Crunch time as lenders push up mortgage rates
IT’S crunch time for borrowers considering taking out a new fixed-rate mortgage deal. 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.
There have been hints that the Bank of England’s base rate could soon edge up from its low of 0.25 per cent.
Charlotte Nelson, of Moneyfacts. co.uk, said that amid the speculation about a possible base rate rise, swap rates, which lenders use to price their loans, have been heading upwards. She said: “Swap rates have started to increase, which has caused lenders to rethink their offerings.”
David Hollingworth, from broker London and Country Mortgages, says several larger and smaller lenders have been increasing the rates they are offering, with some ultralow 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 big- ger and smaller deposits could be affected. Hollingworth added: “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.”
By historic standards, the mortgage rates on offer are still very low, so there are still many good deals out there. Mr Hollingworth said: “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 said, “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.”
But what is the best length of time to fix a mortgage rate for? This depends 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.
Mr Hollingworth said 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 said: “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, Mr Hollingworth suggested a possible compromise could be a seven-year fix, with Coventry Building Society having brought out these deals.
When choosing the right mortgage, Mr Hollingworth said 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 added 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.