11th September 2015
Borrowers have been warned that the best mortgage rates are disappearing in anticipation of an interest rate rise next year.
According to comparison site Moneyfacts.co.uk, the best deals are disappearing fast as speculation about when the upcoming rate rise will happen, and lenders – who were engaged in a race to the bottom – have stopped cutting.
The average five-year fixed rate mortgage for someone with a 40% deposit, or 60% loan-to-value (LTV), has increased from 2.54% to 2.66% in the past two months.
And looking back to May, a person wanting to borrow a 60% LTV mortgage could have landed themselves a deal of 1.99%. This week, the lowest available is 2.29%.
The constant stream of bad news from the eurozone has delayed an interest rate rise, meaning borrowers have consequently benefited from low mortgage rates. However, as these issues subside, the Bank of England has not given explicit details of when rates will rise but economists are predicting early 2016.
A rise in interest rates mean increased costs for lenders who also borrow money on money markets and that cost is likely to be passed on to borrowers.
Charlotte Nelson of Moneyfacts.co.uk said: ‘While competition in the mortgage market remains high, it’s clear that record low rates are starting to disappear.
‘Speculation of a base rate rise has affected wholesale costs, so providers have had little option but to raise their rates. Five-year fixed rates have been particularly affected as the likelihood of a base rate rise within the next five years is high.’
That doesn’t mean that people shouldn’t fix for longer terms though, said Nelson.
‘Borrowers have been in the habit of fixing for two years at a time, with many preferring to re-evaluate their deal on a regular basis,’ she said.
‘However, committing to a low five year deal now is likely to pay off if the base rate does rise –especially if there is a set of consecutive increases.’
She added that borrowers need to act quickly to get the best deals that remain on the market.
‘Borrowers might feel as though they blinked and missed the lowest rates on the market as some deals only last a couple of months before they were withdrawn,’ she said. ‘For this reason, borrowers need to galvanise themselves now if they want to make the best of the low rates that are still around.’