Is fixing your bills a good idea in light of interest rate rises?

The recent interest rate rises enforced by the Bank of England have hit many homeowners really hard, leaving them with very little in the way of finances due to rising repayments. In light of these rises, many people are now wondering whether it might be a good idea to fix not only their mortgage but also other payments as well in order to benefit from increased financial stability.

Interest rates have gone up five times in the past year, with rises of 0.25% each time, and each of these rate rises has added a significant amount to the repayments of many homeowners, pushing many into the red. With these increased repayments along with the threat of further interest rate rises some experts feel that fixing as many payment as possible, including a mortgage, could prove beneficial in terms of financial management, although others feel that this could prove costly in the long run, particularly when interest rates start to fall again.

One industry expert stated: ‘Having certainty of monthly outgoings is worth its weight in gold, especially for people who are stretching themselves to take out the loan. People have been buying two year fixes, but with arrangement fees and other costs so high, we are now seeing more three and five-year fixes being taken out to avoid paying these fees so regularly.’

Another stated: ‘Fixed rates are going up as lenders factor in possible future base rate rises. Trackers are cheaper, but you have to accept that the rates are likely to go up before coming down, so you have to make sure you can afford higher monthly payments. The rates for three and five-year fixes are quite similar, so the key is to do your homework to get the best deal and make sure you are clear how long you want the fix to last for.’

Tom Smith
1st August 2007

Tags: home, interest, increase, house, fix, debt, rises, cost, pay

House price growth slows down due to interest rate hikes

According to recent reports there has been a slow down in the growth of house prices in most areas of the UK following further interest rate rises in the first half of the year. Exceptions to the rule are Scotland, Wales, and the West Midlands in England. However, in most regions house price growth has slowed down by around 50%, and it is thought that this is due to lower demand for properties as a result of rising interest rates.

The data comes from the monthly report from the Royal Institute of Chartered Surveyors, and this report is the second one in a row that indicates a slow down in the rate of house price growth in most parts of the UK. According to the figures just 10.6% more members from the RICS reported a rise in house price growth rather than a fall last month, and this compared to 22.5% in the previous month.

The report also indicated that the number of enquiries from new buyers had fallen at the fastest pace since February of last year, reflecting the lower demand for properties. According to the RICS the five interest rate rises over the past year – and in particular the last two interest rate rises – have taken their toll when it comes to buyer demand, with many people having to reconsider property purchase because of the higher interest rates and sky high repayments.

One spokesman from RICS stated: ‘House prices have finally started to cool significantly for the first time since the recent mini boom in the housing market got under way in 2006. Interest rates hikes have begun to affect the psychology of the market with potential new buyers starting to think twice before buying a home. The July rate increase may not mark the peak of the current interest rate cycle and earlier rate rises have yet to fully filter through. A softer landing for the housing market is in store as we move into the autumn.’

Tom Smith
31st July 2007

Tags: Mortgages, rises, bank, rate, interest, increase

Government wants longer term fixed rate mortgages to be available

The government, under new prime minister Gordon Brown, has announced that it wants more longer term fixed rate mortgages to be made available in light of the five recent interest rate hikes that have left homeowners struggling to keep up with rising repayments and have made the prospect of purchasing a home even more difficult for first time buyers on a limited budget.

Alistair Darling, the new Chancellor of the Exchequer, has stated that longer term fixed rate mortgages are more important than ever in light of the current state of the economy, as these will enable property purchasers and homeowners to benefit from stable repayments that will make financial management easier and reduced the risk of crippling repayments stemming from further interest rate rises.

Earlier in the week Alistair Darling stated: ‘When you look around the rest of Europe, it is more common to have longer-term fixed rates. We need to look at that. We need to reduce the volatility.’ He also spoke of the profits that some brokers and lenders are making by offering shorter time fixed rates that have to be renewed every few years, netting them thousands of pounds in profit: ‘Brokers want you to come back every two years, rather than every ten or 20. The Financial Services Authority has identified this as a problem.’

In light of the announcement made by government officials the Nationwide Building Society has just announced the launch of a 25 year fixed rate mortgage. However, there are concerns over how many people will want to take on a fixed rate over such a long period in case interest rates start to fall.

Tom Smith
31st July 2007

Tags: young, nationwide, rate, rises, time, first, Loans, increase, buyers, building

Further disappointment for ING Direct customers

ING Direct customers are facing increased disappointment when it comes to their savings, with ING once again failing to pass on the interest rate rise that was applied by the Bank of England.

The online savings account from ING Direct now pays 5% to savers, which is well below the best rate savings account and stands at 0.75% less than the base interest rate. The account initially attracted over a million customers when it advertised its impressive interest rates in 2003, but since then ING has come under fire for leaving interest rates to stagnate despite a series of rate rises.

The Websaver account from ING will also see interest rates remain static, at 5.5%. The rate on this savings account was actually higher than this initially, opening at 5.65%, but was cur to 5.5% before the interest rate rise in May of this year. Since this time the interest rate has not gone up, despite Bank of England rises of 0.25% in both May and July. ING Direct was hugely popular amongst savers previously, but has lately received a great deal of negative press over its refusal to pass on interest rate rises.

According to recent figures customers of ING Direct have taken over £3 billion worth of savings from their accounts and placed the money with other banks as a result of poor interest rates based on the current base rate. Although interest rates in the UK have gone from 4.5% to 5.75% in the past year through a series of five interest rate rises, the interest rate on the ING Direct savings account has risen by only 0.5% in this time.

According to ING Direct other banks get around this by offering lower rates on other accounts. One official stated: ‘If these savings providers had to pay all of their customers our 5% it would cost them a fortune and they wouldn’t be able to afford to keep offering their headline grabbing accounts.’

Tom Smith
26th July 2007

Tags: england, cost, accounts, leave, rises, interest. lower, customers, rates, base