Mortgage and homes news
A sting in the tail of the latest freeze
2 August, 2007
The interest rates have stuck at 5.75 per cent as predicted, although a widely anticipated further rise will leave those looking to remortgage in financial dire straits
By agreeing to hold rates at their current level during August, the Bank of England’s Monetary Policy Committee (MPC) are undoubtedly waiting to see the impact the most recent increase will have on the nation’s spending.
Voting 6-3 last month in favour of raising interest rates, the fifth hike over the last twelve months saw the MPC become slightly more divided in their decision – previous hikes have seen around an 8-1 or even a 9-0 majority vote for the proposed increase.
High street sales since then have definitely slowed and there has been a corresponding slowdown in the manufacturing sector and a decline in house price inflation and mortgage approvals.
However those looking to make the most of this breathing space and shop around for a new mortgage deal might be in for a bit of a surprise as the most recent figures have shown it costs and average of £6,000 to get out of an existing fixed rate mortgage deal.
Early redemption penalties for leaving your fixed rate mortgage within the initial period in favour of another deal have been shown to vary very little, regardless of whether you choose to leave in your first, second or third year of the mortgage.
You may have plumped for fixed mortgage due to rising interest rates, but the old adage of ‘what goes up must come down’ is now plaguing borrowers who are beginning to worry that their clever plan might see them losing out towards the end of their initial tie-in period.
Find out how your pension is performing
The average get out fee is £6,631.55 in your first year, £6,225.57 in your second and £6,254.18 in your third. Lenders can choose to charge either a percentage of a customer’s total loan or an agreed number of monthly repayments as a fee for reneging on a fixed deal.
Sean Gardner, chief executive of MoneyExpert.com, said: “Homeowners have been told to fix their mortgage deals since last summer as interest rates continue to rise, and lenders have obviously been keen to capitalise on this.
“Choosing a fixed rate mortgage is a long-term commitment and a binding contract – so lenders are well within their rights to charge you if you want out.
“The key thing is to make sure you read the small print when signing up to a fixed deal. Redemption charges fees vary enormously and will also depend on the term you agree to – lenders will be less happy if you leave a seven-year deal after 12 months than they will if you leave a two-year deal in your second year.
“With further rate rises not out of the question, we anticipate that even more homeowners will consider fixing before the year is out. So it’s important that people are aware of all the pitfalls – as well as the benefits – of fixed rate mortgages.”
Bookmark with:
