With the Base Rate at an all-time low is now a good time to fix your mortgage rate?
Last week the Bank of England cut its base rate to 1% and in the past week a handful of lenders have announced new fixed rate mortgage ranges. More will no doubt follow and some in fact repriced in anticipation of the base rate cut.
All in all, fixed rates are looking cheaper than they have for some time, but let’s not get over-excited as lenders still have a healthy margin when you consider just how low their costs have fallen.
Swap rates (which reflect lenders’ costs more accurately than the Base Rate) have fallen dramatically in recent months (although they have edged up slightly in the past few weeks). One-year swaps are well under 2%, two-year swaps are just over 2% and five-year money is around 3%. So when you look at the best fixed-rate deals on the market, you can see that lenders still have a comfortable margin of around 2% or more.
This week’s new deals
1. Yorkshire Building Society has launched a range of two, three and five-year fixed rate deals at 60% and 75% loan-to-value (the mortgage as a proportion of the property's value.) The lender says it will also offer up to 85% through its branch network. The rates are pretty keen, starting at 3.99% for a two-year fixed rate with a £495 fee. This deal requires a 40% deposit.
2. Leeds Building Society launched a one-year fixed rate this week, available at 60% and 75% LTV. For those with a 40% deposit, the rate is 3.79% with fees of £499.
3. Finally, Coventry Building Society has launched a new range of three and five-year fixed rate mortgages through its broker arm, Coventry Intermediaries. The fixed-rate deals are available from 65% to 85% LTV with a range of fee options, from fee-free to £800. Rates start from 4.99% for a three-year fixed rate at 65% LTV with a £999 fee.
The bigger the better
As with all types of mortgages, fixed rates become much more attractive the more you can put down upfront as a deposit. There are some competitive deals around at 60% LTV for example but for those with just 10% upfront (which often includes first-time buyers) fixed rates are still up at around 6% (which is high when you consider how low the base rate is). The largest category of products is for those with a deposit of 25% or more (but less than 40%). Many borrowers fall into this LTV bracket and lenders cater to them with a wide range of options.
Below is a selection of some of the current best buys for those with a deposit of 40%, 25% and just 10%. I have chosen short and medium term fixed durations, and looked at high and low fee options (so lower pay rates can be found elsewhere).
60% LTV -- low-risk, large deposit borrowers
| Lender | Length of fix | Rate | Fee |
|---|---|---|---|
| HSBC | 2 years | 2.99% | £599 |
| A&L | 2 years | 3.69% | 1% (£200 cashback) |
| Marsden BS (available up to 65%) | 2 years | 3.84% | £999 |
| Nationwide BS | 3 years | 4.38% | £995 (£299 for FTBs) |
| Britannia BS | 5 years | 5.09% | Fee-free |
75% LTV -- medium risk borrowers with a decent deposit
| Lender | Length of fix | Rate | Fee |
|---|---|---|---|
| NatWest | 2 years | 3.49% | £799 |
| Market Harborough BS | 2 years | 3.5% | £500 (£250 for existing or local borrowers) |
| Principality BS | 2 years | 4.29% | Fee-free |
| Leek United BS | 3 years | 3.99% | £495 |
| Post Office | 5 years | 4.74% | £599 |
90% LTV – higher risk, low deposit borrowers
| Lender | Length of fix | Rate | Fee |
|---|---|---|---|
| Clydesdale/Yorkshire Bank | 2 years | 5.99% | £599 |
| Clydesdale/Yorkshire Bank | 2 years | 6.29% | Fee-free |
| Post Office | 3 years | 5.85% | £599 |
| Post Office | 5 years | 5.85% | £599 |
| Royal Bank of Scotland | 5 years | 6.49% | £299 |
Time to fix?
As you can see, there are some competitive fixed rates about and there is now a decent choice of fees to suit most borrowers.
With Base Rate low, it could well be that now will have been a great time to lock into a rate if they begin to rise soon. But there is no way of knowing what will happen. Rates could drop further to 0% and stay there for two years, in which case you might have enjoyed cheaper repayments going for a variable deal.
Forget trying to second guess interest rates when it comes to paying for the roof over your head. You can never find a formula for predicting it correctly 100% of the time, so you might as well just go for the mortgage deal that suits you best.
The best reasons to take a fix are that you are comfortable with the rate, you want protection against rising mortgage repayments and you accept that the rate may fall while you are in your fixed rate period.
If it is more important to you to know exactly what you will be paying for an agreed period than it is to get the absolute best deal at any given time, a fixed rate mortgage could offer you security and freedom to forget about Base Rate movements.
You might pay a premium for that pace of mind, or you could get lucky and find that rates spiral way beyond your pay rate. Either way, you know how much you need to pay your mortgage lender, month in month out.
> Get free mortgage advice from a broker at our mortgage service.