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Warning for ‘wait and see’ mortgage holders

Warning for ‘wait and see’ mortgage holders

Category: Mortgages

Updated: 22/09/2011
First Published: 04/04/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Mortgage holders who are free to leave their deals are more likely to wait for their monthly payments to start to rise than move to a new mortgage deal when base rate begins to rise, new research has revealed.

For the purpose of the survey, which was carried out on behalf of first direct, 'free to leave' homeowners are those who have dropped on to their lender's standard variable rate (SVR) or who could move from their tracker mortgage penalty free.

When asked how likely various rate rises or payment increases would encourage them to look for a new mortgage deal, one in ten said they would definitely look if interest rates rose by 1%.

However, four times as many said they would do the same if they saw an increase of £100 in their monthly payments.

According to first direct, this means that SVR mortgage holders are extremely likely to experience payment shock as rates do begin to rise.

"It's easy to see why homeowners enjoying the benefits of a low variable rate might be unwilling to volunteer for an increase in their monthly payments by moving to a fixed rate now," said Richard Tolchard, senior mortgage product manager at first direct.

"The upside is that those who move now could be laughing in the end.

"The 'wait and see homeowner' looks set for a payment shock when base rate does move, with a 1% increase in variable rates driving a monthly payment rise of over £112 per month.

"The best fixed rates are likely to be long gone when this happens."

The lender said 'free to leave' homeowners appear keen to fix their mortgage payments but are extremely rate sensitive, with all plumping for a shorter term fix at a lower rate when asked to compare various options.

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