Watch for Rising Fixed Rates on Mortgages
Leading mortgage brokers are warning that as the recession comes to a close, fixed rates for mortgages are going to rise. With the current low rates, there has never been a better time to lock in for a fixed term and save money in the coming years with low monthly payments. Ray Boulger, the senior technical manager at broker John Charcol, says borrowers should act now because rate hikes are imminent.
The costs associated with taking out a mortgage have risen substantially in the past few months. These rates, known as swap rates took a sharp rise just this week and this is likely to continue for quite some time as lenders start to recover their losses.
According to Boulger, “The scale of the increase was large enough to be the straw that breaks the camel’s back and as a result I expect several lenders to increase the cost of at least some of their fixed rate mortgages over the next few days. The message for borrowers wanting to take a fixed rate is clear; get in now or miss out on the current relatively low rates.”
At present, there are two-year fixed rate deals for those who can make a 25% deposit on the loan at less than 3% interest. Such low rate deals, though, come with a high price tag in the amount of fees charged for the loan. There is a selection of deals available in the 3% to 4% range that come with lower fees, but still require the higher deposit amount. Even though those who can only afford to make a small deposit will find it very difficult to obtain a mortgage at less than 5% interest, there are deals to be had if you take your time to look around.
Fixed rate mortgages have really become the most popular choice with homebuyers since the Bank of England slashed the base rate to 0.5%. This is the lowest level the interest rate has been in over 300 years. It is doubtful that interest rates will fall any lower and lenders have imposed larger margins on tracker rate mortgages.
Boulger explains that lenders are managing to stay afloat right now by managing the amount of money they are letting out in loans because the money market is still very tight. Once they start to find it difficult to operate on the low interest rates, they will have no choice but to raise their rates.
He went on to say, “With most borrowers (including around 80% of our clients) currently choosing a fixed rate mortgage, if interest rates continue to rise then the current recovery in the housing market, which is based primarily on much improved affordability as a result of the combination of lower house prices and lower interest rates, may well wobble. ‘The message for borrowers wanting to take a fixed rate is clear; get in now or miss out on the current relatively low rates.”
Take a look at the following list if you are wondering where you might be able to find the best deal for your needs.
HSBC has a Rate Matcher program in which homeowners can look for a rate of interest that is lower than what they are already paying. The fees associated with the loans are high. For example, a mortgage with the lowest rate of 2.49% on a loan of £150,000 comes with a fee of £2,899. However, if you choose a slightly higher rate of 2.94%, the fees are reduced to £1,499. You do have to make a 25% deposit to qualify for this deal.
At Fast Direct, with a 25% deposit, you can take out a mortgage at the two-year fixed rate of 2.99%. This loan has fees of £1,499 and an offset facility which means you only pay the interest on the outstanding balance each month.
Loughborough BS is offering a rate of 4.39% on mortgages for those who can make a 20% deposit.
The stepped scale of RBS features the lowest rate of 4.99% for those making a 20% deposit. The rate increases with reduced deposits, such as 5.29% for a 15% deposit and 6.39% for a 10% deposit. The fee amount is £799.
Take out a mortgage with Britannia at a two-year fixed rate of 5.09% for a 10% deposit and fees of £599.
This is just a small sample of the many deals available that will help you save money on your mortgage. It pays to do your research and carefully evaluate each deal to find the best one for you.
Tags: high price tag, outstanding balance, Ray Boulger, Mortgage loan, fixed rate mortgages, senior technical manager, better time, Mortgages
The price that consumers pay for knowing what their monthly mortgage payments are going to be for a set period time is a “fixed rate” which will be priced based on the cost to the lender of borrowing and therefore financing that mortgage over the fixed rate term.
I like fixed rate deals – it allows me to budget and I will always go for a fixed rate deal personally, as long as the lender is offering a competitive rate!