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Quick fix

With scorching weather predicted over the coming months and signs that the worst of the house-price falls may be behind us, the outlook for the housing market is more positive than it has been in a while.

However, one question borrowers are frequently asking is what they should do next. Interest rates are at historic lows and it looks as though they could stay at 0.5 per cent for the rest of this year but they will rise again so is now a good time to fix?

First, it is important to put the current situation in perspective. Historically, interest rates tend to bottom out around the 4 or 5 per cent mark, not 0.5 per cent. Borrowers on variable or base-rate tracker mortgages have been spoilt in recent months but this will not continue indefinitely. Rates are going to rise and the question is when and what should clients do about it to minimise the pain?

As usual, much depends on their circumstances. If they are on their lender’s standard variable rate or have reverted to a cheap “go to” rate, it is understandably tempting to stay put for now. Anyone paying around 3 per cent or less cannot be blamed for wanting to enjoy those cheap mortgage payments a while longer. However, clients must exercise caution if this is their strategy as rates move quickly and they will not want to miss out on the very best fixed rates.

If a client is paying nearer 5 per cent because they were not so lucky with their choice of lender, then now is the time to fix. Fixed rates are not going to get any cheaper – indeed, several lenders are already raising their fixed rates on the back of rising funding costs – so if your client can fix for less than 5 per cent, now is the time to do it.

It is also important to consider their loan to value. If they have little equity in their home, they should settle on a fix now. Although Savills believes the bottom of the market is in sight, prices do have further to fall so they may find they have even less equity in their home in six months’ time, making remortgaging even harder.

Whatever your client decides to do, particularly if they choose to do nothing for the time being, you need to be kept in the loop. By keeping your client updated regarding the cost of funding and the movement in fixed rates, they can make a decision as to what to do in coming months. It will get to the point when it really is time to fix, as the base rate looks as though it is on the way back up.

Your expertise and understanding of the market will be crucial in helping your cli-ent make the right decision for their circ-umstances and ensuring they do not make a choice they will regret in years to come.

Mark Harris is managing director of Savills Private Finance

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