With interest rates beginning to rise again, borrowers need to take action, says Clare Francis in The Sunday Times. In an ideal world, the best thing to do would be to pay down your debt fast. Failing that, lock in today’s low rates with a fixed-rate mortgage. Ray Boulger of mortgage broker Charcol suggest getting a two-year fix. That leaves you safe until 2006, when he believes rates will start to fall again. Dunfermline building society is offering 4.85% fixed for two years and Alliance & Leicester has a two-year fix at 4.94%. But as Mark Harris of Savills Private Finance points out, “there is little difference between the cost of two-year and five-year fixed rates”, so it seems more sensible to go for the longer-term option”. Newcastle building society is offering 5.2% and the Alliance & Leicester has a deal at 5.29%.
More adventurous borrowers might consider taking out a mortgage in another currency, says Lucy Warwick-Ching in the FT. Private bank Riggs & Co is offering a yen mortgage at 1.55% (interest rates are low in Japan), Barclays has a US dollar mortgage at 2.62% and Coutts a euro home loan at 3.35%. These rates are all lower than most sterling deals, but they still come at a price. Your debt will be exposed to currency fluctuations: if the pound weakens your debt will rise in real terms. However, there is an alternative that comes without that risk: some brokers offer schemes whereby you can track another country’s rates without having to convert your debt into their currency. Charcol offers a Federal Reserve tracker mortgage, for example. It follows American short-term interest ratesbut your debt and repayments remain in sterling (see www.charcolonline.co.uk for details).