Mortgage lenders have started to increase their mortgage rates or are withdrawing the last of their super-cheap deals following a Bank of England warning of an interest rate rise. It is therefore a crucial time for homeowners to review their mortgage.
Britain’s 11million mortgage customers have benefited from rock bottom rates since the Bank of England cut its base rate to a record low of 0.25 per cent last year. But the recent announcement that a rise in interest rates is likely in the near term, coupled with a rise in “swap rates” (the financial instruments used by lenders, which reflect the expectation that base rates will go up in the near future), has already led to numerous mortgage lenders putting up their rates ahead of any base rate increase.
While the initial increase is expected to be small, it would be the first in more than ten years, and will inevitably cause mortgage costs to rise. Those borrowers on variable rates or “tracker” deals which move in line with Bank base rate could see immediate increases in repayments with some facing bills hundreds of pounds higher over the course of a year.
Consider switching to a fixed rate mortgage
Fixed rate mortgage deals give peace of mind that your repayments will remain the same for a fixed period of time regardless of whether interest rates rise (or fall) during that time.
Despite the rate increases in recent weeks, there are still competitive fixed rate deals to be had, whether you have a substantial amount of equity behind you or just a five per cent deposit. So, if you’ve come to the end of your deal and are sitting on your lender’s standard variable rate, it would be worth thinking about remortgaging.
Typically, a fixed rate mortgage deal will be for two or five years. A five-year fixed gives the opportunity to lock into a low rate for a longer period, avoiding extra fees and higher rates in a relatively short time. A two-year fixed, however, may be preferable if you’re looking to move home or would like to reassess the market again sooner rather than later.
With the base rate currently still at just 0.25 per cent, there is really only one direction for rates to go in future – up. This is why we think it’s a good idea to secure a fixed rate mortgage product now – before lenders hike up their rates further.
Whatever the right type of mortgage for your circumstances, shopping around and speaking to a good mortgage broker is a wise move.