Are new stepped rate mortgages just delaying the inevitable?

                                                                                         

In the UK there has recently been an increase in the number of new stepped rate mortgage products on offer. These products are where the lender offers a stepped phase of interest rates, usually each rate lasts up to a year before you must move up to the next, higher interest rate for the next year. For example, a first year interest rate of 5.99 per cent may be available with a second year interest rate of 6.79 per cent. Usually these type of mortgage products do not charge a fee, making them a very good offer for people coming to the end of a low rate fixed rate deal. 3 or 4 years ago, when interest rates were at an all time low, you could have picked up a fixed mortgage rate in the region of 3.50 per cent!

Imagine the panic setting in for people who initially fixed they’re mortgage rate back in 2003 or 2004. Over the years since then interest rates have continued increasing month after month.

As lenders are now withdrawing their more competitive mortgage products, these new stepped rate offers seem to be the best way forward for customers who may be living in fear of paying a higher mortgage rate.

As you can clearly see the only problem is still the initial first year stepped rate increase to 5.99 per cent in the example. This is an increase of nearly 2.5 per cent; something to bear in mind if you’re still lucky enough to be on a fixed rate under 4 per cent.

About the author:
Simon Duffy writes for the Financial Blog a UK Finance Blog talking about all aspects of personal finance.

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