Rush for f ixed mortgage deals before interest rates are raised

HOME buyers are racing to snap up record l ow mortgage rates amid fears of a rise that threatens to push many family budgets into the red. The n u mber of loans approved for both house purchases and remortgaging are rising sharply, figures reveal.

Some 44,488 mortgages with a total value of £7.7billion were approved for purchase in June, marking the highest monthly f i gure recorded since March 2014, according to the British Bankers’ Association.

The increase comes even after new r ules demanding more stringent affordability checks on buyers were introduced in April last year.

And the number of re-mortgage approvals has leapt by 20 per cent compared with a year ago, with 23,985 approvals last month worth a total of £4billion.

The increase in lending for purchase seems likely to drive up house prices in the second half of the year because of a shortage of properties coming on to the market.

A survey by market analysts Hometrack suggests prices across the UK’s 20 biggest cities could be surging at a rate of 10 per cent by the end of 2015. London, Oxford, Cambridge and Bristol are already seeing double- digit i ncreases i n prices against a background of a housing shortage.

A battle among banks and building societies has cut the cost of the average two-year fixed rate mortgage from 3.67 per cent a year ago to 2.75 per cent today.

But Mark Carney, Governor of the Bank of England, has suggested interest rates may need to rise by the end of this year to choke off a threat of higher inflation.

This appears to have created a rush of people who are trying to protect their finances by locking in to the current low rates. Borrowers coming to the end of a fixed rate deal and moving on to a standard variable rate are particularly vulnerable, experts warned.

A 0.25 per cent increase in the interest rate on a £150,000 mortgage would add £19 a month to repayments. However, an increase of 2 per cent would put up the monthly cost by £161.

Charlotte Nelson, a finance expert at comparison website Moneyfacts.co.uk, said: ‘Borrowers still sitting on their standard variable rate or coming to the end of a fixed mortgage deal need to act fast to secure a low rate.’

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘The real growth in lending has been on the remortgaging side, with borrowers keen to snap up a cheap fixedrate mortgage.’

But he said the evidence of increases in long-term borrowing rates between banks means ‘the pricing of fixed-rate mortgages will inevitably rise’.

Citizens Advice has warned that as many as one in five home buyers are at risk of falling into arrears if their mortgage payments go up.

Its chief executive Gillian Guy, said: ‘To limit the pressure on families’ budgets, any rises in interest should be slow, steady, and come with plenty of warning.’