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Posts Tagged ‘London Fixed Rate Mortgages’

In London fixed rate mortgages have been heralded as the way ahead in light of forthcoming economic uncertainty, but after the Bank of England decided to keep the base rate at 0.5% for the 15th consecutive month, some financial experts are speculating that a tracker mortgage with a penalty free opt out scheme may be more favourable in the short term.

In a poll conducted by Reuters, a total of 61 economists hinted that they believed that the base rate would stay the same until next year, but this depends on the rate of inflation, which hit a high of 3.7% in April. This is the highest it has been for a year and a half, but monthly fluctuations might mean that overall inflation has not risen above 2%, which is the target that the Bank of England set. However, to make sure that interest and inflation remains balanced, the Organisation for Economic Cooperation and Development (OECD) stated that interest rates should be raised to 3.5% by the close of 2011.

That is a large jump in the space of 18 months, but it may well buy time for borrowers in London. Borrowers with a tracker mortgage are advised to keep their current deal and make overpayments in preparation for switching to fixed rate mortgages before interest rates escalate considerably. This will not only prepare for the inevitable higher repayments, but it will increase the amount of equity in a property making it easier to find a fixed rate mortgage with a lower interest rate.

Fixed rate mortgages have long been regarded as a less risky mortgage option, therefore as the threat of rises in interest rates draw closer it is expected that more borrowers will shun tracker mortgages for their London property. Anyone considering changing from a tracker mortgage to a fixed rate deal should consult their independent broker or high street lender for advice.

Hybrid loans are becoming more favourable than traditional mortgages, and look set to offer investors peace of mind in the gloomy light of economic uncertainty. As with elsewhere in the UK, London fixed rate mortgages are more expensive than trackers, but offer an element of stability. Hybrid mortgages on the other hand, can give the borrower the best of both worlds. HSBC bank is currently pushing its split-loan option heavily, hoping to attract customers that like a bargain, but don’t want to risk their home whilst the powers that be battle it out for political domination.

A split-loan option is available from most banks, but as it combines two mortgage deals, it usually comes with two arrangement fees; the HSBC option has just one fee that is under £1000. This deal is available for loans up to £500,000, and depending on what percentage of your mortgage is fixed rate, repayment amounts will vary. As you’d expect, the larger the proportion of your mortgage that is tracking the base rate, the cheaper your repayments will be. With just 25% of your mortgage at a fixed rate you can take advantage of interest rates at 2.49%, but with 75% fixed rate this will rise to 2.99%.

The advantages of a hybrid option are clear, if interest rates stay favourable, you can pay off the tracker part of your mortgage quickly without paying early repayment penalties. Alternatively if interest rates rise unexpectedly, you can switch to the fixed rate option and keep in control of your monthly payments until the economic situation is more favourable for tracker deals.

Whilst fixed rate mortgages have been less popular than its base rate tracker cousin recently, the speculation over interest rate rises have actually increased the number of applications in London for fixed rate mortgages. The new deals available from HSBC might however see the popularity of this option superseded once again by flexible terms that help the borrower stay in control.

If you are looking to buy a property in London, but are concerned about interest rates, it is recommended that you choose a fixed rate mortgage. The benefit of choosing this type of mortgage comes from being able to budget for a set term, whether that is an initial fixed rate over 2 years, or a fixed rate over a longer period. Although it is seen as a less financially risky option, variable rate mortgages are more expensive. The extra cost covers the lender in the event that interest rates soar.

London fixed rate mortgages start at as little as 3.69% for two years with 65% Max Loan to Value (MLV). This also comes with fee-free arrangement and an early repayment charge of 3%. A five year fixed rate mortgage is available at 4.64% with an MLV of 70%. The arrangement fee for this deal is £995 and comes with a 5% early repayment charge. These figures are based on a £120,000 loan repayable over 25 years.

For 120,000 in London at the moment it is possible to purchase a one bedroom apartment, or studio flat in the south of the city. South London is known for it’s pleasant suburbs and low population, making it one of the least densely populated areas in the capital. This makes the area desirable for those who want to be close to London’s night life but like the seclusion offered from quieter residential areas. Sitting just below the River Thames, South London is home to 3 million people spread over 12 boroughs.

After a few rocky years where house prices in this area were in decline, things are improving, but consumer confidence is still low. This means that house prices in South London are rising slowly, but steadily, and therefore, it is a good time to invest. The unrest in the market seems to be centred not around whether or not properties in this area will yield a return on investment, but more to do with how interest rates on borrowing will be affected by political uncertainty in the UK. A fixed rate mortgage at the present rate is a wise choice for anyone not willing to take a risk and wants to be sure that repayments over the coming years can be met affordably.