Easier times ahead for mortgage borrowers

According to John Charcol, the mortgage broker, there are signs that mortgage interest rates are stabilising and that the recent period of rate rises is drawing to a close.

This view is supported by the fact that most lenders fund mortgages by borrowing on the money markets, where rates are now beginning to drop.

In addition, economists are predicting that the Bank of England’s base rate is likely to peak at 6% by the turn of the year.

John Charcol recommends that those currently seeking a mortgage should sign up to a variable rate product, rather than a fixed-rate loan.

Variable rate products include trackers (which are linked to the base rate), and discounts which offer a reduction on the standard variable rate (SVR) of the lender.

Tracker mortgages provide more security than discount loans, because the margin over or under the base rate is agreed from the outset.

A borrower with a discount mortgage could find that their lender raises its SVR to the extent that the discount is worthless.

The mortgage broker is also recommending the life-time tracker mortgage, rather than a short-term offer, although borrowers should ensure that they are able to switch to another provider without severe penalties.

One in five lenders now charge an arrangement fee based on a percentage of the loan, so the cost of switching a mortgage every two or three years can be high.

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