Interest rates in the UK have continued to rise over the last few months despite the Bank of England base rate remaining stable. Recent reports show that the cost to lenders for mortgages is continuing to go up, with lenders increasing rates as recently as the last few days.
Fixed rate mortgages have increased the most with very few deals being offered close to the base rate of five percent. The main drive behind these increases is the global credit crunch which has seen many banks and financial lenders struggling to recoup the money they have lost.
When the global credit crunch first occurred, it was those people who fitted the sub-prime lending category who were struggling. Mortgages were lent to people who did not have the proper means to repay them should there be any increases in interest rates. Now it seems everybody is suffering as banks try to make the regain some of the profits they were once used to by increasing interest rates for those who can afford their mortgages. Research has shown that the average ninety percent loan to value mortgage now costs 6.75% in interest, which is a two percent increase on deals being offered two years ago. Fixed rate mortgages have increased in popularity over recent months as homeowners try to negate the possibility of increased interest rate rises. However lenders said they have to put up the interest rates on these types of deals due to the amount they are being charged to borrow the money themselves.
There does not seem to be a huge amount which can be done to negate the rise in interest rates, except shop around if your current deal expires. Despite the fact that the majority of people bank with one of the big four high street banks, the bigger high street banks are now offering some of the worse deals on the markets in comparison to the smaller building societies and independent banks. Shopping around could help find a deal which more closely mirrors the bank of England base rate and therefore represents a better deal. In addition homeowners could consider an offset mortgage which offsets the interest paid on savings against the interest to be paid on a mortgage. This type of arrangement has become more popular as people find these deals can reduce their overall outgoings.
The good news through all of the doom and gloom is that interest rates on savings are now the highest they have been for years. Banks are trying to entice people to save to offset the cost of them having to borrow money themselves. For the banks, the more customers they have depositing money in savings accounts the less money they need to borrow from financial markets. Offering offset mortgages encourages customers to deposit their savings for a longer period as they are offsetting the amount of interest on their mortgage. Whilst these types of deals are fairly new homeowners should not discount them out of hand and seek professional advice as to whether they could be a suitable alternative for them instead of traditional fixed rate or variable loan. Whilst interest rates for saving remain high this types of deals could benefit both the banks and their customers.