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Borrowers beware of variable mortgage risks, says John Charcol

John Charcol is warning that borrowers on variable rate mortgages should be “very aware” of the risk of a rapid rise in their payments once base rate does start to rise.

Senior technical manager Ray Boulger says while today’s MPC decision to leave base rate unchanged is likely to signal a hold for some months, the eventual increase is likely to happen quickly.

Boulger says: “Whilst it is difficult to be confident how long bank rate will stay at 0.5 per cent, it is likely than when the MPC starts increasing bank rate it will move up quite quickly, which could be very uncomfortable for anyone still locked into a variable rate mortgage at that time.”

Boulger says switching to a fixed rate for at least five years will be the best way for most people to buy protection from increased rates.

He adds: “Meanwhile borrowers with tracker mortgages and those coming off fixed rates onto what in most cases will be a lower variable rate, should take advantage of the current low interest rate environment to pay down any expensive debt such as credit or store cards, and/or reduce their mortgage, so that when rates start rising again their debt burden will not be so onerous.”

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