Financial burden reduced for consumers on cheap fixed rates

With interest rates having fallen twice in the last three months, and a number of further cuts expected over the course of the year, experts are stating that the financial burden on those with cheap fixed rate deals that are coming to an end has been somewhat reduced.

Between August 2006 and July 2007 interest rates rose five times, taking the base rate from 4.5% to 5.75%. It was feared that those that were on cheap fixed rate mortgages taken out prior to the rate rises would face crippling repayment rises once the fixed term came to an end, resulting in many losing their homes.

However, as a result of the interest rate cuts the repayment increases facing many of those still due to come off cheap fixed rate deals will not be as serious as they would have been, and in some cases homeowners could see their monthly repayments rise by just £30 or £40.

The Council of Mortgage Lenders stated: “We estimate that the monthly increase for a borrower coming out of a two-year fix and choosing a new bank rate tracker will have declined from £140 in the first quarter to £39 in the fourth.”

It also said: “The intensity of payment shock is likely to decline markedly as the year progresses. The level of shock is unlikely to be as great as the FSA suggests if borrowers choose follow-on deals rather than default to the SVR.”