Data from the UK housing market has been bemusing this month. On the one hand, the official statistics of the Communities and Local Government Index revealed that UK house prices were almost 10 per cent higher in June than a year ago. On the other, the Royal Institute of Chartered surveyors announced that 'more surveyors reported a fall than a rise in house prices for the first time since July 2009'. Apparently, 28 per cent more surveyors now expect prices to fall over the coming months.
To baffle us further, the National Association of Estate Agents says that the housing market experienced one of its strongest months of the year so far in July. Their monthly market report found that demand was up, more sellers were putting property onto the market and the average agent made more sales than in June.
So, the outlook for property is as clear as mud. Perhaps it's fortunate that most people are probably more concerned with simply finding a mortgage, keeping up payments and being able to afford their home these days.
Arranging a mortgage remains a huge challenge. Choice is limited; fees are higher than in the past and, just like the property market, the outlook for mortgage interest rates is still not clear. That makes choosing between a Fixed Rate Mortgage (which stays the same for a given period) and one where payments can vary somewhat tricky. The decision is not clear cut, so here are some of the things you really need to think about...
Fixed Rate Mortgages never offer the most competitive rates, but if you choose one at the right time, for the right term, you could be counting your lucky stars that you did. That's because fixed rate deals can help you avoid the impact of future mortgage rate rises. Interest rates are notoriously volatile and can increase rapidly. They are very low - the Bank of England base rate is just 0.5 per cent - so I think it's fair to say that the only way is up. But when? It's been suggested that the Monetary Policy Committee will be looking to increase rates in the next couple of years, but other experts believe that a few factors make this difficult, so there won't be a rate rise until 2014 at the earliest. Committing to a fixed rate mortgage makes it easier to plan financially because you know exactly how much your mortgage is going to cost with no nasty surprises over the longer term. But the risk with a fixed rate mortgage is that you lock in then find that interest rates don't increase at all, so you could have saved money from the outset by choosing another kind of mortgage. Bear in mind that while alternatives to fixed rate deals, such as Discounted Variable Rate Mortgage and Tracker Mortgages, offer more competitive rates, these rates will increase if interest rates increase. That means that you could find yourself paying much more than you would have done with a fixed rate deal over the longer term if interest rates do rise. How long you choose to fix your mortgage for is very important. If you opt for a three year fixed rate deal just now, think about what will happen near the end of 2013 if the outlook for interest rates has become much worse. If that's a concern, a five year fixed rate could make more sense.Whatever mortgage you choose, always factor in the cost of the arrangement fees. Don't forget to check the redemption penalties either, so it's important to know the cost if you want/need to pay off your debt early.
So, if you are in a position to borrow, don't just ignore fixed rates simply because they look more costly at the outset than other deals. That could change in an instant. House prices might rise or fall, but at least a fixed rate deal gives you peace of mind that you won't see your mortgage payments rocket if interest rates start to go up.
