Brokers advise on a low fixed rate mortgage deal

The recent move by the Bank of England to cut interest rates to an all but unprecedented one percent has been followed by the less typical action of several lenders who chose to pass the cuts on to their customers. The Skipton Building Society, along with the Halifax and the Nationwide, immediately slashed their rates, and with further interest rate cuts forecast by industry analysts it remains to be seen just how low the Bank of England can go.

For the record, most economists are reckoning the Bank will cut rates by a further 0.5% quite soon, and that the rate will remain low until the back end of 2010 at least.

This is, of course, good news for those borrowers whose mortgages are with those lenders, for their monthly payments will take a notable dive. It could also be a bonus to those looking to switch deals, as mortgage brokers are currently advising.

The thinking is that although the interest rate is likely to fall further – with possible additional savings to borrowers – the room for manoeuvre is very small, and therefore a borrower taking on a low rate fixed rate loan now may be in the prime seats in the future.

The benefit of a fixed rate is knowing how much will be going out of the account each month; those currently reaping the rewards of lower rates will be the same people feeling the pinch when the very same rates begin to rise, and with zero not far away that rise is, at some point in the future, inevitable.

It is thought that cut-price fixed deals are near their lowest level, and thus now is the time to look for such a deal. Examples include an HSBC offer of 2.99%, for two years fixed, and industry insiders advise that any rate below 4.5% is a good deal given the current state of the economy.

Rates for new borrowers are very much determined by the Loan to Value percentage (LTV) and brokers point out that those with a bigger deposit will be the most likely to find a deal. Given the situation of many existing customers with the value of their property falling, a rising LTV can present a problem when looking to switch deals.

The advice being given is that, with prices set to fall further according to most reports, being able to secure a deal at around 75% LTV may be beneficial and come with a decent rate; should the house lose value the LTV may increase to in excess of 80%, where a much higher rate of interest would have been applicable.

These are interesting calculations and represent sensible advice in a changing climate. The danger of finding oneself looking at higher rates when a current deal comes to an end, thanks to a rising LTV, is very real and will be the downfall of many home owners as prices fall in the next year and more; looking for a better fixed deal now is good advise, and that which will be the advice of mortgage brokers in general.

Mortgages are not the easiest deals to come by in the current climate, but it may be that waiting for your rate to fall would be time better served by looking for ways to fix it at a given level in the coming two years of expected turmoil.

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