IT’S crunch time for borrowers considering taking out a new fixed-rate mortgage deal. Lenders have been tweaking the rates they are offering upwards in recent weeks, leading to some of the lowest of the low fixed-rate deals disappearing.
So, if you’ve been considering taking out a new deal for a while but haven’t got round to it, now might be the time to have a closer look.
Here’s a look at what’s been going on – and what you can do about rising rates.
What’s happening? Mortgage rates being offered by lenders have crept up in recent weeks.
Dozens of providers upped their rates between mid-September and mid-October, according to financial website Moneyfacts.co.uk.
What’s the background? There have been hints that the Bank of England’s base rate could soon edge up from its low of 0.25%.
Charlotte Nelson, a spokeswoman for Moneyfacts.co.uk, says that, amid the speculation about a possible base rate rise, swap rates, which lenders use to price their loans, have been heading upwards.
She says: “Swap rates have started to increase, which has caused lenders to rethink their offerings.”
Who’s affected? David Hollingworth, from broker London and Country Mortgages, says several larger and smaller lenders have been increasing the rates they are offering, with some ultra-low fixed-rates being pulled off the market altogether.
“This acts as a reminder that those rates won’t stay that low forever and actually they’re already on the move.”
The rate increases have also been made across large chunks of lenders’ ranges, he says, so people with bigger and smaller deposits could be affected.
Hollingworth adds: “Right the way through the loan-to-value range now, from the lowest of the low right the way up, you’re seeing increases in fixed rates.”
Does that mean the deals on offer are now quite poor? By historic standards, the mortgage rates on offer are still very low, so there are still many good deals out there.
Hollingworth says: “The rates are still very, very low,” but notes: “The very lowest rates are rapidly disappearing.”
“I think this is something that will trigger people to take action if they haven’t already, because they are going to miss out on the very lowest rates potentially,” he says, “but there’s still a lot of competitive rates out there, so it’s not too late if they are able to get their skates on.” What’s the best length of time
to fix my mortgage rate for? This will depend on individual circumstances and how far into the future you feel comfortable locking yourself into a deal for.
A longer term fixed deal means you have certainty over your mortgage payments for a longer period, but a shorter term deal may have a lower rate, and will also free the borrower up more quickly if their circumstances change in the future – so the pros and cons need to be carefully weighed up.
Shorter-term deals may last for a couple of years, or longer-term deals may last for five, or even 10 years if you feel happy locking yourself into a deal for the next decade.
Hollingworth says that a possible base rate on the horizon could mean more people locking themselves into fixed-rate deals to insulate themselves from potential interest rate rises. He says: “The question will be whether they go for the very cheapest rates, which are the shorter-term fixes or consider longer-term.”
For borrowers wanting longerterm certainty and weighing up whether to go for a five or 10-year deal, Hollingworth suggests a possible compromise could be a sevenyear fix, with Coventry Building Society having brought out these deals.
What else should borrowers consider? When choosing the right mortgage, Hollingworth says it’s important to factor in any fees as well as incentives, such as cashback or free legal packages, as well as the rate. He adds that if some people are nearing the end of their current mortgage deal, some lenders will make mortgage offers which are valid for up to six months, so they could consider trying to lock into a deal now which they may not start for half a year.
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