Ups and downs for borrowers

Published on Friday 16 May 2008 21:18

EVEN with the recent effects of the credit crunch, there is still positive movement in the housing market and hope for borrowers.

Though there has been a general shift of impact from the banks, who suffered the immediate consequence of the credit crunch, to the consumer, who has now perhaps less access to competitive mortgage deals, there has also been a noticeable drop in interest rates to offset this.

Less than 12 months ago, the Bank of England base rate was 5.75 per cent and, despite early indications that it would remain at this rate, since then it has had a rapid reduction to 5 per cent.

For borrowers, reductions in the Bank of England base rate offer immediate savings. However, this assumes that their banks choose to pass on the reductions.

What we are seeing is that lenders are reluctant to pass these savings directly on to borrowers in an effort to buoy their own recent losses. To add to this, many borrowers are coming to the end of their fixed rate periods, when the Bank of England Base Rate was as low as 4.5 per cent. By adding a small percentage to the base rate, along with higher mortgage application fees and reducing the amount of products available, the banks stand to secure their position. Or so we are led to believe.

It is important to remember at any time that interest rates go up as well as down, and that the market can change at any time. What appears to be a poor forecast at one moment can change, and there is still the benefit of falling interest rates.

While the market has generally experienced a downward trend in recent months, the housing market in Scotland has continued to perform well and it has also been an opportune time to invest.

In terms of stockmarket related plans, while unit prices are low there is an excellent investment purchasing opportunity and, especially for those on an interest only mortgage, this is an ideal time to maximise savings as part of a mortgage repayment plan.

For those due to move from a fixed rateit is worthwhile considering a flexible mortgage temporarily, allowing the opportunity to go for a more competitive rate in the near future.

Buying and financing your home is exciting, but current market conditions have meant some restrictions. An independent financial adviser can search the whole market, has access to changing rates and products daily, and can offer expert guidance at this confusing time.

Wealth management consultants, Independent Women