Mortgage hunters need to take care before jumping in to a fixed rate too early, warns the
Nationwide.
Industry pundits are predicting Bank of England interest rate rises – but the Nationwide says
this is not the driver that pushes mortgage prices up.
Instead, says Chris Rhodes, the building society’s director of products and marketing, anyone
looking for a mortgage should keep an eye on swap rates.
These are the interest rates on money banks and building societies lend each other – and
swap rates set the price for fixed rate mortgages. If the swap rate decreases, mortgage lenders
can offer cheaper deals, but if the rate increases, so does the rate lenders charge customers.
Mr Rhodes has expressed concern that many mortgage brokers are recommending a quick fix
for anyone taking out a home loan on the basis rates are about to rise – but the reality is no
one knows if they will, and if they do, by how much.
“No one knows where rates are going to go. It has to be down to your judgement what you
decide to do. That is not to say that you don’t fix. If you are on a standard variable rate of
2.5% and you are offered a two-year fix at 4.5%, you have to comfortable paying that extra 2
percentage points as insurance,” he said.
“You may feel that you can afford to take the hit if rates rise – even if they rise by as much as
1.5 points, for instance. If the market was confident that the Bank of England had come to a
point when the economy had stabilised and bank rate didn’t need to keep rising, then swap
rates may fall again – and so would fixed rates.”
The Nationwide is also urging home owners remortgaging to watch out for brokers getting
in touch and suggesting switching to a fixed rate. Mr Rhodes explained switching mortgages
generates more fees for brokers and in some cases, the building society has felt changing
mortgages was not necessarily in the best interests of customers.
