Fixed mortgages reach highest rates in six-months

If you want to get a great fixed rate, you need to get a move on.

When it comes to mortgages, I take a pretty conservative view. I’m very much from the ‘better safe than sorry’ school. That’s why I have consistently made the case that despite the allure of variable deals, now is precisely the time to fix your mortgage, and fix for a long time.

But if you fancy doing so, time may be running out for you to take advantage of the historically cheap deals currently available.

Rising rates

According to figures from financial information site Moneyfacts, the average rates on offer from fixed deals have hit their highest level in six months.

Here are the average rates as they stand today:

Given that base rate is still mired at 0.5%, a record low, and has been for two years, how come fixed rates are rising?

The role of swap rates

It all comes down to swap rates. If a lender wants to offer a two-year fixed rate, it won’t simply rely on its deposits to fund those mortgages – it will look to raise fixed-term funding on the money markets.

A swap rate basically refers to the rate at which the lender has secured that funding – essentially, swap rates give us a somewhat crude indication of the cost to lenders of raising funds for its lending practices. It also gives us an idea of the sort of margins they are making on their deals.

And swap rates have been on the rise lately. Since October, one-year swap rates have jumped 0.39%, two-year swaps have risen 0.77%, three-year swaps are up 1.06% and five-year swaps have jumped an astonishing 1.21%. Indeed, in the past two weeks alone, the price of five-year swaps has jumped 0.33%, an incredible rise.

Why swaps are rising

So, why are swap rates rising so much?

Well, the rates tend to reflect the market’s expectation of what will happen to the central bank base rate, set by the Bank of England. And a rise in base rate is looking ever more likely, as we explained in Base rate set to rise by May.

With rates fluctuating as wildly as they have done in recent weeks, it shows that there is real uncertainty over just what is going to happen with base rate in the next few months. Everyone knows base rate has to go up at some point. But the accepted wisdom that it wouldn't happen until Quarter 3 is coming under attack.

What’s clear is that the months and months of (near) consensus at the Bank of England over holding base rate at 0.5% are about to end.

What it means for you

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This is very significant for anyone looking to take out a new mortgage or remortgage in the coming weeks and months. Up until now, it has been possible to make a case for holding fire from fixed rates, and instead going with a tracker. The rates are at incredibly low initial levels, and the received wisdom was that base rate still had a way to go before it started rising, and even once it did, it would do so slowly, allowing you to get out before the rates started hurting.

And all of that may still be the case. But personally, I don’t see the point in taking the risk.

Right now, fixed rate mortgages are still at levels that historically are exceptionally low. In my opinion, that means now is precisely the time to fix, and fix for the long term. Yes, you can enjoy tiny repayment levels on variable deals at the moment, but it cannot last. And waiting too long may end up costing you far more in the future.

Fixed rates are only going to get more expensive. Below are some of my favourites, across a variety of different terms, and for a variety of different deposits.

30 fantastic fixed rate mortgages

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This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.