16 October 2017

Is it the end of cheap fixed-rate mortgages?

MANY LENDERS HAVE PULLED THEIR CHEAPEST FIXED-RATE MORTGAGES AND REPRICED THEM UPWARDS IN THE PAST FEW DAYS AS THEY ANTICIPATE A POTENTIAL INTEREST RATE RISE, WHICH COULD COME AS EARLY AS NEXT MONTH. THOSE LENDERS WHO HAVE NOT YET INCREASED RATES ARE LIKELY TO DO SO SOONER RATHER THAN LATER AS THEY BECOME INUNDATED WITH  BUSINESS AND ATTEMPT TO PROTECT SERVICE LEVELS.

The Bank of England makes the next interest rate decision on 2 November and there have been heavy hints that we may see a rate rise. While nobody knows for sure whether this will finally happen – and there have been plenty of false alarms over the past few years – what we do know is that there is a definite trend among lenders to increase their fixed-rate mortgages.

After a spike in Swap rates around four weeks ago, they have plateaued, with some longer-term Swaps even easing. However, what that spike did do was force funding costs up, with more than 20 lenders since increasing either all or part of their product range in the past couple of weeks. It is only a matter of time for the others to follow suit, as borrowers seek out the cheapest fixed rates and service levels are at risk of suffering.

Fixed-rate mortgages protect borrowers from interest-rate rises so anyone on a tight budget who would struggle to afford their mortgage should rates rise, should consider fixing. There may be those borrowers who are on their lender’s standard variable rate (SVR) who believe themselves to be ‘mortgage prisoners’, trapped and unable to move because their circumstances have changed and because of tougher mortgage criteria introduced a few years ago. But being on the SVR will cost you if rates start to rise, so borrowers should seek independent advice to find out whether they might be able to switch onto a cheaper deal.

Two-year fixed rates are still available for just over 1 per cent while five-year fixes start from around 1.59 per cent so there is no need to panic but these deals aren’t expected to be around for much longer.

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