Many worried about effects of expiring fixed rate deals

June 13, 2008

According to recent reports many consumers and industry professionals are concerned about the flood of cheap fixed rate mortgage deals that are due to come to an end in the coming months. Many homeowners took out these low rate deals for two or three years in 2004 and 2005, but since this time interest rates have rocketed with a series of five 0.25% rises since August 2006. This means that when these cheap fixed rate deals end, the homeowners concerned will have to either find another suitable deal to switch to or will have to cope with the lender’s standard variable rate, which is likely to be way higher than the interest rate that they are currently on and could make a huge difference to monthly repayments.

Such is the concern over the repayment hikes faced by those currently on cheap fixed rate deals that officials from the Council of Mortgage Lenders have even suggested that some homeowners may want to consider selling their properties before their deals come to an end rather than risk being unable to afford repayments and getting repossessed. There are real concerns over the increase in the level of repossessions that is expected as a result of these fixed rate deal expiries.

According to one official from the Council of Mortgage Lenders: ‘There is a potential payment shock of anywhere between 30% and 60% for many.’ He also stated: ‘We are facing very difficult times. We have a number of uncertainties in the market. We’ve effectively had two seismic events that we’ve still not recovered from - the earthquake of the capital markets closing because of the problems in the US subprime market and the earthquake of the Northern Rock bank run.’

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