As the cost of fixed rate mortgages seems to be falling in generally, borrowers are being encouraged to check the small print carefully for any hidden costs.

For instance, many fixed rate deals at the moment are over one or two years, but after this period, the tracker rate is then a high premium over the Bank of England’s base interest rate so borrowers should check how long they are tied into.  If they are tied in for longer than the actual fixed rate deal, this period is called an ‘overhang’.

For example, there is a fixed rate mortgage with a particular building society that offers a fairly low interest rate for one year but following this there is a two year overhang period when borrowers will be on a two year tracker at a potentially high interest rate of 2.5 percent over the base rate.  If rates rise, the redemption charge to get out of the mortgage is quite high in that first three years.

A spokesperson for Savills Private Finance mortgage advisor said:

“Quite aside from the fact that a one-year fix is extremely risky at a time when rates are so volatile, there are early repayment charges for all three years, 4 per cent in year one, 3 per cent in year two and 2 per cent in year three.”

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