Rates would have to increase by at least 0.25 of a percentage point every month from July 2010 to make a two-year fixed-rate deal, worthwhile, HSBC calculated
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Thousands of home owners about to come off low-cost mortgage deals face a
stark choice.
Do they pay a premium for the security of a fixed-rate mortgage deal? Or
should they gamble on interest rates staying low and plump for a cheaper
variable-rate deal instead?
To help home owners make a more informed decision, HSBC has crunched some
numbers to see how far interest rates would need to rise to make a
fixed-rate deal worthwhile.
The data provided by the bank indicates that interest rates would have to
either start moving upwards very quickly, or else rise to far higher levels
than we have seen over the past decade, for home owners to be better off
with a fix.
A spokesman for HSBC said: “Most economists agree that we are not likely
to see rate rises until at least the middle of 2010. If this is the case,
rates would have to rise sharply from this date for a two-year fix to prove
the better option over this period.”
According to HSBC’s calculations, rates would have to increase by at least
0.25 of a percentage point every month from July 2010 to make a two-year
fixed-rate deal worthwhile.
The picture is less clear-cut when it comes to five-year mortgages. Obviously
over this longer period there is far less agreement as to where rates might
go, and there are more variables to consider.
At the moment, anyone looking to fix their mortgage for this period can expect
to pay around 5pc, according to David Hollingworth of London & Country,
the mortgage broker.
The exact rate charged will depend on how much equity you have in your home,
the size of your mortgage and your credit rating. In contrast, those opting
for a variable tracker or discount rate pay significantly less at present.
Mr Hollingworth said: “There are a number of lifetime tracker deals where
the pay rate is hovering around 2.79pc. But with these loans the interest
charged will increase as and when rates go up.”
HSBC has analysed three scenarios to see whether home owners would do better
with a fixed or tracker deal over this period.
In each case, HSBC compared the bank’s five-year fixed-rate loan – at 4.95pc –
against repayments on its lifetime tracker, currently charging 2.74pc (2.24
percentage …
Read the original article at Telegraph
