Mortgages: Making Sense Of The Mayhem

A feature article by an Alumbo member, Apr 19, 2008         

Mortgages have never been easy to work out for the average homebuyer. With so many different types of mortgage available and at so many different rates and periods, it's often been difficult to decide which mortgage is best. Recent months have seen the mortgage market in the UK exist in an almost constant state of flux; interest rates have risen, lenders have withdrawn large LTV mortgage products and many homeowners have turned to remortgaging their properties in search of better rates, while financial meltdown across the Pond in the United States has had serious ramifications for UK borrowers and lenders alike.

For many borrowers on variable rate mortgages, there is always a fear of dread while waiting for an announcement regarding the base interest rate - will it be cut, will it rise again, or will it stay at the same rate as last month? However, even after any announcement is made, the waiting cycle begins again as mortgage lenders then decide whether or not to pass on any cut in their own interest rate; although they are almost sure to pass on any rise, meaning that potential mortgage payments could increase quite drastically in the wake of any base rate changes.

One simple solution to combat fluctuating mortgage payments is to arrange a fixed-rate mortgage, and this appears to be an increasingly preferred course of action across the UK. Although it was recently claimed by the Council Of Mortgage Lenders (CML) that fixed-rate mortgages accounted for just over half of all home loans in January 2008, in comparison to three-quarters in July 2007, many lenders have reported a significant rise in fixed-rate mortgage arrangements. In fact, Abbey Mortgages claims that despite reports of further potential interest rate cuts, around one-third of homeowners would now opt for a fixed-rate mortgage if given the choice.

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