Fixed Rate Loan Costs Increase
Many people with home owner loans, or those taking out a new loan, have had to make the difficult decision on whether to take a fixed rate loan for two or three years, or to opt for a cheaper tracker or variable rate loan, which could increase in cost.
Although a typical fixed rate loan is usually more expensive initially, it can offer a safety net against rising interest rates, thereby providing some level of peace of mind for borrowers.
But new research has shown that fixed rate home owner loans are now at their most expensive level in the past six months, due to the fact that the swap rates, the rate at which lenders borrow funds for their loans on the wholesale market, have increased dramatically in the last couple of months.
The figures from Moneyfacts, have shown that at the end of November, the swap rate stood at 1.35 per cent, but as of this week it has risen to 1.98 per cent, thereby pushing up the cost of a fixed rate home owner loan or mortgage for a new borrower as the majority of banks and building societies have already increased their loan rates.
With the imminent possibility of an increase in the base rate of interest for loans from the Bank of England, lenders are covering themselves against such a possibility, by increasing the margins on their fixed rate loan products.
This makes a tracker rate home owner loan an attractive option once again, due to the fact that if rates increase by 0.5 per cent this week, many of these deals will still be a cheaper loan option than the equivalent fixed rate deal.
Michelle Slade of Moneyfacts said “Borrowers who have delayed the decision to commit to a new deal will now find themselves having to pay higher monthly payments. With no signs of swap rates starting to fall, the likelihood is that mortgage rates will rise further.”
