Fixed rates in unusual times - 24.10.2008

A half percent cut in Bank Base Rates (BBR) earlier this month was seen as a turning point in the fortunes of the UK mortgage market. 

However, as lenders digested the latest statistics it has left a number of them wondering what do.  You can almost hear the conversations “Should we reduce lending rates, can we afford to reduce rates or shall we just wait to see how the opposition react?” They seem to have settled somewhere between can we and what’s everybody else doing.

Swap rates for 1, 2 and 3 years have eased by roughly half percent since the BBR reduction. LIBOR has been a little slower to react, but importantly it has reduced by a little over quarter percent in the same period. 

One thing is for certain, rather than providing a large number of products that are in many cases broadly the same, lenders appear to have decided to limit their offering to a few carefully chosen products. 

Tracker and discounted products aren’t so readily available at the moment and it may take another BBR reduction, which is being widely tipped for November, to get this area of the market moving. It has meant that we have three times the number of fixed products available over trackers and discounted rates.

For those looking for finance in an uncertain future, a fixed rate mortgage enables them to budget for the fixed period and currently there are a number of reasonably priced 2, 3 and 5 year deals which will fit many people’s needs.

However, if rent to interest cover is more important to you, then some of the products between 6.89% and 7.19% may be more appropriate, as there are currently four lenders providing 2,3 and 5 year fixed products where interest only needs to be 100% of the interest due.

As demand for rental properties remains strong and rents increasing in some areas, the selection of a suitable fixed rate will provide the borrower some assurance against uncharacteristic market moves in these uncertain times.