[ad_1]
Mortgage rates are increasing for most borrowers following a rise in the Bank of England’s base rate.
The Bank decided to raise the base rate from 0.1 per cent to 0.25 per cent in mid-December, in a bid to curb rising inflation.
However, lenders were already edging up mortgage rates in anticipation of the move.
According to the latest data from financial information service Moneyfacts, the average two-year and five-year fixed rate both increased for the third consecutive month in January, reaching 2.38 per cent and 2.66 per cent respectively.
This follows months of record lows in summer 2021, when fixed-rate mortgages for those with lots of equity or big deposits went sub-1 per cent in some cases.
Borrowers have a wide choice of mortgages, and rates are very competitive for those with large deposits to put down – in some cases lower than 1 per cent
For those with a 40 per cent deposit, the lowest fixed rate available is currently 1.10 per cent on a two-year fix with Barclays, a deal which comes with a £999 fee.
Rates increased across all deposit sizes, apart from 5 per cent deposit mortgages which are still seeing rates fall in some cases after months of them remaining stubbornly high.
Average two- and five-year fixed rates on mortgages with 5 per cent deposits fell for the ninth consecutive month in January, according to Moneyfacts.
At 3.06 per cent and 3.33 per cent respectively, these averages are the lowest on Moneyfacts records going back to 2011.
That said, these rate decreases will not last forever, and borrowers with small deposits could also see rates rise in the near future.
Borrowers should think twice before picking the lowest-interest deal, as the fees can sometimes make the mortgage more expensive than a higher-rate product over the life of the fix.
First-time buyers have more choice than at the start of the pandemic, but rates are still high
There are still tracker mortgages available with rates as low as 0.99 per cent, but with the base rate possibly set to increase further in 2022, borrowers run the risk that the cost of their monthly payments could rise substantially.
This is because the interest rates on trackers are set at a certain level above the base rate, and if that rises, so will they.
The average rate for term tracker mortgage products rose in line with the base rate in January according to Moneyfacts, going up by 0.15 per cent to 3.53 per cent.
The average two-year tracker rate also rose by 0.17 per cent to sit at 1.75 per cent, though it is still 0.62 per cent lower than it was a year ago.
While fixed mortgage rates are heavily influenced by the base rate, that link is not automatic, and borrowers on fixed terms are protected from rises until their deal comes to an end.
Whatever the size of their deposit, most borrowers now have a wide range of mortgage products to choose from.
At 5,394, the total number of products available in the residential mortgage sector has risen to the highest level since March 2008 according to Moneyfacts.
See our best rates round-up below for more details.
> Quick link: Use our calculator to find mortgage rates for you
You can check best buy tables and the best mortgage rates for your circumstances with our mortgage finder powered by London & Country – and figure out what you’ll actually be paying by using our new and improved mortgage calculator.
What are the best mortgage deals?
Although rates are on the rise, it could still pay to switch, especially if you are on your lenders’ standard variable rate.
These borrowers will have seen the rate rise reflected in their payments instantly, and could save hundreds of pounds a month by taking a fixed deal.
And for those coming to the end of a fixed term, switching to another fixed term with a different lender could be cheaper than sticking with their existing one.
Mark Gordon, director of money at Compare the Market, said: ‘Languishing on a lender’s standard variable rate mortgage is likely to cost you thousands of pounds more than you need to pay.’
The attraction of a two-year fix may be lower rates now and extra flexibility, but that comes at the expense of needing to remortgage in two years to avoid slipping onto a more expensive standard variable rate.
A five-year fix gives the opportunity to lock into a low rate for a longer period and avoid extra fees and higher rates in a relatively short time.
Unless you have a good reason to take a two-year fixed rate, such as needing to move or expecting to have to sell your home, brokers have suggested that five-year fixed rates might be a cheaper long-term bet.
Whatever the right type of mortgage for your circumstances, shopping around and speaking to a good mortgage broker is a wise move.
Borrowers should have a quick look at the rates below. These are regularly updated by This is Money’s mortgage team. If you spot a deal you think has been pulled or should be in there, email us via ed[email protected] with mortgage rates in the subject field.
For a full rate check use This is Money’s mortgage finder service and best buy tables, these are supplied by our independent broker partner London & Country.
Best fixed-rate mortgage deals
Bigger deposit mortgages
Five-year fixed rate mortgages
Barclays has a five-year fixed-rate mortgage at 1.41 per cent with a £749 fee at 60 per cent loan-to-value
Santander has a five-year fixed-rate mortgage at 1.64 per cent with no fee at 60 per cent loan-to-value
Two-year fixed rate mortgages
Barclays has a two-year fixed-rate mortgage at 1.11 per cent with a £999 fee at 60 per cent loan-to-value
Barclays has a two-year fixed-rate mortgage at 1.39 per cent with no fee at 60 per cent loan-to-value
Mid-range deposit mortgages
Five-year fixed rate mortgages
Barclays has a five-year fixed-rate mortgage at 1.41 per cent with a £749 fee at 75 per cent loan-to-value
Yorkshire Building Society has a five-year fixed rate mortgage at 1.61 per cent with a £245 fee at 75 per cent loan-to-value
Two-year fixed rate mortgages
Santander has a two-year fixed rate mortgage at 1.29 per cent with a £999 fee at 75 per cent loan-to-value
Santander has a two-year fixed-rate mortgage at 1.49 per cent with no fee at 75 per cent loan-to-value
Low-deposit mortgages
Five-year fixed rate mortgages
The Nottingham has a five-year fixed-rate mortgage at 2.20 per cent with a £999 fee at 90 per cent loan-to-value
Yorkshire Building Society has a five-year fixed-rate mortgage at 2.30 per cent with a £495 fee at 90 per cent loan-to-value
Two-year fixed rate mortgages
HSBC has a two-year fixed rate mortgage at 1.94 per cent with no fee at 90 per cent loan-to-value
Atom Bank has a two-year fixed-rate mortgage at 1.94 per cent with no fee at 90 per cent loan-to-value
>> Check our our mortgage tracker to compare all of the available deals
Best tracker and discount rate mortgages
Tracking a 0.25 per cent Base Rate may seem an odd decision when rates are likely to only go up – and you could fix for up to five years at a lower rate – however, there is one big advantage to a good lifetime tracker: flexibility.
The same usually goes for discount rate mortages, which track a certain level below the lenders’ standard variable rate.
A fixed-rate mortgage will almost inevitably carry early repayment charges, meaning you will be limited as to how much you can overpay, or face potentially thousands of pounds in fees if you opt to leave before the initial deal period is up.
You should be able to take a good fixed mortgage with you if you move, as most are portable, but there is no guarantee your new property will be eligible or you may even have a gap between ownership.
A good lifetime tracker has no early repayment charges, you can up sticks whenever you want and that suits some people.
Make sure you stress test yourself against a sharper rise in base rate than is forecast.
Melton BS has a lifetime discounted variable rate at its SVR minus 3.00 per cent for the term, currently at 1.99 per cent with fees of £240 at 75 per cent loan-to-value
First Direct has a tracker at base plus 2.09 per cent for the term, currently at 2.34 per cent, with a £490 fee at 60 to 75 per cent loan-to-value
Shorter trackers
Barclays has a two-year tracker at base plus 0.96 per cent, currently at 1.21 per cent, with a £49 fee at 60 per cent loan-to-value
Newbury Building Society has a five-year discounted variable rate at its SVR minus 2.26 per cent, currently at 1.69 per cent, with an £850 fee at 75 per cent loan-to-value
Watch out for discount rates, as these track a rate set by the lender rather than following the path of the Bank of England base rate.
Most lenders move their internal variable rate in line with the base rate, but they don’t have to, meaning you could see your rate rise even if the base rate stays put.
Can you get a mortgage?
Getting a mortgage is tougher than it once was. You will need to get your finances in order and be prepared for the lengthier application process and in-depth affordability interviews getting a mortgage requires nowadays.
Lenders also apply different standards to what they will lend.
Weigh up the above, check the rates here and in our best buy mortgage tables, have a scout around what the best deals look like – and speak to a good independent broker.
There are a couple of things to look out for if you do decide to fix.
You need to check the bumper arrangement fees are worth paying – if you don’t have a big mortgage you may be better off with a slightly higher rate and lower fee.
It’s also wise to think carefully about whether you expect to move home soon. A good five-year fix should be portable, so you can take it with you.
But your new property will need to be assessed and you might need to borrow extra money, and so your lender could still say no. Getting out of a fixed rate typically requires a hefty hit to the pocket from early repayment charges.
Today’s low rates may stick around, they may even inch a little lower, but they may also be swiftly axed.
If you think you’d kick yourself if you miss out on one, then set aside some time to consider what to do.
Compare true mortgage costs
Work out mortgage costs and check what the real best deal taking into account rates and fees. You can either use one part to work out a single mortgage costs, or both to compare loans
Choosing a mortgage – the essential quick guide
1. How big a deposit do I need?
To get the full choice of deals raising a decent deposit is still vital. The benchmark figure is 25 per cent, if you have this then you’ll be getting close to the best rates, although for an absolute cheapest deal you’re still likely to need 40 per cent.
However, a selection of better deals for smaller deposits is also now available.
2. Should I take a fixed rate?
Most borrowers consider the security of a fixed rate as worthwhile, whereas variable rate deals can be cheaper but leave you exposed to potential rate rises.
If you decide to take a fix you need to carefully consider how long for.
Two-year deals are cheap but only offer very short-term security and incur extra costs when you remortgage.
Five-year deals lock you in for longer and come with slightly higher rates but better security and no need to remortgage in a relatively short space of time.
3. Should I take a tracker rate?
Tracker rates are essentially a gamble. What looks like a bargain rate now, could soon get very expensive when interest rates rise.
Anyone considering a tracker needs to make sure they are not just storing up a problem for the future. If the tracker comes with an early redemption penalty that would make it expensive to jump ship, then make sure your finances could take a rise of at least 2 per cent to 3 per cent in interest rates.
For that reason we at This is Money like tracker deals that fit into one of these three categories: no early redemption penalties, a cap to how high the rate will go, or that let you jump ship for a fixed rate if rates rise.
4. Should I get off a standard variable rate?
Standard variable rates are what borrowers slip onto by default when they finish a fixed or tracker deal period.
They can typically be changed by lenders at any time – without the Bank of England moving rates, they may also rise or fall by more than any move in base rate.
A number of mortgage borrowers have fallen victim to lenders hiking their standard variable rates, despite the base rate remaining stable.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
[ad_2]
Source link
