Two-year fixed rate deals could be a danger to borrowers

Although two-year fixed rate mortgage deals are among the most popular, some experts believe that they could place homeowners in jeopardy, especially if house prices fall and interest rates rise.

A warning has been issued by mortgage experts that first-time buyers who have a large mortgage could become “loan prisoners”, paying high interest rates in future years. The concern is that first-time buyers take on large mortgages with small deposits. At the end of the term, they may face falling property prices, different personal circumstances and much higher interest rates.

If a borrower is unable to secure a fixed rate deal at the end of their current deal, they will be placed on to their lender’s Standard Variable Rate, which is generally much higher. This could be due to a stagnant property market, where their home’s value has fallen slightly, reducing the equity in their home. Fixed rate deals tend to offer a better deal for homes with more equity in them. However, first-time buyers may secure a deal for 90% of the property value, leaving themselves at risk.

London house prices have recently fallen for the first time in the last eight years, combined with predictions that the Bank of England could increase base rates for the first time during the last decade in November.

First-time buyers may want to seek advice from a CeMAP qualified mortgage advisor, who can help buyers to find the most suitable product for their circumstances.

Posted by James
October 16, 2017
Borrowers

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