Next three months to be turbulent for fixed rate customers
The next three months are set to be very turbulent ones for hundreds of thousands of UK consumers that signed up to fixed rate deals on their mortgages two or three years ago.
In the past year interest rates have rocketed from 4.5% to 5.75%, with five rate rises of 0.25% each. It is widely predicted that there is also to be a further interest rate rise of 0.25% in August or September, which will take the rate to 6%. The interest rate is already at its highest in the last six years.
Many consumers on fixed rate deals are due to see their fixed rate period come to an end in the next three months. These are consumers that fixed their mortgage loans at low rates several years ago. However, once the fixed rate interest period ends they will find that their mortgage repayments shoot up by hundreds of pounds a month in some cases because of the five rate rises that have already taken place. Experts state that this situation could push many people over the financial edge, and could see a spate of repossession take place.
Although those on fixed rates can move on to another fixed rate once this period ends, they will have to opt for today's fixed rate deals, which are set at far higher rates than the ones they would have taken several years ago, so repayments will still shoot up. Many of those on fixed rates at the moment are paying a rate of just 4.24% after taking out the deal in 2005, when interest rates fell from 4.75% to 4.5%. However, the lowest fixed rate they will be able to get now is around 5.6%.
Those with fixed rate deals that are due to come to an end are encouraged to look around in advance and see what they can find to minimize on the financial impact. One industry expert stated: 'Now is the time to look around, and anyone whose deal is coming to an end should switch - but should also be prepared to pay a lot more than they are paying now.'
Tom Smith
1st August 2007
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