Buying, selling and letting - Monday, November 17, 2003

If you worry that you aren’t playing your part in protecting the environment then why not look to a green mortgage, says Anna Bowden.

Environmental issues have never had a higher public profile and more and more people are reassessing and readjusting their lives to do what they can to help our dwindling resources and our warming globe. If doing your bit for the environment is important to you then you will be pleased to know that ‘green mortgages’ are now an option. These are offered by a select number of lenders (currently just Norwich & Peterborough Building Society, The Co-Operative Bank and Ecology Building Society) and aim to minimise the negative impact your property has on the environment. They do this by promoting energy efficiency within the home and by giving something back to the environment every time someone takes out a mortgage, whether it be planting trees or donating to Climate Care. These mortgages are fairly competitive in the marketplace and have the added bonus of providing you with greater peace of mind about the part you play in the big scheme of things; and don’t forget that an energy efficient home not only helps reduce harmful greenhouse gas emissions but could also save you money on running costs.

The Co-operative Bank

The Co-operative Bank offers customers the knowledge that the companies it deals with are committed to preserving the environment and that they have a sense of social responsibility. For as long as you have your mortgage the bank will make a payment every year to Climate Care, an organisation dedicated to helping solve global warming. This payment is used to help deal with 20 per cent of an average home's carbon dioxide emissions, created from generating the gas and electricity we use – Climate Care has developed a range of projects to help offset these emissions which include soaking them up by growing new forests.
For house purchases the bank will also provide you with a free Home Energy Report along with your valuation. This tells you how energy efficient your new home is and suggests ways in which you can improve it.

Norwich & Peterborough Building Society

Alongside its standard loans this building society also offers green and brown mortgages for existing and regeneration sites. The green mortgages are available for new homes with an SAP (Standard Assessment Procedure) rating of 80 or more or for a property that you want to make more energy efficient. The mortgages are available to first time buyers, those moving house or remortgagees and help the environment in a number of ways. For each of the first five years of every green mortgage eight trees are planted; the estimated absorption rate of carbon dioxide by the new trees offsets the estimated emissions of that gas from the home.
The building society also works with Future Forests Limited, set up in 1989 to help offset the damage done to the environment by businesses and individuals. Future Forests and its partners plant and maintain new forests or add to existing forests, arrange to measure carbon uptake and develop carbon management programmes. Norwich & Peterborough forests will be created in East Anglia and Lincolnshire as a result of customers taking out green mortgages.

Ecology Building Society

The Ecology is a mutual building society dedicated to improving the environment by promoting sustainable housing and sustainable communities and provides mortgages for properties which give an ecological payback. You do not have to be green to get an Ecology mortgage; some borrowers have environmental concerns and others simply want to rescue a derelict property to make into their home. The aim is to provide mortgages for people who will then ensure energy efficient housing and ecological renovation as well as low-impact lifestyles.

Housing market remains stable

The recent interest rate hike has caused much muttering and a certain amount of pessimism from all those concerned with the housing market. However, many experts are saying that we don’t need to tighten our belts just yet. ‘This rise in interest rates will not have a huge effect on the current housing market and borrowing,’ says Peter Brodnicki, chief executive of Mortgage Advice Bureau. ‘This is the first interest rate increase in the cost of borrowing for almost four years, and with the rate at a 48-year low this 0.25 per cent increase will not really affect the public, who were largely expecting this increase anyway and have benefited from the low rate for longer than originally anticipated.
‘I expect a slight increase in remortgaging as borrowers consolidate their debts, but it will not curb consumer spending, which would only be affected by an increase of over one per cent. However, with economic prospects continuing to improve, further interest rate increases will occur next year. Homeowners not benefiting from discounted or long-term fixed rates will continue to remortgage to find the most competitive deal.’

House prices continue to rise

In response to the ODPM's housing market index issued this month, which claims that house prices are rising by 10.9 per cent (in September) and that house prices are slowing, Knight Frank’s head of Residential Research Fiona Sadek comments, ‘The Knight Frank housing index shows that house prices have risen by 3.4 per cent over the last quarter and we have seen a significant increase in sales during this period. However, we have noticed that there are considerably fewer properties coming onto the market. As long as homes are realistically priced they are selling relatively quickly, especially at the top end. As long as there are no nasty shocks, the market is relatively well balanced and I see no reason why this shouldn't continue.’

No to Home Information Packs say agents

A survey of National Association of Estate Agent (NAEA) members has found that the vast majority of the UK’s leading estate agencies overwhelmingly support the critical findings of the Housing, Planning, Local Government and the Regions Committee on the Draft Housing Bill. In its response the housing minster Keith Hill says they will accept ‘unconditionally a number of recommendations and undertake to consider more.’

The minister chose not to elaborate when he made his response to the Select Committee, but reiterated that the government will press ahead with the introduction of Home Information Packs (HIPs) which he claims will make the buying/selling process more certain, transparent and consumer-friendly. The NAEA cannot agree on a number of points, for instance that the introduction of HIPs (as Sellers Packs are now called) could seriously slow the market, because each seller will now have to find at least £600 to compile a pack.

Besides this, nearly 80 per cent of buyers do not bother with a survey, choosing to rely on the valuation of their lender, but under the Housing Bill they must have a Home Condition Report. These and many other issues have been raised as points of concern by the NAEA, whose president Melfyn Williams commented, ‘The NAEA is disappointed that despite widespread industry concerns the government appears to remain committed to introducing further red tape bureaucracy and additional cost into the home buying process. While this legislation may suit the government’s agenda it does not suit the UK’s home owning public.’

Housing market remains stable

The recent interest rate hike has caused much muttering and a certain amount of pessimism from all those concerned with the housing market. However, many experts are saying that we don’t need to tighten our belts just yet. ‘This rise in interest rates will not have a huge effect on the current housing market and borrowing,’ says Peter Brodnicki, chief executive of Mortgage Advice Bureau. ‘This is the first interest rate increase in the cost of borrowing for almost four years, and with the rate at a 48-year low this 0.25 per cent increase will not really affect the public, who were largely expecting this increase anyway and have benefited from the low rate for longer than originally anticipated.
‘I expect a slight increase in remortgaging as borrowers consolidate their debts, but it will not curb consumer spending, which would only be affected by an increase of over one per cent. However, with economic prospects continuing to improve, further interest rate increases will occur next year. Homeowners not benefiting from discounted or long-term fixed rates will continue to remortgage to find the most competitive deal.’

House prices continue to rise

In response to the ODPM's housing market index issued this month, which claims that house prices are rising by 10.9 per cent (in September) and that house prices are slowing, Knight Frank’s head of Residential Research Fiona Sadek comments, ‘The Knight Frank housing index shows that house prices have risen by 3.4 per cent over the last quarter and we have seen a significant increase in sales during this period. However, we have noticed that there are considerably fewer properties coming onto the market. As long as homes are realistically priced they are selling relatively quickly, especially at the top end. As long as there are no nasty shocks, the market is relatively well balanced and I see no reason why this shouldn't continue.’

No to Home Information Packs say agents

A survey of National Association of Estate Agent (NAEA) members has found that the vast majority of the UK’s leading estate agencies overwhelmingly support the critical findings of the Housing, Planning, Local Government and the Regions Committee on the Draft Housing Bill. In its response the housing minster Keith Hill says they will accept ‘unconditionally a number of recommendations and undertake to consider more.’
The minister chose not to elaborate when he made his response to the Select Committee, but reiterated that the government will press ahead with the introduction of Home Information Packs (HIPs) which he claims will make the buying/selling process more certain, transparent and consumer-friendly. The NAEA cannot agree on a number of points, for instance that the introduction of HIPs (as Sellers Packs are now called) could seriously slow the market, because each seller will now have to find at least £600 to compile a pack.

Besides this, nearly 80 per cent of buyers do not bother with a survey, choosing to rely on the valuation of their lender, but under the Housing Bill they must have a Home Condition Report. These and many other issues have been raised as points of concern by the NAEA, whose president Melfyn Williams commented, ‘The NAEA is disappointed that despite widespread industry concerns the government appears to remain committed to introducing further red tape bureaucracy and additional cost into the home buying process. While this legislation may suit the government’s agenda it does not suit the UK’s home owning public.’

If you worry that you aren’t playing your part in protecting the environment then why not look to a green mortgage, says Anna Bowden.

Environmental issues have never had a higher public profile and more and more people are reassessing and readjusting their lives to do what they can to help our dwindling resources and our warming globe. If doing your bit for the environment is important to you then you will be pleased to know that ‘green mortgages’ are now an option. These are offered by a select number of lenders (currently just Norwich & Peterborough Building Society, The Co-Operative Bank and Ecology Building Society) and aim to minimise the negative impact your property has on the environment. They do this by promoting energy efficiency within the home and by giving something back to the environment every time someone takes out a mortgage, whether it be planting trees or donating to Climate Care. These mortgages are fairly competitive in the marketplace and have the added bonus of providing you with greater peace of mind about the part you play in the big scheme of things; and don’t forget that an energy efficient home not only helps reduce harmful greenhouse gas emissions but could also save you money on running costs.

The Co-operative Bank

The Co-operative Bank offers customers the knowledge that the companies it deals with are committed to preserving the environment and that they have a sense of social responsibility. For as long as you have your mortgage the bank will make a payment every year to Climate Care, an organisation dedicated to helping solve global warming. This payment is used to help deal with 20 per cent of an average home's carbon dioxide emissions, created from generating the gas and electricity we use – Climate Care has developed a range of projects to help offset these emissions which include soaking them up by growing new forests.
For house purchases the bank will also provide you with a free Home Energy Report along with your valuation. This tells you how energy efficient your new home is and suggests ways in which you can improve it.

Norwich & Peterborough Building Society

Alongside its standard loans this building society also offers green and brown mortgages for existing and regeneration sites. The green mortgages are available for new homes with an SAP (Standard Assessment Procedure) rating of 80 or more or for a property that you want to make more energy efficient. The mortgages are available to first time buyers, those moving house or remortgagees and help the environment in a number of ways. For each of the first five years of every green mortgage eight trees are planted; the estimated absorption rate of carbon dioxide by the new trees offsets the estimated emissions of that gas from the home.

The building society also works with Future Forests Limited, set up in 1989 to help offset the damage done to the environment by businesses and individuals. Future Forests and its partners plant and maintain new forests or add to existing forests, arrange to measure carbon uptake and develop carbon management programmes. Norwich & Peterborough forests will be created in East Anglia and Lincolnshire as a result of customers taking out green mortgages.

Ecology Building Society

The Ecology is a mutual building society dedicated to improving the environment by promoting sustainable housing and sustainable communities and provides mortgages for properties which give an ecological payback. You do not have to be green to get an Ecology mortgage; some borrowers have environmental concerns and others simply want to rescue a derelict property to make into their home. The aim is to provide mortgages for people who will then ensure energy efficient housing and ecological renovation as well as low-impact lifestyles.

Housing market remains stable

The recent interest rate hike has caused much muttering and a certain amount of pessimism from all those concerned with the housing market. However, many experts are saying that we don’t need to tighten our belts just yet. ‘This rise in interest rates will not have a huge effect on the current housing market and borrowing,’ says Peter Brodnicki, chief executive of Mortgage Advice Bureau. ‘This is the first interest rate increase in the cost of borrowing for almost four years, and with the rate at a 48-year low this 0.25 per cent increase will not really affect the public, who were largely expecting this increase anyway and have benefited from the low rate for longer than originally anticipated.
‘I expect a slight increase in remortgaging as borrowers consolidate their debts, but it will not curb consumer spending, which would only be affected by an increase of over one per cent. However, with economic prospects continuing to improve, further interest rate increases will occur next year. Homeowners not benefiting from discounted or long-term fixed rates will continue to remortgage to find the most competitive deal.’

House prices continue to rise

In response to the ODPM's housing market index issued this month, which claims that house prices are rising by 10.9 per cent (in September) and that house prices are slowing, Knight Frank’s head of Residential Research Fiona Sadek comments, ‘The Knight Frank housing index shows that house prices have risen by 3.4 per cent over the last quarter and we have seen a significant increase in sales during this period. However, we have noticed that there are considerably fewer properties coming onto the market. As long as homes are realistically priced they are selling relatively quickly, especially at the top end. As long as there are no nasty shocks, the market is relatively well balanced and I see no reason why this shouldn't continue.’

No to Home Information Packs say agents

A survey of National Association of Estate Agent (NAEA) members has found that the vast majority of the UK’s leading estate agencies overwhelmingly support the critical findings of the Housing, Planning, Local Government and the Regions Committee on the Draft Housing Bill. In its response the housing minster Keith Hill says they will accept ‘unconditionally a number of recommendations and undertake to consider more.’
The minister chose not to elaborate when he made his response to the Select Committee, but reiterated that the government will press ahead with the introduction of Home Information Packs (HIPs) which he claims will make the buying/selling process more certain, transparent and consumer-friendly. The NAEA cannot agree on a number of points, for instance that the introduction of HIPs (as Sellers Packs are now called) could seriously slow the market, because each seller will now have to find at least £600 to compile a pack.

Besides this, nearly 80 per cent of buyers do not bother with a survey, choosing to rely on the valuation of their lender, but under the Housing Bill they must have a Home Condition Report. These and many other issues have been raised as points of concern by the NAEA, whose president Melfyn Williams commented, ‘The NAEA is disappointed that despite widespread industry concerns the government appears to remain committed to introducing further red tape bureaucracy and additional cost into the home buying process. While this legislation may suit the government’s agenda it does not suit the UK’s home owning public.’

‘A very strange year’

Normal buying patterns haven’t applied in 2003, according to Lee Watts, managing director of Kinleigh Folkard & Hayward. The company’s September property market overview sees the gloom of earlier this year dissipating and the market gaining strength.

‘So far this year the residential property market in London has been a very strange one,’ says Watts. ‘Falling house prices in the second half of 2002 and the war in Iraq caused the property market to experience a particularly quiet period during the beginning of this year. It was as if the usual seasonal quiet month of December was happening three times over in January, February and March.
‘Things started to change in April, with a significant increase in people looking for property and the number of property transactions that completed.’ As for the usual ‘summertime dip’ in the property market, Watts says, ‘it surprised all of us when it did not happen and the market has remained unusually active.’ And Kinleigh Folkard & Hayward sees the upturn continuing for the rest of the year.

‘As we now move towards the autumn season, we are in a “market firm” position. Unless the unforeseen happens, the London property market is set to remain steady for the remainder of 2003. House prices have settled and continue to be relatively stable. Movement in the property market continues at a steady flow.’

Regional round-up

‘The market in East Sussex has been slower this month, partly due to the usual holiday season and partly because of uncertainty in the market. However, signs are positive that for September there could be an upturn, with more first time buyers appearing. Prices seem to be holding fairly steady at present; over the remainder of the year we expect prices to increase only marginally. Overpriced properties are still not attracting viewings as buyers remain cautious.’
Paul Boswell of Meeching estate agency in Newhaven, East Sussex
            
‘The market in the West Kent area seems to be picking up, with a higher level of applicants looking for a property. Properties worth £1 million or more seem to be generating more interest, with the first sales being arranged in this price range for some months. I feel there is more confidence in the City, which directly influences this sector of the market. Properties in the rest of the market are still selling as long as they are competitively priced.”
Steven May of J D M estate agency in Chislehurst, Kent

First timers find a way

Although the first-time-buyer market is picking up, plenty of first-timers are creating ingenious ways to get onto the property ladder to save themselves money. Some join with friends or colleagues to find a deposit, others build their own properties and some become landlords instead of owner-occupiers.
Building your own property is a great idea, as the price of materials, land and construction will certainly be less than the worth of the finished product – so you could sell it on for a profit the minute it has been built! Buying to let is also a sound move – people who cannot afford the deposit for a property in their chosen location could buy elsewhere where properties are not so costly and thus where the necessary deposit is not so large. Rental income could far exceed those mortgage payments, giving landlords cash in hand to put towards a deposit in their desired area.

Putting a beautiful finish on your tired old floor can rejuvenate your home – all you need is patience and a steady wrist, says Hotproperty.

There are two types of hardwood floor - solid hardwood and wood with a veneer top. You can't sand the latter, as the surface is too thin, but solid hardwood floors can be sanded up to three times. If you don't know the history of your floor, you need to check that there is enough left to sand. Do this by lifting a section and checking that there is at least one-eighth of an inch of flooring left above the tongue.

Solid hardwood

A good power sander will remove most blemishes from floors. Hire a belt sanding machine - they're lighter and easier to control than other power sanders. Ask the rental shop how many belts they would recommend for your size of floor; you will be able to return any that are unused. As with all sandpapers, the belts come in a variety of grits - 24, 36, 80 and 100 - the lower the number the coarser the belt.

A good finish

This is all about patience. You will also need an edge sander and interchangeable discs, plus a floor buffer, ear plugs, dust mask and some vacuum bags for the rest of the job. To start, remove everything from the room, including the curtains. Cover all doorways and vents. Remove any protruding nails. Remove the existing varnish from the floor. Move the sander forward and at the end of the room retrace the same path back. Don't let the machine rest in one spot or you'll over-sand it.
The second round of sanding will remove the scratches made by the coarse grit belt. This time start sanding at the opposite end of the room. This will prevent grooving at the spot where you started last time. Use the edge sander for awkward corners. Vacuum the floor in between rounds. Repeat these steps and finish with a fine grit belt.
Now comes the fun part - buffing the floor. Move the buffer head slowly back and forth in an irregular pattern and allow a generous overlap. This action will bring up the grain and even out the finish. Keep a tight hold on the buffer as it can be hard to control. Apply tape to the bottom rim of your vacuum cleaner – when you vacuum up the dust you don't want to scratch the floor.

Elegant buffing

This brings out wood's true beauty. Vacuum the room from the top down, starting with the tops of the windows and door ledges. When you think you have finished, change the vacuum bag and do it all over again - at this stage any missed dust could end up in the finish of the floor.
The two most popular finishes for hardwood floors are oil-based and water-based polyurethanes. Both are tough, durable, and resistant to water, alcohol and most household cleaners. Oil-based polyurethane provides a traditional warm, rich tawny shade that enhances the natural grain. It comes in a satin, semigloss or gloss finish, although it will yellow with time. When you apply the finish to your floor, be prepared to exercise patience. Most manufacturers recommend six to ten hours drying time with an extra four hours before you can walk on your floor. You'll need to lightly sand after the first layer and apply two to three coats in total. Oil-based polyurethane gives off strong fumes and is highly flammable but be careful about opening the window in the room you are treating because of the risk of dust and dirt. It's preferable to use a solvent respirator.
If this sounds like too much palaver, then water-based polyurethane is for you. It dries in one hour and can be walked on after three hours. Water-based polyurethane has the added advantage of being low in odour, clear-drying and resistant to yellowing. Apply the finish starting in a corner and running along the wall in the direction of the grain. Apply a small amount at a time so the edges of each section are wet and easy to blend the next application.

Get the finish right

As soon as you have finished the first application, wrap your brush or applicator in cling film until you can apply the next coat. After the first coat has soaked in and dried, the second coat will go on much easier. Repeat your application technique but watch out for air bubbles.
The finish will take about one week to fully harden so keep room use to a minimum and don't move any rugs or heavy furniture back in until the finish is completely set.

House prices up in August

The Nationwide building society has good news for home owners, stating that annual house price growth for 2003 has gone up from ten per cent to 13 per cent as house prices continued their upward trend in August. The average UK house price is now £129,258 and grew just over £1,000 – 1.1 per cent – in August. This was up slightly from a one per cent rise in July but remains below the two to three per cent growth seen over the spring and summer period last year. Nationwide also said that house prices have increased by an average 8.9 per cent this year.

Alex Bannister, Nationwide's group economist, says that house prices have been boosted over the last few years by a strong labour market, a period of high consumer confidence and expectations of higher house price growth in the future as well as the cheap cost of debt. House prices have outperformed gold by almost 50 per cent over the last three years – gold has risen 35.4 per cent in value on this period while house prices have soared by 67.7 per cent.
Hamptons International has also reported that the market is looking healthier. In its Property Market Observations, Chris Graham notes that viewings were up 40 per cent in July. ‘The next three months will present the best opportunity this year to achieve a premium price,’ said Graham, and advised potential vendors to launch their properties soon.

Hamptons reports that ten per cent more new buyers registered than in August 2002 and that its portfolio is now 20 per cent larger than it was then. ‘Buyers still have the advantage over sellers,’ said Graham, ‘although the balance is shifting. Realistic pricing is still the key to attracting buyers’ interest.’

Vote of Confidence for HIPs

New independent research for OneSearch Direct has indicated that estate agents think it is very important to improve property transaction times in the UK, and that on average, half welcome the introduction of Home Information Packs (HIPs) in the hope that they will speed up the process.
Research among estate agents has unearthed interesting views on HIPs in relation to the speed of transactions. Sixty per cent of agents believe that it is ‘very important’ to improve the speed of the process, while a further 33 per cent think it is ‘quite important.’ Fifty per cent believe that HIPs are the key to improving speed, and none of those interviewed felt that HIPs would result in slower sales.
Should HIPs be introduced, most agents think they will have a function in putting the pack together – either entirely or jointly with the seller. Agents generally foresee an expansion of their role in the housing chain: nearly half said they are likely to offer conveyancing services and a third said they are likely to offer a local search service.

Richard Megson, sales and marketing director of OneSearch Direct, comments, ‘There is a cautious vote of confidence from agents for the introduction of HIPs. Not only did 50 per cent of the agents interviewed think that HIPs would speed up the chain, but many cited solicitors and the current local search process as the reason for transaction delays. Like both estate agents and solicitors we welcome initiatives to speed up the property chain and we believe that HIPs are potentially a very significant development for the property market. It will be interesting to see how the market changes should the packs be introduced.’

Adding to the sellable value of your home by extending its lease is not the complicated and expensive procedure it used to be. Hotproperty looks at your rights

Most long leases with over 21 years left to run have the right to a 90-year extension under the Leasehold Reform Housing and Urban Development Act 1993. Extending the leasehold is a great idea as it can increase the value of your home and also make it easier to sell (especially in the case of properties with less than 60 years remaining on the lease). It is also easier than buying the freehold.
Rules governing how you can extend your lease differ in some respects for houses and flats, although the initial stages of the procedure are the same. To extend your lease you have to apply before your original lease ends and you have to send a formal written request (initial notice) to start the process. The notice has to include your name and address, details of the existing lease (including when it was originally granted and how much ground rent you pay), evidence to show that you qualify and the deadline for the freeholder's response (you have to give the freeholder at least two months to reply).

The freeholder has to respond by the deadline you gave in the initial notice. His response (counter notice) must say whether or not he thinks you have the right to extend your lease. If he doesn't reply, you have six months to apply for a court order. The freeholder can only refuse to extend the lease on the property if he wants to demolish or redevelop it, wants to live in it himself or let a member of his family live in it. In either of these situations, the freeholder has to get a court order, and the court will decide whether he has the right to refuse. If the court decides he can do so, you will be entitled to compensation. If you are in this situation, it is wise to get legal advice.

Are fixed rates the borrower’s best bet, or could you end up paying over the odds? Christina Jordan of Your Mortgage magazine looks at locking into a rate

Sometimes you might feel like taking a gamble, doing something a little bit risky or completely losing control. That’s fair enough and even the most sensible of us appreciate the need for a thrill once in a while. But if you’re feeling the need to spice up your life, don’t go too far. By all means put an extra pound on the lottery or drink that extra pint, but if you are going to take a gamble don’t risk the roof over your head. Choose your mortgage carefully.

Fix it?

One of the most important decisions to make when taking out a mortgage is how you want the interest to be charged, as this can affect the level of your monthly payments. You can either go for a variable rate (which often comes with a discount) where the rate goes up and down in line with the Bank of England base rate, or you can go for a fixed rate where the rate is set for an agreed term.
Fixed rates are extremely popular with borrowers, accounting for just over 50 per cent of all mortgage lending in May this year according to the Council of Mortgage Lenders (CML). This figure has risen steeply from just 27 per cent in May 2002, so what is it about the current market that is prompting borrowers to fix their interest rate?

The Bank of England base rate can shoulder some of the responsibility as, at 3.5 per cent, it’s at its lowest level for 50 years. And the base rate influences mortgage rates so many lenders have reduced their rates to historically low levels, making servicing a mortgage debt more affordable than ever. The average fixed rate in May was 4.21 per cent according to the CML. On a £100,000 25-year repayment mortgage this would equate to monthly repayments of just £539.50. It’s understandable that many borrowers want to fix while rates are this low to protect themselves from future interest rate rises, despite the fact that some industry experts believe they could fall even further.
Colin Dale, head of lending at Skipton Building Society, agrees that borrowers are very keen to fix in the current environment. ‘Over the last couple of months people have been locking themselves into rates. We don’t expect mortgage rates to come down that much more regardless of what happens to the base rate. There has to be a floor.

‘Consumers are also worried that rates could start to rise, and there is also the possibility that the housing market could be on the turn. So those who have stretched their finances to buy are more comfortable with a fixed rate, giving them certainty with their payments.’

Pros and cons

The benefits of taking out a fixed rate mortgage are pretty clear. First and foremost they offer security. And when you have the initial costs of a house purchase plus bills to consider, payment stability can be extremely important. As Sarah King, spokesperson for Nationwide, reiterates: ‘With a fixed rate mortgage your interest rate will be frozen for a number of years – ideal if you want the reassurance of knowing exactly what your mortgage payments will be each month. It also protects you from rising interest rates.’

So if the base rate were to rise your payments would be unaffected, as your lender cannot change your rate until the agreed period is over and you revert to the standard variable rate. However, if interest rates were to fall you could find yourself paying over the odds. This is the main drawback of a fixed rate – you cannot benefit from a drop in rates.

Many fixed rate deals come with redemption penalties so that if rates do drop and you want to move to another deal, you may find you are locked into your mortgage and the only way you can move is to pay a fee. In addition, because the lender is offering you security with a fixed rate, they are usually priced slightly higher than discounted variable rate products. While they remain very competitive, fixed rates are unlikely to be the cheapest products on the market.

Take the risk

Whether you go for a discounted variable or a fixed rate there is always some sort of risk attached and you are the only person who can decide what is most appropriate for you. A discounted rate will probably offer the cheapest initial deal, but if the base rate rises it is likely your mortgage rate will too. And there is no guarantee that rates will not rise significantly so your monthly payments could, in theory, double. The risk with a fixed rate it is that variable rates could drop significantly and the rate you have fixed at could be a lot higher than the average mortgage rate. But at least you will be able to budget precisely and afford your own repayments.


The long game

In his budget speech in April Chancellor Gordon Brown announced that he has commissioned academic Professor David Miles to look into why long-term fixed rates are not a bigger part of the UK mortgage market. In Europe and the US, long-term fixed rates (e.g. over 15 years) are much more prevalent than here. But in fact there is a handful of long-term fixed rates on the market which cater for those borrowers who want long-term security. However, British borrowers traditionally prefer a shorter fixed rate, typically between two and five years, so that they can re-evaluate the market at the end of this period.
According to Nationwide, its two- and five-year fixed rate mortgages are currently the most popular products in its mortgage range.