One of the unforeseen consequences of the Bank of England keeping the base rate at 0.5 per cent for a record 21 months is the emergence of a new “rate-spoilt” generation, reveals tracking data from unbiased.co.uk, the free and confidential UK-wide search matching consumers with local IFAs.
On average, the fixed rate deal that homeowners would be prepared to fix at is now an unrealistic 3.3 per cent, says
unbiased.co.uk. This has dropped significantly from an average 4.0 per cent in January 2009.
It appears the lengthy period of low interest rates has resulted in homeowners losing touch with mortgage reality, as best buys for three year fixed rate deals are currently around 5.1 per cent - nearly two per cent more than the average homeowner is currently willing to pay.
Fixed rate mortgage deals reached around 7.8 per cent at the end of 2007 therefore the current average fixed rate deal of five per cent appears to be a long-term “good” deal when considering economic predictions stating that interest rates will rise.
unbiased.co.uk says that an even more worrying one in six (16 per cent) homeowners would only be happy with a fixed rate deal of two per cent or less for the next three years.
However, historical data since 2005 shows that fixed rate deals have never been at such low levels as this, highlighting the stark contrast between homeowner ideals and reality.
With SVR mortgages remaining lower than best buy fixed rate mortgage deals in the current market place, it appears homeowners are still refraining from remortgaging to a fixed rate deal until the base rate starts to rise.
"With the base rate now remaining at a record low of 0.5 per cent for 21 months, possibly 22 months after next Thursday's base rate decision, our tracked research shows this has had a dramatic effect on homeowners' rate expectations,” said Karen Barrett, Chief Executive of
unbiased.co.uk.
"Their ideas of what is a reasonable fixed rate mortgage have become distorted in the low-interest rate environment, and they need to ensure that their mortgage expectations are realistic.
“While record numbers of homeowners remain on their lender's SVR instead of tying into another deal, and with many predictions for rate rises during 2011, homeowners need to be alert to ensure they don't miss out on getting the best deals before it's too late.
"It can be very confusing for homeowners to keep track of which is the best mortgage for them and when is the best time for them to move onto a new deal. Homeowners should seek whole of market mortgage advice to ensure they get the best deal from the whole of the market at the right time.”
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