Do something before Christmas while there are still good deals.
As lenders plan to increase their interest rates, all the borrowers who want to catch a better deal have to hurry. Building societies and financing institutions are raising rates on the deals for 5, 7, and 10 years. Swap rates are increasing, and they impact the rates stated for the borrowers, as they are the main factor determining the lenders’ money borrowing cost.
According to a mortgage broker Andrew Montlake, of Coreco, we are heading out of the cheapest rates age as swap rates are being increased. There’s no guarantee that there will be such low rates during the next year as we still have now.
The rates rise creates bad news for those paying mortgages who are sure their payments are fixed for the following years. There are institutions that have already risen their rates: Barclays increased their 7 and 10-year fixes by 0.2 percentage points; Leeds Building Society increased their 10-year deals by 0.24 percentage points.
Accord, the lender for those going through a broker, has increased rates on five-year loans by as much as 0.5 percentage points, and Nationwide raised rates on ten-year loans by 0.3 percentage points. West Bromwich building society recently withdrew its best-buy ten-year fix.
David Hollingworth, of the mortgage broker London & Country, says: “There are so many people waiting for the mortgage market to hit the very bottom. It’s a tough one to call, but the question is, how much lower can rates really go?”
About three million homeowners are saddled with expensive deals. These borrowers are paying their lender’s standard variable rate (SVR) — the rate to which a mortgage reverts once a fixed-rate or tracker deal expires. Since the average SVR is 4.62 per cent, remortgaging would save these borrowers hundreds on their repayments. However, there’s a strong reluctance to remortgage. Research by YouGov and Trussle, the online mortgage broker, found that mortgage holders were more than twice as likely to have switched energy provider than their lender, despite the annual savings they could make.
Reasonable five-year deals are still available, however, and are at their cheapest level for years, say experts.
Mark Harris, the chief executive of SPF Private Clients, the broker, says: “There are still five-year fixes at less than 2 per cent, but they are unlikely to go much lower for the majority of lenders unless we see swaps start to fall again.”
Two-year fixed rates are available at less than 1 per cent, but borrowers run the risk of needing to remortgage just when interest rates are rising.
Action plan
While rates are on the up, some lenders are improving the terms of the loans, which softens the blow.
As Times Money reported last week, the seemingly extinct interest-only mortgage is making a comeback. Halifax has relaxed its lending criteria, making them easier to secure for cash-strapped borrowers.
Borrowers can also minimise upfront costs with a growing number of fee- free loans. Data from Moneyfacts shows that the number of fixed-rate mortgages that waive the arrangement fee has more than doubled over the past year.
There are 1,600 mortgages on offer with zero fees, compared with 556 this time last year.
Charlotte Nelson, the finance expert at Moneyfacts.co.uk, says: “Lenders are trying to compete in ways beyond the headline rate. It is important that borrowers looking for a mortgage ensure they do their homework and work out the true cost of a deal, looking at the rate, fee and any incentive package, so they can be sure they have found the most cost-effective option.”
Aaron Strutt, of Trinity Mortgages, says: “There have been more rate rises than usual and lenders have been increasing prices in their droves, but there is still a lot of choice.
“With some three-year fixes at around 1.5 per cent and five-year deals of well below 2 per cent, borrowers with larger deposits can still access some really super-cheap mortgages.”
Best buys
The lowest five-year rate is 1.83 per cent from Virgin through a broker, with a £995 fee. It is available for those with 35 per cent equity or deposit.
The cheapest seven-year loan is from Coventry at 1.99 per cent with a £999 fee, for those with 50 per cent equity or deposit. Coventry also offers the lowest ten-year fix at 2.39 per cent for a 50 per cent deposit or 2.49 per cent if you have 35 per cent, both with a £999 fee.
The cheapest two-year fix for those with a 35 per cent deposit or equity, who are willing to gamble security in exchange for a short-term saving, is a deal from HSBC at 0.99 per cent with a £1,499 fee.
If you don’t need a new loan until next year, it’s not too early to start looking. Most lenders’ offers are valid for between three and six months, which means anyone whose deal ends as far ahead as the spring could start making inquiries and line up a good deal now.
What next for landlords?
Buy-to-let investors could be pushed towards taking more expensive longer-term mortgage deals as a result of a new clampdown to stop landlords from taking on too much debt.
The Prudential Regulation Authority has brought in rules to limit the chance of investors failing to keep up with repayments when the Bank of England starts raising interest rates.
From January 1, affordability assessments will be stricter, with lenders being forced to calculate whether a borrower can afford repayments if rates were to rise to 5.5 per cent. Mr Hollingworth says: “Those fixing their rate for five years or beyond would not be subject to fluctuation in rates and have certainty of payment, so the stress test need not apply.
“That could see lenders offer five-year fixed rates with easier terms — that is, without as high a rental requirement as would apply to shorter-term deals.
“The fear will be that landlords opt for longer-term fixed rates purely because they can borrow more, rather than selecting the right deal for their circumstances.”
However, the rates available remain competitive as lenders fight for business. The average rate on a two-year buy-to-let mortgage is 3.02 per cent, according to Moneyfacts. The average five-year loan is 3.72 per cent.
