With lenders pulling their fixed rate mortgages on a daily basis, we reveal some of the cheap deals still available.
If you're a borrower, for example if you have a mortgage, you might be quite concerned with all of the recent hype concerning interest rates.
For anyone that hadn't realised, inflation (the Consumer Price Index) rose to 3.1% this month. That's higher than it's been for some time, so the Bank of England is under pressure to bring inflation down quickly. As a result, the bank looks increasingly likely to raise interest rates in May. What's more, this may not be the last rise we see, with some economists predicting that the base rate could hit 6% (or higher) come the end of the year.
Of course, while this is great news for savers -- generally speaking the higher the base rate the higher your savings rate -- this isn't such good news for borrowers as higher interest rates of course mean higher borrowing rates.
Indeed, with a 25-year, £125k variable rate repayment mortgage at 5%, a 0.25% base rate rise could add a further £19 to the monthly mortgage payment (or £228/year). A 0.5% base rate rise could add another £37/month (or £444/year). And a 0.75% rise could add a hefty £75 per month, or a whopping £900 a year to those home loan repayments.
Fixed rate mortgages
It's therefore perhaps not surprising that fixed rate mortgages have come into such prominence over the past months. Fixed rate mortgages do exactly as they say -- your mortgage payments are fixed for a set amount of time.
Knowing with certainty what your mortgage payments will be can help you plan your finances more effectively and in times of rising interest rates even help you sleep better at night. Indeed, a Fool survey carried out in March revealed that 80% of Fools using our Mortgage Service chose a fixed rate deal after the base rate rise in January 2007, with 90% of first time buyers choosing this type of mortgage.
Lenders are pulling their best deals...
The problem is, in light of the impending base rate rises, lenders are rushing to pull their cheap fixed rate deals, and indicating that they will be replaced with more expensive products. I gave our brokers at the Motley Fool Mortgage Service a ring and found that all of the following lenders have already pulled their fixed rate deals:
Alliance & Leicester
Nationwide
Standard Life
Principality BS
Northern Rock
Clydesdale
Royal Bank of Scotland
Woolwich
The Mortgage Works
Portman BS
What's more, more and more deals are being pulled as time goes by -- in the time I was on the phone our brokers heard that Halifax will be putting their rates up today. And Nationwide and Northern Rock were both set to pull their deals at 5pm on Monday.
So what can you do if you want a cheap fixed rate mortgage?
Well, there are still a few good deals available so if you're serious it would probably be wise (or Foolish!) to act quickly. Lenders are pulling their mortgage products all the time and can decide at very short notice to do so -- in many cases making the deal non-existent by 5pm the same day.
Top Fixed Rate Mortgage deals
As always, you need to weigh up the amount you need to borrow with the mortgage rate and its set-up fees. Very few of the big name mortgage providers are still offering cheap fixed-rate deals.
2-year Fixed Rate Mortgage
However, if you are looking to fix, the top fixed rate mortgage deal of the moment for mortgages of £150k+ is from Abbey, according to our mortgage service. This is a 2 year deal for 5.14% with a £999 arrangement fee (free legal work and valuation).
5-year Fixed Rate Mortgage
If you'd prefer a longer deal, Britannia BS is offering a five year fixed rate mortgage at 5.49% with no fee, or a five year deal at 5.24% with a £499 fee.
Of course, when it comes to your mortgage you need to decide what's best for you. Remember to do your sums carefully -- generally speaking the lower your mortgage, the more affected you will be by the size of the arrangement fee. And whilst a fixed rate deal will provide certainty, you could find that a cheap variable rate deal with a low arrangement fee could actually save you more money over time.
Spend a bit of time using the mortgage calculators in our Mortgage Centre to work out your repayments and when considering a variable rate deal, remember to check that you could still comfortably afford your mortgage payments if interest rates were to rise by 1% (or even more).
So if you were looking for a cheap fixed rate mortgage deal, don't panic, there are some still available (for the time being at least). But before jumping into a new deal, take a few minutes to check that it's the best product for you.
> Compare Fixed Rate Mortgages
> Fixing Your Mortgage For 25 Years
> Supersize Your Savings Rate