An ever-increasing number of mortgage loan providers have been hiking the rates on their standard variable rate loans in spite of the historically low 0.5 per cent base rate set by the BoE’s Monetary Policy Committee.

Traditionally, mortgage lenders have applied the BoE-mandated base rate as a starting point for their own lending rates, but several banks and building societies have been increasing their SVR rates steadily, sometimes leaving unwary home owners with very unattractive monthly payments.

One such provider, Skipton Building Society, recently increased their SVR mortgage rates to 4.95 per cent, up from 3.5 per cent, in spite of the base rate being steady (which it has been for the past 18 months). While a representative for Skipton stated that their rates were still competitive with other lenders in the mortgage market, this rate hike can impact negatively for anyone currently repaying a Skipton mortgage.

There are many other financial institutions in the UK that are considering following in Skipton’s footsteps, which may create a snowball-like effect in the immediate future, as market pressures will begin to influence banks and building societies who have not yet increased their rates to do so as well.

Many mortgage holders have been beginning to refinance in an effort to escape such fluctuating SVR loans, transitioning to fixed rate financial instruments instead.

Fixed rate mortgages are typically more costly to repay in regards to the short term, but in a market where SVR mortgage rates are skyrocketing, the security of an interest rate that will not fluctuate can save home owners more over the full span of their loan.

There are fixed rate mortgages for contractors still currently available on the market with attractive rates of 3 per cent and under, but it may be difficult to locate them as it simply isn’t in the banks’ best interest to advertise products with poorer yields.

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Nationwide recently commented that the UK mortgage market has undergone changes in a significant manner from 2008 to now.

Due to standard variable rates gaining in their attractiveness to borrowers, they have risen in popularity in comparison to fixed rate mortgages, which dropped from 48 per cent of the market two years ago down to 36 per cent as of the first quarter of this year.

The average variable mortgage rate was 2.8 per cent this past June, which compares favourably to the 5.9 per cent rate that was reported in September of 2008. This drop indicates that lower mortgage rates are aiding in the recovery of the housing market that started early last year.

Martin Gahbauer, Nationwide’s chief economist, commented that the lowered rates have resulted in a lower rate of possessions and arrears during the global economic downturn.

While since there are more households subject to rate increases due to the variable nature of their mortgages, Mr Gahbauer was confident that there will be a measure of stability in regards of that rates until at least halfway into 2011.

Any rate increases past that, said Mr Gahbauer, will most likely be gradual, enabling anyone with a variable rate ample time to refinance to a fixed rate if in need of more stability in their payment plan.

Mr Gahbauer also commented that the recent slowdown in the housing market is more of a market correction than any kind of unhealthy development, especially in light of the astonishingly high pace it had risen by. While house prices fell by 0.9 per cent last August, the market is still up by £3,000 since the beginning of this year.

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Many freelancers might reject the idea of fixing their contractor mortgage for 10 years, but is that necessarily the right way to think?

We are constantly being warned by the new coalition that we are in for some painful years ahead. With a fixed rate mortgage, you know exactly what the repayments are, and this could be seen as an attractive option by some.

A new 10 year fixed rate mortgage came onto the market at the end of last week. Launched by the Yorkshire Building Society, it has a rate of 4.99% and is available to borrowers who can deposit at least 25% LTV. The set up fee for this deal is £995.

They also have another product, at a slightly higher fixed rate of 5.09%, which comes with £250 cashback and a free valuation for people moving home or free valuation and legal costs for people wanting to remortgage.

Both of these deals are fully portable offering flexibility to those who may move home within the 10 year fixed rate term.

Mortgage experts believe that longer term fixed rate mortgages do offer several advantages. As well as making budgeting easier, one of the greatest benefits is that you only need to pay one lending fee, whereas people who adopt a strategy of switching every 2 years will have to pay 5 fees in a decade. Those opting for the 10 year option could make savings of around £4,000 in fees.

Simon Gammon from Knight Frank Finance said that in the last few weeks he has seen an enormous amount of people opting for fixed rate mortgages. He pointed out that there are some great deals available on five year fixes including one from Britannia at 3.99%.

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Five-year fixed contractor mortgage deals are now at their lowest rate for 6 years with rates starting at 4.49%. This contrasts with 2 years ago when the best deals were over 5.5%. However, to take advantage of these deals, you do need to put down a sizeable deposit.

Experts believe that this option is well worth thinking about for people who are currently shopping for a contractor mortgage. The possibility of a hung parliament and the chance of interest rate increases make fixed-rate deals an attractive proposition for people on tight budgets.

The Co-operative Bank and Britannia are both offering the 4.49% deal but borrowers will need to put down 25% of the house purchase price as a deposit. Unfortunately, the best rate available for people who can only afford a 10% deposit is 6.69% from Yorkshire Bank.

Rates on two-year fixed deals have also dropped and it’s now possible to get a rate of 4.62% whilst three-year fixed contractor mortgages can be obtained at a rate of 5.3%.

However, before you rush off and buy one of these fixed-term deals, it’s important to check out the fees that the lending institutions are charging. In some cases these can amount to the best part of one thousand pounds.

Pricing on fixed-term deals is unlikely to get much lower and Ray Boulger from the mortgage broker John Charcoal believes that tracker mortgages will work out cheapest.

People who can afford to put down a 35% deposit could take advantage of the lifetime tracker offering from First Direct. With the Bank of England base rate currently standing at 0.5%, the additional 1.89% charge means a pay rate of 2.39%. This could prove to be a good option for people who can afford to see the payments increase in line with interest rates.

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