The mortgage market as a whole is in a pretty poor state at the moment, sub-prime lending in the United States has had a knock on effect on banks worldwide and the main effect that people are seeing is that home repossessions have increased exponentially since this tough time has started.
The much publicised collapse of the bank Northern Rock has also contributed to the increasing problems with banks in this country. Credit or any lending in this country is becoming harder to find as banks are busy trying to recoup some of the money lent out in the past few years never mind the thousands of people looking to get new mortgages, credit cards and loans.
In an aid to help ease the impact of this credit crunch the Bank of England’s base rate on mortgages has dropped three times already since December of last year. The most recent of these percentage drops went from 5.75% to 5%. This means that people with variable rate or “tracker” mortgages could have made the best choice as a family with a £100,000 interest only mortgage would now have significant reductions in their repayments by £750 per year.
Before people start scrambling from their fixed rate mortgages they need to know the difference between the two type of variable rate mortgages; Tracker mortgages follow the Bank of England’s base rate and so if the rate increases or dips then so will the interest on your mortgage. Conversely a discounted variable rate mortgage follows the lender’s Standard Variable Rate (SVR) which doesn’t follow the Bank of England, and can change for the better or worse whenever the lender feels like it.
With the impending prospect of a recession in the United States and the credit crunch in full flow many lenders are reluctant the pass on the savings brought about by the Bank of England’s cuts, for example the troubled bank Northern Rock has only dropped their rate by 0.35 of a percent in an attempt to possibly recover from their near-demise.
Whilst mortgages are a risky subject at the moment it is clear that whilst the variable rate mortgages look the most attractive at this point there is every chance that as time goes by the national rate will rise back up, especially since there have been three drastic drops in the space of half a year. The alternative of a fixed rate mortgage may mean you get a decent deal but paying slightly more.
Long term mortgages (some up to 40 years) may have better rates as you are going to be with then for a longer period of time and more likely to be able to make the payments as they will be spread apart for smaller monthly repayments. Getting a mortgage now or even remortgaging is going to take more time and attention to the details to make sure you don’t end up with a deal that will hurt you in the long run, take all the advice you can get on the matter and don’t be afraid to look elsewhere if you aren’t getting the deal that’s right for you
