The UK base rate is likely to rise far earlier than it was thought, possibly as early as late next year. So according to our Money Saving Expert Martin Lewis, every mortgage holder should be examining if their deal is future proofed.
What’s happening to mortgage rates?
Just a few months ago the new Bank of England boss was predicting rates would stay at their historic 0.5% low until as long as 2017. Yet as the economy has started to turn the corner that’s all changed. We’re now hearing many eminent pundits suggesting base rate will rise in 2015, or even as early as the end of next year.
Mortgage holders benefited from a record low UK base rate of 0.5% over the last three and a half years. Yet if UK rates rise, anyone on a standard variable rate, discount rate, or tracker rate will likely see an immediate hit in their mortgage costs too.
How much will this cost?
On a £150,000, 25-year mortgage, repayments would jump around £80 per month per 1% fee rise. So it’s worth considering looking at a fixed rate deal to see if you could lock in more cheaply than now, or possibly at not much cost.
How cheap are fixes right now? Is there a risk they could get cheaper?
There are a number of cheap fixes on the market right now, and while there’s always a chance mortgages could get cheaper still, it’s a pretty slim one. At the moment it’s more likely rates will move upwards than edge lower.
Two year fixes are as low as 1.5% but for that you’ll need a good chunk of equity in your property and pay a big admin fee. However, even with less equity and no fee, 4% is possible - cheaper than most standard rates. For longer 5 year fixes between 2.7% and 4.6% are possible depending on equity and fee.
When it comes for admin fees – usually the smaller the mortgage, the bigger the impact the fee will have, so always factor these into your calculations
Is fixing worth it?
Judging the market is tough. Unusually, right now fixing for the certainty of a guaranteed rate can be cheaper than a 'discount' deal, which could rise when the base rate does. If your variable rate is around 3%+, then check fixes now. Plus, look at your own finances. If any increase in your mortgage rate would put you close to the financial brink, fixes have the advantage of certainty.
How do I find the right deal?
Don’t just go to your bank – it’ll only offer you its deals. Plus much of getting a mortgage these days is about acceptability and that depends on your credit score. So I’m in favour of using a mortgage broker, who will scan the market for you and should have decent knowledge of who’s most likely to accept you.
Do check that the broker is ‘whole of market’ (which as it suggests will check all the deals available to it on the market), there are even some who do this fees-free (as they take a commission from the lender). Yet the key thing is even whole of market isn’t every mortgage, as they only need to advise you on mortgages available to them. There are some lenders, such as HSBC or First Direct, which only offer mortgages direct to the public – so your broker may not tell you about them. Websites like the Money Advice Service and Moneyfacts should list these for you.
Alternatively there are some fee-charging brokers which will be ‘whole of market’ and look at direct deals, but you’ll usually pay a few hundred pounds for this.