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Is Now The Time To Get A Fixed Rate Mortgage In The UK

by Jim ONeil on February 2, 2011

in Personal Finance News

Many UK homeowners are panicking about interest rates and high inflation, leading them to look for an inexpensive fixed rate mortgage. London & Country, a UK mortgage broker, is receiving 40 percent more inquires regarding this financing than it did last month. In the past two weeks, fixed interest rates were increased by 35 lenders, adding thousands of dollars to mortgage loans.

Nine building societies or banks offered fixed rates under four percent for five-year mortgages in late December. Today, only two of these are offering such a deal and a large deposit is required in order to qualify. A potential interest rate increase has created a bad situation for millions in the UK. The situation is complicated by disagreement between money market analysts and economists.

Currently, 7.6 million UK homeowners have tracker loans that follow the base interest rate. These loans are usually cheaper than a fixed rate mortgage, averaging about 2.5 percent or lower. However, a

steep and sudden increase in the base rate could result in these loan holders paying more than they would with a fixed rate loan.

Economists say that the economy in the UK is still weak and commodity price increases are creating imported inflation. Growth figures reflect a 0.5 percent shrinkage in the economy at the end of last year. Economic experts believe that any interest rate increase will be gradual, reaching only one percent by the end of 2011.

Money market speculators have been increasing the cost of borrowing, which determines mortgages interest rates. They say that fixed rate mortgages will increase in the near future. The advice from mortgage advisers to those considering fixed rate mortgages is to look at a five-year deal instead of the two-year version. This will prevent the borrower from coming out of the fixed rate period at a time of higher rates.


This is mainly discussing the principal and interest payment only. That does not include PMI, property taxes, or homeowners insurance. A £1100 per month payment includes all of that, so it not the discount you are thinking it is. Take a look at your payments now and see how much of it is principal and interest only to get a better comparison.


In the US, 30-year, fixed-rate mortgages are very much a creature of the New Deal and, later, the Federal mortgage securitization agencies. In the 19th century, the typical mortgage was for 5-10 years. Moreover, in many countries (e.g. Ireland) when people say they have a fixed-rate mortgage they mean, in U.S. terms, a variable-rate mortgage fixed for 5 years at a time. The U.S. is very unusual in having a situation where the “fixed-rate” part of the mortgage is asymmetrically binding: it was only fixed for the lender, not the buyer. The buyer could always refinance at a lower rate if the opportunity arose, but the lender could not raise the rate in parallel circumstances.

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