Borrowers to move away from two-year fixes

Colin Bell, chief operating officer of Purely Mortgages comments on this week’s best buys:

“This coming month will see many borrowers coming off the following 2 year fixed rates, which date from when Base Rates were at their lowest for 50 years:


2 year fixed rate with no extended redemption tie-in: 4.25% to 2/02/05


2 year fixed rates with no extended tie-in: 4.29% for 2 years (originally launched on 24/01/03)


2 year fixed rates with no extended tie in: for house purchase only, 4.40% to 28/02/05; for remortgages only, 4.70% to 28/02/05.

“If someone took out their first mortgage of £100,000 two years ago at Abbey’s two year fixed rate of 4.25% they have been paying a monthly mortgage payment of £568. That person will now be coming off this rate onto Abbey’s SVR which stands at 6.75% - a huge rate hike of 2.5% - making monthly repayments jump by 26% to £714. For interest only mortgages, the ‘payment shock’ will be even worse, with monthly payments rising from £354 to £563, an increase of 59%.

“Since none of these products have extended early repayment charges, these borrowers should move as quickly as they can to secure the best rates in the market. For those borrowers who want another fixed rate, the best 2 year deal is Chelsea’s 4.49% until 31/03/07. For those that think rates have peaked, the best 2 year discount product is Portman’s 4.48% until 31/03/07. Neither of these products has early repayment charges beyond 31/03/07, so the borrower is not ‘locked-in’ on uncompetitive rates once the special offer has finished. Both products are available up to 95% LTV.”