Not Worthwhile to fixing your mortgage until Interest rate reaches 2.75

 

The Bank of England would need to push interest rates up to at least 2.75 per cent to make it worthwhile home owners fixing their mortgage, figures suggest. 

facing an increasing dilemma about whether or not to guard against future interest rate rises by locking into a fixed rate deal.

Rising inflation is putting the Bank of England under pressure to increase rates sooner than expected.

But economist warned yesterday that borrowers are taking a “pretty big gamble” on a sharp increase in rates.

Figures calculated by Capital Economics found the Bank Rate would need to climb to 3.25 per cent in two year’s time for fixing your mortgage now to be cheaper than the average existing variable rate.

It showed a £150,000 mortgage costs £921 for a new fixed rate or £84 extra a month than a new variable rate deal at £834 or £110 more expensive than the existing variable-rate at £811.

Paul Diggle, an economist at Capital Economics, said: “We continue to think that the case for an immediate rate rise is weak. And even if Bank Rate were raised within the next few months, the chances of this signaling the start of a sustained round of tightening are slim. If we are right, then a borrower taking a fixed-rate now will find themselves paying considerably more over two years than those on variable-rate deals.”

Melanie Bien, of mortgage brokers Private Finance, said: “With a significant gap between the pricing of variable and fixed rates, there has been much analysis as to how much interest rates need to rise to make a fix worth your while. But while predictions and forecasts are all well and good, the truth is nobody knows when interest rates are going to rise and by how much.
“Home owners must therefore look at their own situation and assess whether their finances could cope with a 1, 2 or even 3 per cent increase in the Bank Rate over the next couple of years. If they would struggle, there is a strong argument for a fixed rate, which will bring peace of mind.”