Mortgages and House Prices Falling
House prices may have been reported to have ridden the worst of the slump, but thatís probably little solace for former Prime Minister Tony Blair whoís seen the value of his main home in Connaught Square, London, reportedly slump by half a million pounds.
The Blairs paid a whopping £3.65 million for the swanky central London home in 2004, before expanding it by buying a mews house directly behind it for £1.27 million in 2007. That makes a colossal total of £4.92 million, even without renovation work, but property experts estimate the crash will have knocked at least £500,000 of a possible asking price.
Even with the sizeable incomes from Cherieís memoirs and Tonyís lucrative City appointments, the jet-setting couple might have to have a think about their next mortgage deal.
With mortgage markets very much in flux at the moment the same can be said for most homeowners. MoneyExpert.com gives a run down of the market.
Stick or twist
The age-old debate for borrowers has been whether to opt for a variable mortgage rate or a fixed-rate deal. The pros and cons are fairly obvious. A fixed-rate mortgage gives you the comfort of knowing how much youíre going to have to pay over the course of the deal, but could leave you paying above the average rate. A variable rate mortgage, generally tied to the Bank of England base rate, means youíll take advantage of low interest rates but will be caught out if rates shoot up.
A gap in the market
The last six months, however, have seen the debate pretty much put to one side as variable rates have pulled away from fixed-rate mortgage deals in terms of rates offered. While the average rate on fixed-rate mortgages remains relatively high at around 5.18 per cent for a two year deal, and 6.22 per cent for a five year deal, variable rate customers have been basking in the low interest deals brought about by a plummeting base rate.
Borrowers with the Standard Variable Rate (SVR) from Nationwide Building Society are taking advantage of rates at 2.5 per cent. Chelthenham and Gloucester also has a 2.5 per cent deal, while Halifax, Britainís largest lender is offering a variable mortgage of 3.5 per cent.
Good news for all
Whether or not youíre opting for a variable or fixed-rate mortgage, though, the good news is that rates across the board are coming down. Banks have faced a fair amount of stick from consumers and the media for the wide margins theyíve put in place between the rates that they borrow at and those that they offer to consumers, but that looks set to change.
HSBC lit the blue touch paper earlier this week, offering a rate of 1.99% for new customers, pegged to the lenderís SVR. The deal inevitably has some catches. Itís only being available for those with a 40 per cent deposit, and with HSBCís lending history one would have to assume youíd need a more than decent credit history to even bother applying. Nevertheless, the offer will have shaken up the market. Barclays lending arm, The Woolwich, and Cheltenham & Gloucester have already come out in response to suggest that they too will be either trimming rates or launching new deals.
Even though the gap between the best fixed and variable rate deals remains significant, those on the latter are also coming down. Again, the likes of The Woolwich and Cheltenham and Gloucester have responded to a drop in wholesale borrowing rates and decreased, albeit slightly, their two year fixed-rate deals.
What to do
No decision on a mortgage should be taken lightly, and each borrower has very specific circumstances to consider. When it comes to variable rate deals, an increasing number of people believe the historically low base rate could be around for longer than first thought, making deals tracking the Bankís rate very attractive indeed.
That said, thereís always an argument for the stability that a fixed-rate deal gives, and with high fees associated with many variable rate offers thereís much to consider!
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