on 0191 4066453 or drop me an email.