It’s crunch time for borrowers considering taking out a new fixed-rate mortgage deal.
Lenders have been tweaking the rates they are offering upwards in recent weeks, leading to some of the lowest deals disappearing. So, if you’ve been considering taking out a new deal for a while but haven’t got round to it, now might be the time to have a closer look.
According to financial website Moneyfacts.co.uk, dozens of mortgage providers upped their rates between mid-September and mid-October, prompted by hints that the Bank of England’s base rate could soon edge up from its low of 0.25 per cent.
Charlotte Nelson, a spokeswoman for Moneyfacts.co.uk, says that, amid the speculation about a possible base rate rise, swap rates, which lenders use to price their loans, have been heading upwards. “Swap rates have started to increase, which has caused lenders to rethink their offerings,” she says.
David Hollingworth, from broker London and Country Mortgages, says some ultra-low fixed rates have been being pulled off the market altogether. “This acts as a reminder that rates won’t stay that low forever and actually they’re already on the move.”
The rate increases have also been made across large chunks of lenders’ ranges, he says, so people could be affected whatever the size of their deposit.
By historic standards, the mortgage rates on offer are still very low, so there are still many good deals out there.
But Hollingworth says: “The very lowest rates are rapidly disappearing.
“I think this is something that will trigger people to take action if they haven’t already, because they are going to miss out on the very lowest rates potentially but there’s still a lot of competitive rates out there, so it’s not too late if they are able to get their skates on.”
So what is the optimum length of time to fix your mortgage rate?
This will depend on individual circumstances and how far into the future you feel comfortable locking yourself into a deal for.
A longer-term fixed deal means you have greater certainty over your mortgage payments, but a shorter-term deal may have a lower rate, and will also free the borrower up more quickly if their circumstances change in the future – so the pros and cons need to be carefully weighed up.
Shorter-term deals may last for a couple of years, or longer-term deals may last for five, or even 10 years if you feel happy locking yourself into a deal for the next decade.
Hollingworth says that a possible base rate rise on the horizon could mean more people choose to lock themselves into fixed-rate deals to insulate themselves.
“The question will be whether they go for the very cheapest rates, which are the shorter-term fixes or consider a longer term,” he said.
Hollingworth suggests a possible compromise could be a seven-year fix, with Coventry Building Society having brought out deals for this length of term.
When choosing the right mortgage, Hollingworth says it’s important to factor in any fees as well as incentives, such as cashback or free legal packages, as well as the rate.
He adds that for those nearing the end of their current mortgage deal, some lenders will make mortgage offers which are valid for up to six months, so they could consider trying to lock into a deal now which they may not start for half a year.