Mortgages - to fix or not to fix?

Borrowers with variable rate mortgages continue to benefit from historically low interest rates following the Bank of England's decision to keep Base Rate unchanged at 0.5 per cent for the 22nd consecutive month. However, moneysupermarket.com warns these borrowers to prepare for Base Rate increases. Anyone concerned about higher mortgage payments should consider fixing now.

Someone with a 25 year term £150,000 repayment tracker mortgage at 2.17 per cent will currently be paying £648 per month. A 0.25 per cent increase in Base Rate would see their repayments rise by £19 a month. However if Base Rate climbs by one percentage point they would be paying £725 a month - an increase of £77.

Base Rate is expected to start rising again this year and the costs of fixed rate mortgages are also likely to go up. A number of lenders including Lloyds TSB and Newcastle and Skipton building societies have pulled some of their fixed rate deals in recent days. Newcastle is launching some new, higher rates tomorrow. NatWest also increased some of its fixed rates last week. Those looking for fixed rate security should therefore act now before more products are withdrawn as delaying could prove costly.

Clare Francis, site editor at moneysupermarket.com comments: "With inflation remaining stubbornly above the government's 2.0 per cent target, pressure is mounting on the Bank of England to start increasing interest rates and a growing number of economists think Base Rate will go up in the first half of the year.

"This will obviously affect those with variable rate mortgages and anyone worried about higher mortgage repayments should consider locking in to a fixed rate to protect themselves from future interest rate increases. There's no time to lose because fixed rates mortgages are beginning to get more expensive.

"We've already seen a number of the leading deals pulled from the market and more are likely to disappear over the coming days and weeks to be replaced with higher-rate products. There are some highly competitive fixed rates so borrowers should snap them up while they're still available. It's still possible to get a two-year fix under 3.00 per cent and you can fix your mortgage payments for five years at under 4.00 per cent.

"However, most fixed rate mortgages have early repayment charges so borrowers will face a hefty penalty if they need to get out of the deal during the fixed term. This is something to bear in mind when deciding what length fixed term to go for.

"Anyone unsure about what mortgage to go for should get advice from an independent mortgage broker."