MAJOR lenders have been slashing mortgage rates to try and bring in business as the market chaos eases.
But buyers are still paying almost £1,500 extra per year on their mortgage costs a year compared with those who took out a deal at the very start of March, according to Moneyfacts – so is now a good time to fix?
Barclays, NatWest and TSB have all dropped their rates today, in a move that will be welcome news for home buyers and remortgagers.
NatWest is cutting rates by up to 0.19%, while TSB is doing so by up to 0.35%.
Barclays is slashing across its two and five-year fixes, with rates dropping as low as 4.39%.
It will come as a relief to borrowers after weeks of mortgage market chaos earlier this year.
Mortgage rates started climbing sharply in early March after war broke out in the Middle East at the end of February.
The average two-year fixed mortgage has gone from 4.83% at the start of March to 5.68% now, according to Moneyfacts.
Five-year rates have climbed from 4.95% to 5.63%.
When you average that out on a home worth £200,000 with a 25-year term, you’re looking at roughly £1,500 a year in extra mortgage payment costs, according to Moneyfacts.
More residential mortgage products are also available, up from 6,982 to 7,135 in the last day.
Rachel Geddes, strategic lender relationship director at Mortgage Advice Bureau, said: “For first time buyers, even relatively modest rate reductions can make a meaningful difference to affordability at a time when household budgets remain under pressure.”
She said the current trend is “encouraging” and a sign of confidence returning to the mortgage market.
Still, it’s unclear where rates could go next.
That’s because the situation in the Middle East remains unpredictable, and how that plays out will have an impact on interest rates.
Mortgage rates are influenced by the Bank of England‘s base rate, which is currently sitting at 3.75%.
The Bank of England‘s Monetary Policy Committee (MPC) meets every six weeks to decide the base rate.
It uses the base rate as a tool to help keep inflation close to its target of 2%.
When inflation is high, it will raise the base rate to deter consumers from spending and reduce demand – which eases inflation.
Economic advisory firm Oxford Economics has predicted inflation could reach 4.5% in the second half of this year, well above the target level.
To work out what could happen next with rates, we need to look at the swap markets.
These predict where interest rates will go in the future, and they’re what mortgage lenders are looking at when they price their mortgage deals.
Caitlyn Eastell, Personal Finance Analyst at Moneyfactscomapre.co.uk, said: “The outlook for interest rates is uncertain, but swap rates are currently sitting just above 4%, suggesting lenders could expect base rate to rise, which in turn may increase rates for borrowers.
“Stubborn inflation may also play a factor into how quickly these potential rises come to fruition.”
Will more lenders cut their rates?
However, a sluggish property market in the first half of the year mean lenders are keen to attract customers.
David Hollingworth, associate director at L&C Mortgages, says despite the swap markets being volatile, lenders are still keen to attract customers and could keep slashing rates to grab attention.
“We could see more lenders respond and make further improvements,” he said.
“However, with so much uncertainty in the market it’s not easy to know whether this will be an ongoing trend or whether we could see events force another shift.”
Should you fix now?
You might be unsure about whether it’s worth locking into a fixed rate now.
Whether you go for a fixed-rate deal or a tracker depends on your personal circumstances and where you think rates could go in the future.
A fixed deal means you’ll pay the same interest rate for the duration of the contract.
That means your monthly payments will stay the same and you’ll know what to expect, but you could miss out if mortgage rates go down.
Meanwhile a tracker deal will see your interest rate go up and down along with the Bank of England’s base rate.
Moneyfacts’ Caitlyn Eastell says: “Fixed rate deals can give peace of mind, but tracker mortgages can look more competitive on price.
“However, they leave borrowers more exposed to volatility, as any change in base rate rate is directly passed through to monthly repayments.”
That means if you opt for a tracker, you should be comfortable with your monthly payments going up.
David Hollingworth says it makes sense to lock a deal in now and “keep a close eye on things” to see if rates continue to improve.
That’s because you’ll still be able to switch onto a lower rate up until the point where your deal completes.
It’s a good idea to speak to a broker, who can help you find the best deals and give advice on what’s best for your situation.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
