It might be a good time to change to a fixed rate mortgage, suggests Duncan Farmer.
As I write this Theresa May is facing yet another “fight for her political survival”, as the newspapers put it, but as you read this she may be long gone and Jeremy Corbyn, Boris Johnson or someone we’ve barely heard of could be sitting in Number 10 raking through the ashes of her Brexit deal.
Ever since the referendum in 2016 the country has been plagued by uncertainty, but now the situation is so confused that not even confirmed Brexiteers know what to do. What hope have the rest of us got?
In the Bank of England’s forecasts for the various outcomes it said – after two years working on various scenarios – that in the very worst case interest rates could rise “very quickly” from their present level of 0.75 per cent, to 5.5 per cent. If that happened anyone with a tracker or standard-variable rate mortgage would probably have to pay more than £250 a month extra for every £100,000 outstanding on their mortgage.
Most people, however, are already on fixed-rate mortgages, but those who are not should certainly consider seriously taking one out. Few people are predicting that interest rates are going to fall in the foreseeable future. Barclays has a two-year fixed deal with an interest rate of 1.53 per cent and Yorkshire Building Society’s five-year deal is a very attractive 1.91 per cent. (Four years ago I was pleased to get 3.38 per cent from NatWest.)
Even if you are on a fixed-term deal it is also worth overpaying what you can every month within the limits set by your lender. Many will allow you to repay up to ten per cent of your outstanding sum each year without penalty.
There are several benefits: if interest rates have risen dramatically by the time you come to remortgage your outstanding balance will be lower, making you a more attractive proposition to lenders, and you will already be used to making bigger repayments. Overpaying not only shortens the length of your mortgage but also reduces the total amount of interest you end up paying.
There’s nothing to lose. If Mark Carney’s doomsday predictions fail to materialise the worst thing that will have happened is that you’ve got a smaller mortgage.