Case study

Derek Stow, who lives in a £250,000 four-bed home with his wife Susan in Darlington, has been bracing himself to fall off the edge of his rock-bottom 4.74 per cent fix from Yorkshire Building Society that he took out two years ago. If Mr Stow went onto the lender’s Standard Variable Rate, the payments on his £148,000 interest-only mortgage would shoot up to £801 a month from their current £586. "I know I had a really good deal and was concerned about this kind of hike in payments," says Mr Stow, 60, "especially as I have just semi-retired from my job as a care home inspector."

Mr Stow used broker, London & Country to help him find the next best mortgage and said that, although there was nothing on the market anywhere near that cheap, the broker made the remortgaging process 'surprisingly painless and cost-free.' This is because no broker, lender or valuation fee was payable.

Mr Stow opted against taking another fixed rate and settled for an Intelligent Finance two-year offset tracker. Priced at 0.18 per cent above base, the deal comes with a current pay rate of 5.93 per cent, which means his mortgage will now cost him just over £731 a month. But the deal allows him to use all his savings, which includes a £20,000 ISA, to reduce the balance on which this higher interest is paid. "This still doesn’t equate to the type of rate I was paying but it’s certainly a help," says Mr Stow.

Jumping onto a variable rate from a fix also comes with the risk of having to pay even more, but this does not faze Mr Stow.  "Although I will now be watching base rate with a lot more interest, I consider that in the long-term the Bank of England will try to keep rates low. We are operating in a global economy and with the American Federal Reserve coming down the UK will have to reflect this."

The hike in payments is not going to break the bank for the Stows, who own two more properties, have savings, pensions and are still in receipt of one-and-a-half household incomes – but they feel sorry for the younger generation. "For us it means one skiing holiday a year, not two, but for others coming off cheap fixes who have had to borrow over the odds, it could be a real problem."

---

Tag this article :