Clear Cut Mortgages says while the Bank of England's decision to rates is good for borrowers, it now means a rate rise in May is almost inevitable.
It says that the Bank has avoided exerting too much pressure on borrowers. A quarter point rise would have left households ££70 worse off than they were in November when the Bank started raising rates, and that would have been a substantial hit on the borrower's pocket.
But Ben Thompson, director of Clear Cut Mortgages, says:”It will be interesting to see just what impact a rise next month will have. Recent campaigns by consumer groups, independent advisers and the Treasury to get consumers to switch to fixed rate products has contributed to some 36% of households now not being affected by interest rate decisions, so the influence that a base rate change wields is much reduced as a result.
“This is a relatively new situation for the UK and it is difficult to predict what the effect will be.
“At the same time, there will soon be swathes of households coming to the end of one and two year deals which were taken out when rates were very low, and the market is a verydifferent place now. Again, the impact of this scenario is largely untested. What is certain is that with a May base rate increase on the cards, many households will experience a sudden hike in monthly repayments as new, short-term deals may be priced at far higher rates than those they are used to.”
Clear Cut Mortgages advice advice to borrowers is to switch to a fixed rate deal if they're concerned about being able to afford the impact of a future rate rise, or if they've borrowed heavily to get onto the housing ladder.
For those who feel they have the cashflow to absorb a future hike in rates, or who have smaller mortgages relative to income, discounts represent good value for money. For example, over a two-year period, they are around 0.75% cheaper than fixed rates.
The company is offering a fixed rate of 4.42% through Chelsea until April 2006, and a discounted rate of 3.89% with Lambeth for two years. For those put off remortgaging due to the perceived associated costs, Clear Cut is offering an exclusive fees-free mortgage with a discounted rate of 4.25% until March 2006.