Mailbag: What should I do with my mortgage?

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Dear, I have read that interest rates will be going up soon. I'm a first time buyer. What should I do with my mortgage? Mark, London

Bank of England governor Mark Carney has given his strongest hint yet that a rate rise might be on the cards at the turn of the year. Andrew Montlake of Coreco mortgage brokers looks at the impact the rate rise could have on borrowers.

“The next few months are likely to be an interesting time for many borrowers, whether they have an existing mortgage or are in the market for their first one. This is because for the first time in many years we are about to finally enter an increasing rate environment, something many new borrowers have never known.

Whilst the timing and more importantly the speed of interest rate rises is still unknown, the main issue is that given the length of time we have all enjoyed low interest rates for, any small change will now have a larger than normal affect; in other words it will feel tougher, quicker.

As a result there will be a good many borrowers who would be better off looking at the security of a longer term fixed rate now to ensure that they do not have issues further down the line. A fixed rate will keep the mortgage payments stable over the initial, say 5 year period of the loan, so you do not need to worry about rates increasing elsewhere.

More worryingly, there are other borrowers and would be buyers who are being put off by reports around the tightening up of the mortgage process after the Mortgage Market Review. Whilst it is true that some borrowers will find it difficult to meet the new affordability tests, for most there are still some very good options around.

The key for those who are unsure or worried about the impact of rate increases is to look for an independent mortgage broker who have much more options available than just those from your current bank, especially if you are contracting, self-employed or feel unable to go through a “tick-box” route.

Moreover, broker’s processes will be much more slick and speedy, rather than waiting 2 weeks for an appointment with a branch based adviser to go through a 2 or 3 hour scripted interview process after which there is often still no definitive answer.

I would definitely recommend that borrowers look at their situation sooner rather than later, due to the fact that SWAP rates, (which determine the cost of fixed rates) and therefore lenders mortgage rates normally increase before an actual base rate change, so the best deals around now could be gone for those who wait longer.

That said, competition between lenders is still fierce and there should still be some highly competitive products available to borrowers. Lenders still want to hit their targets and will not want to increase rates unless they really have to.

As ever in the mortgage market however, if one or two main lenders move upwards, others are usually not far behind.

It does look increasingly likely that, barring yet another U-Turn or unexpected event, the current crop of low fixed rates are unlikely to last for long and we may not see rates this low again for many a year. Borrowers who want or need the additional security a longer term fixed rate brings should therefore be assessing their options over the coming weeks.”



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