It will be a surprise if there’s any move in base rate when the Monetary Policy Committee announces its decision at midday today.
On the face of it that should be good news for borrowers and those that are on a variable rate will be relieved that they avoid any increase in their payments.
The story for mortgage rates has understandably focused on the sharp spike in fixed rates since the outbreak of the Iran war.
The threat of the rising cost of living has heightened market expectation that interest rates will have to rise or remain higher for longer.
RATE IMPROVEMENTS
In recent weeks fixed rates have begun to ease back and there are still lenders feeding through improvements to fixed rates. Whether that will continue is far from guaranteed, as swap rates have edged higher amidst ongoing uncertainty.”
Although most borrowers continue to favour fixed rates, more are now considering whether a tracker rate could be a better option.
L&C data shows that the proportion of applications on tracker rates has increased substantially so far in April, as the impact of the conflict pushed fixed rates higher. It still only represents a little over 14% but that is over treble the proportion in March when borrowers rushed to fix.
MORTGAGE STRATEGY
A wider margin between fixes and the initial rates on tracker deals has seen more borrowers betting on base rate only seeing a gentle increase, if it rises at all.
Others will be hoping that fixed rates can improve further and are using a tracker with no early repayment charges as a holding position, allowing a switch to a fixed rate at a later date.
Of course, if rates do climb it will push payments higher, so this strategy is likely to appeal to those with more flexibility in their monthly budget.
HEDGE YOUR BETS
Many borrowers caught in a dilemma over whether to track or fix may not realise that they could hedge their bets and split their mortgage.
Some, although not all, lenders will allow the mortgage to be structured over more than one mortgage product, enabling part to be fixed and part to follow base rate.
That limits the exposure to rising rates because of the fixed portion but also gives the chance to benefit from the lower initial rates of a base rate tracker.
MIX AND MATCH
“Many will be firmly in either the fixed or tracker camp but mixing and matching products could offer the chance to hedge your bets and have the best of both worlds.
Splitting your mortgage can help to limit the exposure to rising rates through the fixed element, whilst still capitalising on the currently lower rate of a tracker deal.
Not all lenders will be able to help and there’s also the chance of there being two arrangement fees, so advice on the best combination of rates will be crucial.
