Many people take out fixed rate mortgages to help manage costs and avoid monthly changes in interest rates, those that get the timing right can also lock into low fixed-rate deals over a number of years. But evidence now shows that the average fixed rate mortgages are increasing at a time when the cost of money has fallen, the banks are in effect increasing their profit margins on mortgages.
Taking a look at the actual numbers, the average fixed rate as of 13 July 2009 was 5.16 pc. This compares to a fall in 2 year “swap rates” (effectively the cost to banks for borrowing over a 2 year period) from their recent peak of 2.51 pc to 2.05 pc as of 13 July 2009. Clearly the banks are increasing their margins on mortgages.
The bottom line is that borrowers need to think carefully when taking out a fixed rate mortgage, maybe now is not the best time. Clearly the bank base rates will increase from their low of 0.5%, but the markets are reflecting their views on the future cost of money by the falling 2 year swap rates.
Please note, this blog does not provide financial advice, it only publishes views on what it sees happening in the market. Before deciding on a mortgage speak to a financial or mortgage advisor.
