Over the past year the popularity of fixed rate mortgage has been rising, and this has been largely due to a series of five interest rate rises that have taken place since August 2006. With each of these interest rate rises more and more homeowners and first time buyers were panicking over how they would keep up with their rising mortgage repayments. For many, taking out or remortgaging to a fixed rate deal was the most effective solution, as this meant that they would no longer have to cope with the effects of further interest rate rises.
However, over the past three months the Bank of England has decided to hold off raising interest rates any further, and the last interest rate to take place was back in July, where a rise of 0.25% took the base rate from 5.5% to its current level of 5.75%. A number of experts have stated that there are a number of factors that may have contributed to the government’s decision to keep rates on hold, and this includes the fact that CPI inflation has now fallen within the government’s target of 2%, now standing at 1.8%. Also the financial turmoil that has hit the money markets has been taken into consideration, as the Bank of England wants to see what sort of effect the credit crunch will have on the economy.
Furthermore, there have been predictions that the interest rate may even fall before the end of the year, and this has seen increased interest in variable rate mortgages, as many consumers now feel that this may be a more cost effective option than fixing themselves into a more costly, higher interest mortgage. If interest rates do fall, or even if they remain on hold for another month, the level of interest in variable rate mortgages is likely to increase further.
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