Free debt swap
BANKS are preparing f or a rush of borrowers hoping to snap up the l ast of the l ow- cost mortgage deals.
Last week Bank of England governor Mark Carney warned that interest rates could increase as early as the start of next year.
it will be the first rate rise since 2007, and the first movement in base rate since it dropped to a record low of 0.5 pc in March 2009.
For an estimated 1.8 million homeowners who bought homes in the past nine years, it will be their first rate rise ever.
And for millions more who have been sitting on their laurels for six-and-a-half y e ar s not worrying about t hei r repayments, it could finally be time to take action.
Those on tracker loans could see an increase of £39 a month on a typical £150,000 mortgage (assuming the current deal is 2.6 pc) if the bank rate rises by 0.5 pc.
A 1 pc increase would mean a £78 rise, and if rates go up by 2 pc repayments will rocket by £162 — that’s £1,922 a year more, or the equivalent of a £ 3,000 pay rise to meet that extra cost.
As a result, banks and brokers are preparing to see a surge in demand for the current batch of low-cost fixed rates from homeowners who want to protect themselves from future rate rises.
David Hollingworth, director of mortgage broker London & Country, says: ‘Don’t wait to take action. Fixed-rate deals are still outstanding, but they will be the first to increase in price as banks prepare for interest rate rises. if you delay, you’ll miss out on the very best offers.’
Best of the l ow- cost deals, particularly for those who have less than a decade left on their mortgage or know they don’t want to move or borrow more, are ten-year fixed rates.
Barclays offers borrowers with a 20 pc deposit a deal at 2.99 pc.
Monthly repayments on a typical £150,000 loan are £711 and the total cost including a £999 fee is £86,319.
The problem with ten-year fixes is that if you do need to get out of them before the end of the term, then you’ll be hit with huge early repayment charges.
With Barclays, for example, it would be 6 pc (so, £9,000 on a £150,000 loan) if you want to switch in the first seven years.
This is where the deal from TSB at 3.19 pc for borrowers with a 40 pc deposit comes in. it is a slightly higher rate, but has no early repayment penalties after five years.
For those who want to lock up their loan for a shorter term, Post Office has a five-year fix at 2.14 pc for borrowers with a 40 pc deposit.
On a £150,000 mortgage, monthly repayments work out at £646. The total five-year cost, including a £995 fee, is £39,755. it is only available through a broker.
For those with a 20 pc deposit Virgin Money has a five-year deal at 2.79 pc. Monthly repayments are £695 and the total cost, including a £995 fee, is £42,695.
The cheapest deals are for two-year fixes. But there is the danger with these that you will lock up your repayments now, but need to get a new loan just as rates are rising.
By that time the cost of all similar deals would have gone up, too — meaning it may not save you money in the long term.
On top of this, you’ll have to pay f ees every ti me you switch mortgage, and probably even sit t hrough an i nterview with the bank.
That said, they do still look very cheap. Post Office has a recordlow two- year fix at 1.09 pc. Monthly repayments are £571 — £75 cheaper than Post Office’s top five - year deal. The total two-year cost, including a £995 fee, is £14,699.
Tesco has a two-year fix with a slightly higher rate, at 1.29 pc, but a far cheaper fee of £995. Monthly repayments are £585 and total cost is £15,035. You also get free valuation and legal work.
Both require borrowers to have a 40 pc deposit.
Those with a 20 pc deposit can get a 1.65 pc two-year rate with Post Office. Monthly repayments are £611 and the total cost, including a £995 fee, is £15,659.
Generally speaking, it pays to take a lower rate but pay a higher fee if you have a larger mortgage. And you don’t need to wait until your current mortgage deal ends to lock down a top rate now.
Most banks and building societies will allow you between three and six months from when you agree to an offer to when you switch over. So, if your current deal ends in December or January, you may be able to s t art remortgaging today.
Read the small print carefully, though. Barclays gives you six months from when you make your application — not from when you receive your offer.
And don’t get your timings wrong and move too early or you could get slapped with hefty early exit fees. TESCO Bank has l aunched a balance-transfer credit card with no interest for 19 months. There is also no fee on the amount moved to the card.
Halifax and Post Office offer 18-month balance-transfer deals with no fee. Race for the last of the low-cost home loans . . .