News

Fix, track or stick?

With mortgage rates at 1.99% lows and some rates cut on short-term fixed rates, homeowners may at last be tempted to move off their lender’s standard variable rate (SVR).

Northern Rock and Cheltenham & Gloucester (C&G) have brought down two-year fixes by about 0.40 percentage points, though their lowest rates, at 4.09% and 4.29%, are well over the cheapest two-year fix from First Direct — 3.49% with a £1,298 fee. However, rates on longer-term deals. recommended by brokers, have been rising. Since Bank rate was cut to 0.5% in March the top five-year fix has increased to 4.95% (from HSBC with a £999 fee) from 4.15% (from the Post Office, with a £599 fee).

According to figures for The Sunday Times from L&C, Bank rate would have to rise to 3.25% for borrowers to be better off over five years on the HSBC fix, compared with the best lifetime tracker, also from HSBC, at 2.74% with a £999 fee. Most economists believe Bank rate will rise from 0.5% to 1% in the second half of 2010, according to Thomson Reuters, with another rise of perhaps 0.25 percentage points near the year end.

Six months ago, Bank rate would have had to rise to only 2.5% for borrowers to have been better off with the Post Office fix, as opposed to the top variable rate deal then — 2.95% from HSBC. David Black of Defaqto, a data firm, said: “Many people shy away from fixes to avoid higher monthly payments.”