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January 16, 2008    

Fixed-rates increase despite base rate cut

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by Gill Montia
”Fixed-rates

The base rate cut in December reduced interest rates from 5.75% to 5.5% but according to moneysupermarket.com, the cost of a fixed-rate mortgage has continued to rise.

Given that fixed-rate products account for over 70% of new mortgages, the impact of this will be considerable.

For the majority, the average fixed-rate is currently 7.31%, up from 7.30% in early December, although borrowers with excellent credit ratings may be able to secure loans that are 0.39% lower than a month ago.

Louise Cuming, head of mortgages at the price comparison website, comments: “Our data shows, on average, unless you are a low-risk borrower, a new fixed rate mortgage will cost you more. I shudder to think what would have happened to the average fixed-rate mortgage if the Bank of England hadn’t cut rates.”

She adds: “Many homeowners who waited until after the interest rate cut to get a fixed-rate deal will be worse off, much to their annoyance.”

Borrowers who have savings could investigate offset mortgages as an alternative to a fixed-rate.

Interest rates tend to be a little higher but borrowers’ balances (such as mortgage debt, savings and current account balances) are aggregated.

Money in savings or current accounts is set against the mortgage balance and interest is only charged on the outstanding amount, meaning interest payments are reduced.

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