Kirsty McLuckie: Great mortgage gamble
“May you live in interesting times” is said to be an ancient Chinese curse. It certainly seems pertinent at the moment – quite literally – with the half percentage point rise in interest rates announced by the Bank of England last week.
Meanwhile, the rises we have already seen in the cost of utilities, we are warned, are just the tip of the iceberg. Our electricity bill has already gone up two and a half times in a year.
When did paying your leccy bill become akin to a high-stakes game of poker? Do you take the hit, brazen it out and reap the rewards when prices come down, or do you give in and fix at eye-watering levels for the foreseeable?
And it is the same game with mortgages – but here we are gambling with the biggest expense of our lives.
About 21 per cent of UK households are on a variable rate, either a tracker or their lender’s standard variable. Some will be able to fix now, although many better rates have already been withdrawn and others will be very soon.
Those who are on a fixed rate ending shortly are advised to lock in a new one – you can do this six months before the actual switch.
But there are others for whom this will be impossible. If your circumstances have changed, you may no longer pass stringent affordability rates.
With our fixed rate coming to an end this month, I thought that we would fall into this category. Since we last remortgaged, my other half has become self-employed, and we don’t have three years of accounts to prove his income.
We thought that we would have to slide on to the standard variable rate, and watch our monthly repayments depend on whether the suits in Threadneedle Street decide to raise or stick.
So, faced with the hassle of remortgaging – the weeks of paperwork, verifying IDs, and the stress of explaining our finances – I had buried my head in the sand. But, with the warning that the Bank of England was likely to raise rates by an amount not seen in 27 years, I took a deep breath and phoned our lender on Thursday morning.
Half an hour later, I’d signed us up to a fixed rate which – although a higher monthly sum than we had been paying – is at least affordable. Quick comparisons online revealed that it was one of the best options, and even if I could have saved by switching to another lender, I decided the few pounds difference simply wasn’t worth the hassle.
There was no lengthy process, presumably because they could see we had been paying diligently for many years, and I feel slightly sick that such an easy process could have been completed six months ago for maximum savings.
But the gambling wasn’t over. I was given a choice – at different rates – of fixing for between two and ten years.
In the end, we went for seven. It might be a huge mistake, rates could plummet in the next couple of years, and we could be left servicing a millstone of a mortgage.
But the loan is portable, so if we choose or are forced to move, we won’t have to pay huge exit fees.
Right now, it feels like certainty is a minor win in a game that I didn’t ever want to play.
Kirsty McLuckie is property editor at The Scotsman