Time for a fixed rate?

HSBC is urging mortgage borrowers to consider taking out a fixed rate now, before interest rates rise.

Exactly 20 years ago, mortgage rates peaked at a record high of 15.4%. While HSBC is not suggesting that interest rates are likely to reach double figures any time soon, it has chosen this poignant anniversary to point out that, with Bank Base Rate currently standing at 0.5%, when rates do start to move, the only way is up.

While it believes that the Bank of England is unlikely to increase rates sharply for fear of trampling the green shoots of recovery, it quotes a group of economists who believe Bank Base Rate could hit 6.5% within five years, and points to the potential volatility faced by the mortgage market in particular going forward.

Over the next four years, mortgage lenders need to repay more than £300bn which the Government has extended to them via the Special Liquidity Scheme and the Credit Guarantee Scheme.

HSBC claims this will have a dramatic impact on mortgage pricing, and argues that anyone on a fixed rate will be protected from all of that.

Martijn van der Heijden, head of mortgages at HSBC says:

“The next few years are going to be difficult to predict in terms of mortgage rates and some volatility for borrowers may well be unavoidable. The message for borrowers is that if you couldn’t afford an increase of up to three per cent on your mortgage, you should seriously look to fix your payments.”