Ongoing low mortgage rates create an ‘interest rate-spoilt’ generation

publication date: Jan 13, 2011
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

UK Best Mortgages


Ongoing low mortgage rates create an ‘interest rate-spoilt’ generation

New research from Unbiased suggests that people looking at taking out a mortgage for the first time or re-mortgaging are being unrealistic in what kind of deals and interest rates are available.

The current low interest environment of 0.5% for the last 21 months, according to Unbiased has left borrowers expecting to be able:-

  1. To fix at their mortgage at 3.3%
  2. One in six borrowers only look to fix their deals at 2% or less for the next three years
  3. For a third to stay on their lender’s standard variable rate (SVR) mortgage with no plans to change for the future

According to Unbiased the low interest rate is causing an “emergence of a new ‘rate-spoilt’ generation”. Rather than being able to fix rates at 3% or less, Unbiased claim “the best buys for three year fixed rate deals are currently around 5.1%”. This is nearly double what the average homeowner is currently willing to pay.

Fixed rate mortgage deals reached around 7.8% at the end of 2007 therefore the current average fixed rate deal of 5% appears to be a long-term ‘good’ deal when considering economic predictions stating that interest rates will rise. 

Karen Barrett, Chief Executive of Unbiased comments, “With the base rate now remaining at a record low of 0.5% for 21 months, possibly 22 months after next Thursday’s base rate decision, our tracked research shows this has had a dramatic effect on homeowners’ rate expectations.

“Their ideas of what is a reasonable fixed rate mortgage have become distorted in the low-interest rate environment, and they need to ensure that their mortgage expectations are realistic.  While record numbers of homeowners remain on their lender’s SVR instead of tying into another deal, and with many predictions for rate rises during 2011, homeowners need to be alert to ensure they don’t miss out on getting the best deals before it’s too late.

Are you thinking of re-mortgaging or getting a mortgage for the first time? If so, then according to Unbiased, “Homeowners should seek whole of market mortgage advice to ensure they get the best deal from the whole of the market at the right time.”

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