Nationwide has coined the term 'rate shock' mortgage to describe the 250,000 people who have a fixed rate deal coming to an end between October and December 2007.
Back in Autumn 2005, when these fixed rate mortgages were taken out, interest rates were at a historically low level. The average rate for a two year fixed rate mortgage back then was only 4.56%. Since then the average has risen by around 1.8% to over 6.4%. If you have a £100,000 mortgage then this rate rise will cost you an extra £110 per month.
However, there is potentially a more serious issue to consider. When a fixed rate mortgage comes to an end you move onto the Standard Variable Rate or SVR. The current average SVR is a shocking 7.75%.
So, based on an average mortgage size of £120,869, mortgage payments could rise from £676 per month (based on a fixed rate of 4.56%) to £913 per month (based on typical SVR of 7.75%) - a rate shock leading to an additional cost of £237 per month.
To avoid this potentially damaging increase to your monthly expenditure you should act early. Don't wait until your fixed rate period comes to an end before considering all of your options. Speak to an independent mortgage adviser who can talk your through all of your choices and options.
Keep in mind that a lot of customers will be scrabbling around for the best mortgage deals towards the end of this year. With the recent 'credit crisis' starting in America and now spreading to the UK, the availability of cheap mortgage rates looks set to be rather limited in the months ahead.
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1 comment:
We are in exactly the position you describe Martin.
4.75% fixed with C&G, moving to variable at something like 7.75% from 041007. We have acted early & signed up today to a 0.17% over base tracker with the Woolwich.
Not sure how interest rates will pan out over the next few years to lock into a fixed rate (especially considering the dead money arrangement fees of £600-£1,200 for fixed rate mortgages), plus the fact we may well move in the next 6 months and have to change it.
A bit of flexibility without steep entry or exit costs seemed sensible. Even with the £225 closing fee on the current and the same on the new tracker, the reorganisation will have paid for itself in 2 months when compared with the increased C&G variable repayments on £150k.
Will rates trot up to 6% or is a psychological barrier that will to cause more harm than good in the long run..? Time will tell I guess.
Spot on with your timing on this blog - keep on trucking..
Regards
Michael Wheeler
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