As each week passes the number of voices warning of dire days to come seems to increase. At times it can feel like there will be no end to the bad news.
With the energy price cap set to rise further, supermarket prices climbing and the rate of inflation growing at a heady pace, you could be forgiven for wondering how and when this will all conclude.
When it comes to household budgets, arguably the largest cost has traditionally been a mortgage (although it’s fair to say that energy prices likely to take top spot in the near future, if not already).
Certainly, in recent years, homeowners have been encouraged to shop around for the best deals, and in many cases these have tended to come in the shape of a fixed rate mortgage.
Now, just like mortgage deals, when it comes to energy, people have also been urged to seek out the best fixed deals, especially by consumer experts such as Martin Lewis and this has worked well when energy prices were at more normal levels.
However, with the energy price cap rising, even the likes of Mr Lewis are discouraging consumers from locking into fixed rate energy deals. And with interest rates rising homeowners could well be thinking the same about their mortgage deals.
So the question is, should borrowers be avoiding fixed rate mortgage deals?
As ever, the answer isn’t straightforward but broadly speaking no, they should NOT avoid fixed mortgage deals.
What are the advantages of fixed-rate deals?
Although interest rates are rising – and look likely to rise further over the coming months – they remain at historically low levels.
Also, whilst an interest rate rise does have a knock-on effect on fixed rates, these deals are still very competitive and there are thousands to choose from.
It’s true that lenders have introduced many different types of products over the years. What’s more they are changing their product offerings – sometimes daily – with some deals being withdrawn and replaced with higher rates.
This can prove a challenge for those trying to navigate the market.
It can be a confusing area of finance, but fixed rate deals have generally proved to be most popular as they provide security because borrowers know what their payments will be each month.
It also means homeowners are insulated from any rate rises. Borrowers can also fix payments for a range of periods – most common are two years or five years, but more recently we’ve seen longer terms available such as 10 years and even 30 years.
The Bank of England base rate now sits at 1.75% and the central bank has signalled pretty clearly that this is not the end point.
What are my options when it comes to remortgaging or taking out a new mortgage?
With every percentage point rise the range of fixed rate deals will change so it is important that borrowers and potential borrowers take action as soon as possible to secure the deals that are available now, or least begin exploring the market.
Whether you are remortgaging as your deal is coming to an end, moving home or looking to take your first step on the property ladder it is important that you aware of what is happening and the options that are open to you.
Each lender will set aside a value per product offering and as clients snap up these deals they can go very quickly.
If you are currently in a mortgage deal you can secure a new rate up to six months before the end of that deal which means your rate will switch at the expiry of the current deal.
If you would prefer to switch sooner you might have an early repayment charge to pay – in some cases, depending on the deal and your individual circumstances, it might be worthwhile to pay this to secure a new deal.
Whilst the headlines might suggest otherwise, when it comes to your mortgage, you have options which can provide some protection from the rising cost of living.
There remains a great deal of competition among lenders for your business and your first step should be to seek advice from an independent mortgage broker who can help find the right deal for you, at the right time.
Darren Polson is head of mortgage operations at Aberdein Considine
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