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Base rate hikes unsettle borrowers, warns Fool.co.uk

Three interest rate hikes within the space of six months have unsettled Britains homeowners, says Fool.co.uk.

A study into mortgage products taken out through the sites mortgage service shows that homeowners believe more interest-rate rises are on the horizon.

A rate rise in August 2006 saw four out of 10 homeowners opt for fixed-rate mortgages. Another increase in the cost of borrowing in November saw seven out of 10 homeowners opt to fix their mortgage rates.

This jumped to almost eight out of 10 borrowers after a third increase in January this year.

First-time buyers have traditionally been more cautious over interest rates than people looking to remortgage.

However, homeowners who remortgage are now showing signs of increased caution too.

In August 2006, eight out of 10 first-time buyers took out fixed-rate mortgages.

This rose to nine out of 10 in January 2007. Over the same period, fixed-rate products taken out by people remortgaging has jumped from 40% to 80%.

David Kuo, head of personal finance at Fool.co.uk, says: Fixed-rate mortgages are the best way for homeowners to insulate themselves from rate rises.

Its ideal for people who need to know where they stand financially from pay packet to pay packet.

Currently, interest rates are expected to rise 0.25% within the next two months and a further 0.25% six months after that. This means homeowners may need to find an extra 83 a month or 996 a year in higher interest payments on a 200,000 loan.

There is, of course, no guarantee that base rates will rise to 5.75% before the end of 2007. However, borrowers should resist the temptation of second-guessing the direction of interest rates when their homes are at stake.

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