Get a fix on cheaper deal
THE DAYS of record low mortgage rates are drawing to a close and the process could accelerate if the Bank of England hikes base rates tomorrow as many expect.
Mortgage rates have seen a “sudden jump” in the last week and deals charging less than 1 per cent have almost disappeared in a matter of days.
Brokers are urging borrowers to lock into fixed-rate mortgages to protect themselves if inflation drives interest rates higher. Mortgage lenders are no longer competing to offer the lowest possible rate but are battling to increase them instead, new research from business information expert Defaqto shows.
Last Monday, 82 mortgages charged rates of between 0.84 per cent and 0.99 per cent, but today just 22 fixedrates charge less than 1 per cent and the numbers are shrinking.
First-time buyer mortgages have jumped fastest of all, which is bad news for those looking to get on the property ladder.The average two-year fixed rate first-time buyer mortgage at 95 per cent loan-to-value (LTV) has increased from 2.45 per cent to 2.69 per cent in a week, adding around £24 a month to repayments on a £200,000 mortgage.
Two-year fixes at 80 per cent LTV have “soared” from 1.24 per cent to 1.64 per cent, a rise of a quarter, said Katie Brain, consumer banking expert at Defaqto.
This is bad news for borrowers after years of record low rates but she added: “Interest rates are still low and there are some great deals to be had.”
Hargreaves Lansdown’s senior personal finance analyst Sarah Coles said this marks a dramatic turnaround from September, which now looks like “the ideal moment to remortgage”.
“Anticipation of imminent Bank of England rate rises has increased the cost of borrowing for banks, and that has started to feed into higher interest rates,” she said.
There are still top deals to be had but act fast: “At a time of rising rates, the only way is up for mortgages, so it’s worth remortgaging sooner rather than later.” Homeowners who have already locked into fixed-rate mortgages may pay early redemption charges if they switch early. “However, if your deal ends within the next six months, start applying for a new mortgage now to secure a cheap deal for when your current one expires,” she said.
Banks have drawn criticism for hiking mortgage rates while refusing to pay more on savings and Coles said: “Most people continue to get just 0.01 per cent in a typical high street account, with little hope of any improvement.”
Fixed rates from challenger banks are creeping up, though. “You can now get 1.45 per cent over one year from Al Rayan Bank and 1.76 per cent over two years.”
Coles said many will be reluctant to lock in and will wait to see what happens if interest rates rise, but cautioned: “This is risky, because we cannot be certain when the Bank of England will raise base rates, or whether savings providers will pass it on.
“If your money is earning 0.01 per cent, get a better rate now.”