The rates on Fixed rate mortgages in the UK are continuing to increase. The average fixed rate deal is now 6.75% on 2 year mortgages. Fixed rate mortgages have now reached a 10 year high. Furthermore, continuing problems in the credit markets means that fixed rate mortgage rates are likely to rise even further. Mortgages, and especially fixed rate mortgages are determined by the interbank lending rates.
- These are sometimes known as ‘Swap Rates‘. The libor 3 month rate is also a leading indicator of interbank lending.
Because credit is in short supply with banks unwilling or unable to lend to each other, it is pushing up the cost of mortgages. Therefore, commercial banks are increasing their margin between the Bank of England base rate and their commercial rate.
For example, Nationwide, one of the biggest mortgage lenders has recently announced a 0.5% increase in interest rates, despite base rates remaining the same.
One of the lowest fixed rate mortgage rates is currently offered by Skipton Building society; its rate is still below 6% at 5.75%. However, with a set up fee of just under £1,000, the rate is effectively 6%. (link to Skipton Fixed rates)
Many other lenders are also increasing their charges to maintain profitability.
The rate on fixed rate mortgages is also complicated by recent suggestions that the Bank of England may actually be considering increasing interest rates to combat inflationary pressures.
The increase in fixed rate mortgages means many people having to remortgage in the coming months will see a sharp rise in mortgage repayments; it is this that could threaten future default rates.
Related
- My article – how to avoid spending too much on financial products hosted at festival of frugality
- Missing inflation target at Economics Essays
No comments yet.