Fix your mortgage rate before it's too late!
Fixed rate mortgages are becoming more expensive. If you want to lock into a low rate, act now!
Fixed rate mortgages are becoming really popular again. According to the latest data from the Council of Mortgage Lenders (CML), 69% of borrowers took out a fixed rate deal in April.
I suspect many borrowers are keen to fix while rates are still relatively low. But it doesn't look like these deals will stay that way for long. It's a real blow that just when mortgage affordability was starting to improve, borrowers will be hit with higher fixed rates.
Why are fixed rates rising?
Because the Bank of England base rate is still at its all-time low, you might expect fixed rates will generally stay low too. But, unfortunately, it doesn't work that way because fixed rates are more influenced by what's known as 'swap rates'.
Put simply, swap rates are a mechanism lenders use to make sure their margin - or profits - remain steady, and they represent the cost of funding for fixed rate lending. So, it follows when swap rates change, fixed rate deals will normally be re-priced accordingly.
Clearly, it's not good news that swap rates have risen significantly this month. This is likely to filter through to higher fixed rates quite quickly. In fact, we are already seeing it happen. This week alone a number of lenders - including Nationwide, Northern Rock and Cheltenham & Gloucester - have already stepped up some of their fixed rate deals in response to a rise in the cost of funding. I expect more lenders will follow suit.
Top fixed rate mortgages
That said, there are still some great fixed rate mortgages around at the moment. But they could disappear soon, so I suggest you act quickly. Let's take a look at some of the best buys:
|
Lender |
Product |
Rate |
Product fees |
LTV % |
|
Abbey |
2 year fix (for remortgagers only) |
2.95% |
£599 |
70% |
|
First Direct |
2 year fix |
2.99% |
£1,498 |
75% |
|
NatWest Mortgages |
2 year fix |
3.19% |
£799 |
75% |
|
Chelsea BS |
3 year fix |
3.84% |
£995 |
65% |
|
First Direct |
3 year fix |
3.89% |
£998 |
75% |
|
Britannia BS |
5 year fix |
4.44% |
£999 |
60% |
|
Post Office |
5 year fix |
4.45% |
£599 |
60% |
Source: Moneyfacts.co.uk.
If you're looking for a short-term fix, Abbey has a market-leading two-year deal with a rate of just 2.95% for borrowers who are remortgaging. For other borrowers, First Direct is also offering a competitive deal at 2.99%, although the fees are quite steep at £1,498.
But I would be very wary of choosing a short-term fix now. There's only one direction interest rates can head from here. By fixing for just two years, you could find you'll need to remortgage while rates are still rising, which means the fixed rate deals on offer at that time probably won't be anywhere near as attractive as they are today.
So, I would far more comfortable fixing for a longer period even though the rates are higher. The best buy rate over five years is Britannia Building Society at 4.44%, with a product fee of £999.
Top fixed rate mortgages for borrowers who want a long-term fix
If you're happy to fix for an even longer period, there are some decent 10-year deals on offer now too:
|
Lender |
Product |
Rate |
Product fees |
LTV % |
|
Britannia BS |
10 year fix |
5.09% |
£599 |
60% |
|
Abbey |
10 year fix |
5.39% |
£995 |
75% |
|
Coventry BS |
10 year fix |
5.39% |
£999 |
75% |
Source: Moneyfacts.co.uk.
Again, you will have to pay a bit extra, but you'll be completely protected from rate rises for a whole decade! Britannia BS takes the top spot once again with a rate of 5.09%. I think that's pretty attractive, given the long-term certainty you'll get in return.
The top fixed rates I've talked about so far are only for borrowers with a low loan-to-value (LTV) ratio. The LTV is the mortgage loan as a percentage of the property value. In other words, these deals all require a hefty deposit of between 25% and 40%.
But are there any attractive deals if you're a first-time buyer with a deposit of 10% or less?
Top fixed rate mortgages for FTBs with a 10% deposit (or less)
|
Lender |
Product |
Rate |
Product fees |
LTV % |
|
Lloyds TSB |
3 year fix (Lend a Hand mortgage) |
4.39% - 4.89% |
£995 - £0 |
95% |
|
Britannia BS |
2 year fix |
5.09% |
£599 |
90% |
|
Britannia BS |
5 year fix |
5.34% |
£999 |
90% |
Source: Moneyfacts.co.uk.
Admittedly, there aren't masses of choice at the high LTV end of the market. But Lloyds TSB may have a solution if your parents are keen to help you get onto the property ladder.
The Lend a Hand mortgage effectively requires a total deposit of 25%. A deposit of at least 5% must be paid by you, but the remaining 20% must be contributed by your parents - or other relatives - and held in a Lend a Hand savings account for three years which Lloyds has a legal charge over. After the deal ends, if the LTV has fallen to 90%, or lower, the charge on the savings account will be removed, and the mortgage can then be run independently. Find out more by reading Best mortgage deals for first-time buyers.
If you can't dip into the Bank of Mum and Dad for help, Britannia has a range of decent mortgage deals as long as you can stump up a deposit of 10% yourself.
Finally, a quick word on Rate Matcher
If you're due to come to the end of your mortgage deal soon, or you're already paying your lenders standard variable rate, you may be interested to hear HSBC has just relaunched its Rate Matcher deal. For a limited period, HSBC is offering to match - or even beat - your current rate, and fix it for up to five years. Can't be bad! Find out more in Get a fixed rate mortgage at 2.49%!
Compare mortgages at lovemoney.com
More: The virtues of variable rate mortgages | Five golden rules of remortgaging
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Comments
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I agree with [url=http://www.lovemoney.com/profile/profilehandler.aspx?uid=16545][b]Acecamper2[/b][/url] that SOME people can benefit from a fixed rate. My husband-to-be and I just bought our first home in April. The variable rate mortgages were coming in around 3% and we had a 35% deposit so we did a bit of research into fixed rates. We ended up with a mortgage from A&L at 3.99% fixed for 5 years, we had no set up fee to pay, got our valuation fee back and can pay up to 10% of our total mortgae cost in Jan fee free (not that that will be happening anytime soon!) I think you just have to take what suits you best; knowing how much we are paying every month is great security for us especially as this is the first time we will be responsible for a house, bills etc....
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Don't listen to the fool. He makes it sound all tempting and prophetic and urges you to take heed. You must do your own research before listening to him. I listened to him before the crash and am regretting ever since. I fixed on a 6.29% mortgage which is costing me an arm and a leg for the next three years. I can't afford the payments anymore. The fool should just give you all the information and allow you to make your choice. Its taught me a huge lesson. I will never be so hasty anymore. The worst decision of my life. I only had to wait a few weeks and that would have been better. My sincere advise to readers is to get a quote from a bank then as far as I am aware they hold the quote for you up to 3 months I think. That allows you time to see whats happening. The fool plays with peoples livelihoods as if there is no tomorrow. Is he getting commission, who knows? Wishing you all the best in life.
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I have been reading the same article (with different figures) for ten years, indeed the Fool was advising us to do this just before rates crashed - to be fair so was just about everybody else. It seems like when rates are predicted to go up we are advised to snap up Fixed rates, whilst when rates are predicted to fall, we are advised to go Variable. Of course, this advise will suit SOME people, BUT not all. The problem with your article is that it is based on the general prediction that rates will increase. Whilst you are likely to be right this time, nobody knows when rates will increase, how far they will increase and how fast this will happen. In essence you are asking to gamble a fee of £600 or more (perhaps every three years), which is likely to be added to the loan (thus making the figure much larger) on a very vague notion. There is another problem. Whilst we are trying to predict what may happen in future, so are all the people who are likely to be lending us the money. It is reasonable to assume that the lenders will thus set their rates at a figure likely to benefit themselves first, hence doubling your gamble. As I mention, SOME people MAY benefit from Fixed rates, however, the calculations are different case to case and my advice is to think carefully before paying large fees -particularly- for short periods (whatever the rates), and not to be FOOLed into rushing quickly without firstly checking your own figures. Remember, if banks are setting rates of ,say, 5% over 3 years, what does this tell us about their predictions !!. Me, I ignored these articles and am at least £5000 better off over 6 years -hey thats just me though !.
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17 June 2009