Fixed Rates Proving Popular

The Journal (Newcastle, England), October 28, 2003 | Go to article overview

Fixed Rates Proving Popular


Byline: By Jane Hall

With some saying it is only a matter of time before interest rates start rising, is now the time to fix your mortgage? Jane Hall reports

Lisa Archer describes her current demeanour as a mixture ``of nerves and excitement". For the health care assistant has just put her foot on the first rung of the property ladder.

With her parents Christine, 46, and Edward, 48, she has bought a two-bedroom flat in Gateshead which she plans to move into soon.

The flat cost pounds 62,500 and Lisa and her parents have taken on a pounds 56,000 home loan repayable over 25 years.

While the monthly mortgage payment of pounds 350 is being split between Lisa and her mum and dad, it is still a large commitment for the 22-year-old, which is why the Archers have opted for a five-year fixed deal from Newcastle Building Society at 4.39pc.

"At first I was going to buy the flat on my own," Lisa says. "I think 22 is a good age to be buying a home, but I soon realised I was going to struggle to find the money as everything is so expensive.

"Mum and dad were looking to invest in property, so it all came together at the right time. They decided they would put their money into my flat.

"We are splitting the mortgage payments between us, but it is still a big thing for me to be doing at my age. I am a worrier about money and it was important to me that I should know how much I needed to pay each month, which is why I wanted a fixed rate deal."

But also at the back of Lisa's mind was that interest rates may soon begin to rise. "I was worried that if the rates go sky high I wouldn't be able to afford the mortgage. But by having a fixed deal I know what I am paying and I know I can handle it."

Homebuyers who are willing to take a gamble that interest rates will stay low can get a mortgage at around 3pc. Bristol & West currently has a three-year discounted variable rate at 3.29pc, while Charcol, funded by Woolwich, has a two-year deal at 3.30pc.

These discounted rates can be almost 1pc lower than the best deals currently available on fixed-rate home loans. But while you pay a set amount every month on a fixed deal, this is not the case with a discounted rate mortgage. The percentage you are charged goes up and down with the interest rate, and so do your payments.

Many economists believe it is only a matter of time before the Bank of England is forced to raise the base interest rate from its current 3.5pc. Some had expected the rate to rise earlier this month, but the Bank of England held firm. However, the City is predicting it will rise to 3.75pc by Christmas, with some saying it could even push up to 4pc.

It seems the public may agree. According to figures from the Council of Mortgage Lenders, fixed rates have seen a steady rise in popularity since January. Just over 30pc were fixed at the beginning of the year as opposed to 65pc now. By contrast, variable rate deals which were running at nearly 70pc at the beginning of 2003 have seen their market share nearly halve in the last 10 months.

While some people are happy to take their chances with interest rates, others, particularly those on tight budgets, are keen to cushion them-selves from any nasty shocks by opting for a fixed rate home loan.

This is borne out by research from Yorkshire Bank which said 55pc of adults think interest rates will increase over the next 12 months - 13pc more than last quarter, with the most popular mortgage choice now a fixed rate.

But while fixed deals seem to have grabbed people's attention, homeowners may already have missed out on some of the best as these are being withdrawn from the market or replaced by higher rates.

Just a few months ago there were several two-year fixed rate loans under 3.5pc on the market and some five-year deals between 4pc and 4.5pc.

While Britannia Building Society is offering a two-year fixed deal at 3. …

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