Mortgage rates are rising - should I fix now?
Mortgage rates are starting to increase ahead of an expected base rate rise from the Bank of England.
The base rate is the official interest rate for the UK, which banks and building societies use to calculate their own mortgage and savings rates.
The media is full of news that the Bank of England "is expecting" to agree a rate rise soon because of the wider economy.
Over a dozen lenders have already upped their rates ahead of an expected decision next month – the first rise in ten years.
So is there any need to panic? And what should you do?
Senior mortgage broking manager at The Nottingham, Ian Gibbons, has over 25 years' experience of the ups and downs of the market.
He said: “Most economists are predicting that interest rates will gradually increase over the next couple of years. What actually happens will also depend on how Brexit goes.
“But there’s no need to panic.
“If you've not updated your mortgage
recently, now might be the time to fix it while rates are still low.
“Providers are pulling their deals so if you ponder your options too long it may be gone. That’s not to say there won’t be a competitive deal out there for you, but it’s not going to be as cheap as before.
“It might only amount to £10-£15/month difference but it’s not about the amount. When rates start to go up we don’t know when they are going to stop. You could end up paying three times that difference in a short space of time.
“By historical levels mortgages are still cheap
. But you wouldn’t want to be kicking yourself for missing out."
Here are Ian’s tips on beating the predicted rate rise:
- If you are on the standard variable rate (SVR) or at the end of a fixed rate, it's time to lock in.
- If you are looking to buy a house, secure a mortgage deal as soon as you can.
- Speak to a mortgage broker to make sure you’re getting the best deal.
- Don’t rely on online comparisons as they don’t take into account your personal criteria.
Rachael Johnson, a 42-year-old home-buyer in Nottingham with her partner Michael Mackenzie, took a 25-year mortgage with an initial fixed rate, which will stay locked in for that period no matter what interest rates do next.
“We decided to do it partly because of the uncertainty after Brexit and what might happen,” she said.
“Also, as first time buyers we are quite cautious and wanted stability. My work has had a six-year pay freeze so we took that into account too.
“Another factor was that in a couple of years we might want to buy a car and we thought that looking for a mortgage again in that time might affect our credit rating.”
But there many permutations which affect people in different ways, which means the actual deals on offer to you will depend on your exact circumstances – and the longer you fix for, the higher your rate will be.
The advice is to “get advice” and use a broker who can look across the whole mortgage market with you to see what suits you the best.
Here is a summary of reasons you might like the idea of a fixed rate:
- It’s stable over the longer term so you can budget better;
- It gives your salary time to improve to absorb any impact of a rate rise at the end;
- There are no worries about remortgaging or paying for legal, survey or broker fees during the fixed period.
Why you might decide against at the idea:
- The redemption fee – a charge for ending a deal early (although your mortgage may be portable, which means you would keep the same deal even if you moved house);
- You may have to move house for a new job;
- If rates fail to rise you could end up paying more in the long-term.