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Cash in on Low Interest Rates

Wednesday, 6th January 2016

Categories: Market Analysis Property Prices Sales

Author: Justin Burns

Every time the Bank of England governor Mark Carney prepares to make his announcement about UK interest rates, we all wait with baited breath for the inevitable rise we foresee. However, the last six years have seen the interest rate remain at 0.5% and there is now a widely held belief that this will continue to be the case for another year.

If you’re a homeowner with a fixed mortgage that is due to expire within the next 12 months, this is encouraging news. You have probably watched in dismay, as incredibly tempting deals have come onto the marketplace but you have been unable to take advantage. Plus, with the anticipated rise to a higher interest rate with your next fix, you would have looked on helplessly, knowing that you won’t be able to get the same rate when it’s your turn to fix.

However, if financial minds across the UK are all accurately predicting the lack of rise for another year, you might now be able to fix at a great rate, too.

Interest rates will rise at some point – that’s a fact – so, if you can fix at a low rate before the first rise occurs, it’s important to carefully consider the amount of time you want to fix for. Do you opt for the lowest interest rate and accept that you will need to fix again in a few years and take your changes with rate rises? Or, do you plump for the long-term fix, perhaps at a higher overall rate, but assume that you will reap the rewards if/when the interest rate notches up a few points?

It’s not always easy to think five or ten years ahead, as you can’t accurately predict your financial situation or personal circumstances. But, assuming nothing unforeseen happens and your circumstances remain the same, you can make your decision based on what you’re currently paying, or could afford to pay, for the security of a fixed monthly repayment.

Many analysts who were previously expecting the first rate rise at the beginning of 2016 have now adjusted their predictions to expect a rise later on in the year. And although there’s no guarantee of exactly when or what the first rise in over six years will be, the markets are indicating that there could be a window of opportunity for anyone shopping for a new fixed-rate mortgage next year.

This is also good news for first-time buyers who are saving but perhaps don’t yet have sufficient money in the pot for a healthy deposit. The delay in interest rate rises will enable them to add to their funds but still secure a good deal when it comes to getting a mortgage. A long-term fix at a very low rate should help to boost this sector of the property market, as affordable rates will help to negate property price increases and should allow first-time buyers to consider properties that might previously been out of their price range. With rises expected to be at a more manageable 4-6% during 2016, this could be the year for the first-time buyer to make a strong comeback to the market.