Expert warns fixed-rate mortgage borrowers need to take action | Personal Finance | Finance

The Bank of England opted to leave interest rates unchanged this month, but with the UK economy expected to stagnate, mortgage lenders may still have to charge their borrowers higher fees.

Banks and building societies also use interest rate swaps – a money market mechanism – to decide how much they charge mortgage borrowers.

So while interest rates – also called the bank rate – can be put on hold, swap rates are often determined by how well the economy is expected to grow.

Nicholas Mendes, mortgage expert at John Charcol, said swap rates are used by lenders to price fixed-rate mortgages and manage risk.

He said: “Swap rates reflect the cost to lenders of borrowing money over the life of a mortgage and indicate market expectations for future interest rates. When swap rates rise – perhaps due to expectations of fewer rate cuts – mortgage rates often follow suit, even if the key rate is cut.”

Mendes said stable market conditions were essential if the Bank of England wanted to cut interest rates and stabilize or decline swap rates.

He said: “This includes keeping inflation consistently below the Bank of England’s 2 per cent target. A stable economic environment would encourage lenders to offer more competitive interest rates. In addition, global economic factors such as energy prices and supply chain stability could also influence the development of mortgage interest rates.”

With a fixed rate mortgage, your monthly repayments are set at the same amount for a fixed period of time. You can choose to repay your mortgage over two, three, five and ten years. Some mortgage lenders offer longer fixed-rate terms.

If you lock in your mortgage rate, it won’t change during that time. If you decide to refinance or pay off your mortgage before the fixed rate period ends, you may have to pay an exit fee, known as an early repayment fee.

The interest rate you pay is based on the Bank of England base rate, which is set each month. The key interest rate is used by the British government to control inflation. When inflation is too high, interest rates are raised to slow borrowing. When economic growth needs to be stimulated, interest rates are lowered to encourage more borrowing and therefore more spending. Find out how fixed-rate mortgages work, what they cost and how you can compare them.

Fixed-rate mortgages are a type of mortgage in which the interest rate remains the same throughout the fixed or contract period; There are two types of fixed-rate mortgages. three, five, ten and sometimes longer periods of time.

How are fixed tariffs determined?

One reason some people choose fixed rate mortgages is because they believe the Bank of England is likely to increase interest rates. If you have a fixed interest rate, your interest rate will not be affected if the Bank of England interest rate changes.

If you have a variable rate mortgage, your mortgage repayments will change when the Bank of England increases or decreases its base rate. Mortgage lenders have their own standard variable rate (SVR), which is slightly higher than the Bank of England base rate. An SVR mortgage means you borrow at your lender’s variable interest rate, which can change if the Bank of England changes its base rate.

How do fixed-rate mortgages work?

When you apply for a mortgage, you will be asked whether you would like to lock in your interest rate or whether you would like to opt for a variable rate. Fixing your interest rate could prove to be a cheaper option if it looks like bank rates are going to rise.

If you think they will go down, you may prefer an adjustable rate mortgage because with a fixed rate mortgage you are locked into the mortgage rate for the duration of the fixed rate. The most popular type of fixed rate lock-in is usually a two or three-year fixed rate lock-in, as this gives you more flexibility. A 10-year fixed rate lock-in can provide stability, but may be more expensive than locking in your mortgage rate for two years, as lenders price in the costs of having to lock in that rate for a longer period of time.

Once you’ve chosen your fixed rate term, you’ll get an idea of ​​what your repayments will be. When you receive your final mortgage offer, your mortgage lender will provide you with a monthly repayment plan and your repayments will be set at exactly that amount for the period of correction.

If you decide to refinance or can afford to pay off your mortgage before the end of the term, you will have to pay an early exit or early repayment fee.