The pincer of fixed rates while in negative equity

A recent article in the Independent stated that ‘fixed rate borrowers are taking all the pain’. The base rate has fallen from 4.25% to 1.25% with a further rate reduction expectation taking the EU to a base of 1%. What this means is that people who felt the drop off in base rates (tracker mortgage holders & most variable rate holders) are now better off to the tune of about €425 per month.

However, for those on fixed rates the story is the reverse of this, they have not felt any reduction in the amounts they are spending monthly while at the same time many have had to live on less due to wage cuts, levies, and job loss. The fees for ‘breaking’ a fixed rate are usually from 3 to 6 months of payments.

So what can you do? If you have the savings to pay for the move you can go that route, but if you have been paying more than many other mortgage holders then your capacity for savings is likely low, as is the likelihood of having saved if you only bought last year [kitting out a house is expensive and cash intensive].

If you had the equity in a home you might be able to negotiate with your bank and have them add the break fee to your principle, but this is where we isolate the most vulnerable in society.

Those who bought in the last year, who have a fixed rate, are in negative equity and have been hit by serious wage reduction and/or jobloss. If you have no savings and no equity you are absolutely tied into your current mortgage deal, you can’t switch, you can’t bargain, and you can’t have any break fees added to your non-existent equity.

This must be particularly hard, especially when those who didn’t try to plan ahead with a fixed rate have been rewarded for that decision.

The other problem was that banks were encouraging fixed rates with clients as part of the approval process, trackers and variables were stress tested at higher rates than (for instance) 5yr fixed rate mortgages.

So ultimately it is a pincer of being stuck between an uncompetitive fixed rate and negative equity.

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