With fixed rates beginning to decline, homeowners may be enticed to wait and observe just how much they will drop before committing to their next deal. However, experts suggest that in a volatile mortgage market, this can be a risky gamble. Online property portal Zoopla predicts that mortgage rates may fall below 5% by the end of the year, so it could be worth waiting for prices to decrease before locking into a deal – with the caveat that your budget can handle the initial shock. Money Mail has analysed the standard variable rates of top lenders to determine the extra interest cost of staying on this rate for six months, hoping for a decline in fixed rates. After peaking at 6.86% in recent months, mortgage rates have started to decrease. However, as fixed rates fall, the Bank of England has raised the base rate, immediately impacting the cost of variable rate mortgages. It is a confusing time for borrowers and experts warn against burying one’s head in the sand. There are 773,000 homeowners on a standard variable rate, influenced by the base rate. Lenders usually contact customers up to six months before their mortgage deal expires, offering guidance on switching and the lowest available rates. Brokers suggest that borrowers with lots of equity in their homes can expect their monthly payment to rise if they transition directly from a fixed rate to a five-year fixed rate, as opposed to a two-year deal. Though waiting for further declines in fixed rates may result in an initial rise in borrowing costs, it could pay off in the long run. However, this expert strategy is not without risks, including another base rate rise during the waiting period. For borrowers who want to delay locking into a fixed deal, brokers recommend opting for a penalty-free tracker mortgage, which follows the movements of the base rate by a margin above it. This option allows borrowers to ride the interest rate wave down if the base rate falls in the future. HSBC and Barclays are offering tracker rates that are cheaper than five-year fixed rates for customers with substantial equity. If fixed rates start to fall or the base rate rises too high, borrowers can switch to a fixed rate with no early repayment charges. However, some homeowners prefer the security and peace of mind offered by a fixed rate, even if rates are expected to fall.
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