The future of mortgage interest rates. London mortgage broker, London Mortgage Advice Wednesday, 25th March 2009

Lord Turner, chairman of the Financial Services Authority has highlighted that holding out for cheaper fixed mortgage deals could be a waste of precious time.

According to his recent report,mortgage rates can stay high for six to nine years following the credit crunch.

He wants banks to hold more cash but if they do then it is the customers who will pay, because it increases the banks' costs, which are in turn passed on to you and me in the form of a wider spread between the rates paid on our savings and the rates charged on our debt.

The margins on tracker mortgages are now so large. Previously in the good times the margin between the Bank of England rate and a tracker was just say 0.1%-0.5% but now in the worst cases we can see margins of 4% plus for deposits of 15%.

Customers should beware that bank rises could not be far away. there is renewed optimism from some qurters that suggests that inflation could be round the corner and what htis means is interest rates will go up. This will push the headline rate of some deals up to very high rates, above 8%.

And these margins are inlikely to come down.

This begs the question, should you be locking into a fix now to protect yourself from these big tracker margins?

There are some attractive fixed rate deals out there for those with large deposits or those ready to remortgage with lots of equity available.

But also if you have a small deposit there is also an argument to lock into a fixed rate. If you play the waiting game on a tracker and house prices fall further, you may find you don’t have enough equity when you try to switch to a fix in a year or so.
However if you are an existing homeowner on your lender’s standard variable rate, you may not feel the time is right as the chances are the SVR is lower than the current fixed rates.

However if short term loss is a price you’re willing to pay for long-term security, then it’s time to fix.