Now’s the time to fix your mortgage
Interest rates are beginning to creep up again. Now's the time to consider what mortgage you have, says Ruth Jackson.
Last week the Bank of England increased interest rates for the first time in a decade, pushing the bank rate up from 0.25% to 0.5%. It's not a huge rise it only takes us back to where rates were last June, and had been for seven years prior to that. Having said that, even this small hike will probably affect your finances in one way or another, so it's worth ensuring that you are making the most of the available deals.
If you are a saver, you no doubt hope that this might mean that the interest paid on your savings rises too. Sadly, many banks and building societies are dragging their feet when it comes to increasing their savings rates. "Delaying the rise means savers on variable-rate deals with high-street banks will collectively lose about £3.9m a day in interest," reckons Ruth Emery in The Sunday Times.
However, if you are a saver with a variable-rate account waiting for the increase, you should stop waiting. As Emery notes, even if your bank does pass on the rise, you may still be getting a "raw deal", because rates on variable-rate accounts are pitiful. For example, NatWest's Instant Saver and HSBC's Flexible Saver currently pay just 0.01%. Even with the rate rise, that is still far below the best-buy instant-access accounts from BM Savings and RCI Bank, which each pay 1.3%. Rather than wait for your bank to catch up, switch to an account that already pays out more.
The other group that will be affected by the rate rise is mortgage holders. The 3.7 million people who have standard variable-rate (SVR) or tracker mortgages will see their bills go up. But even then the average homeowner, with a £175,000 mortgage, will only see a £22 a month increase in their mortgage repayments, according to The Guardian. Also, the majority of homeowners in the UK are now on fixed-rate deals, meaning the rate increase will affect a smaller proportion of homeowners than in previous decades.
However, if you are one of the 57% of homeowners on a fixed rate, don't just sit back and think that this rise won't affect you at all. These days, most of us opt for fairly short fixes, with two-year ones by far the most popular products. This means you could find yourself thrust back into the mortgage market just when rates are really picking up. There is already a huge leap between most lender's fixed-rate offers and their SVR the rate you'll be moved onto when your deal ends. For example, Santander offers a two-year fixed-rate mortgage at just 1.44%, but its SVR is 4.74%, and this could increase further as lenders rush to increase their SVRs in line with the new bank rate.
This is expected to result in a rush to fix, as homeowners fear last week's base-rate rise is the start of an upward trend the Bank of England has "pencilled in two other increases", which would bring rates to 1% over the next three years, says Siobhan Kennedy on Channel 4 News. Clearly that's a very slow rate of increase, but you can't guarantee that will actually happen there are far too many variables involved in forecasting economic conditions and the Bank has not proved to be terribly good at it in the past.
If you are looking to fix your mortgage now or your fixed-rate deal ends soon then go for a long-term fix. Five- and ten-year deals are increasingly popular. Coventry Building Society is top of the tables for a ten-year deal, with a 2.55% rate. If you don't want to commit for that long, HSBC has a five-year fix at 1.99%. Although we've just seen a rate rise, with more likely to come, rates are still incredibly low. Locking in a low rate now could save you thousands, and give you certainty over one element of your finances as interest rates start to rise.
In the news this week
The Draft Tenant Fees Bill, introduced to parliament last week, brings Chancellor Philip Hammond's proposed ban on unfair letting fees a step closer to becoming law, says Anna Temkin in The Times. The proposals include a fine of up to £5,000 for charging "rip-off" fees (ie, for anything other than rent or a deposit), and prosecution or a civil penalty of up to £30,000 for letting agents or landlords who offend twice.
Security deposits could be capped at six weeks' rent, though Citizens Advice is calling for this to be reduced to three, adds Shafi Musaddique in The Independent. The clampdown will be welcomed by the four million individuals and families who rent privately, and is expected to save them an average of £327 per rental agreement. The ban, which is expected to come into force in late 2018, will only apply to the private-rented sector in England.
Forget renting out your house. Now you can rent out that pasta-maker stuffed in the back of your kitchen cupboard, says Jessie Hewitson in The Times. Fat Lama, a website described as "the Airbnb for stuff", has been operating in London since 2016 and recently expanded to the rest of the UK. It allows you to rent out anything worth up to £25,000, from wedding dresses to camera lenses, and charges 30% of the hire fee, a cost that is split evenly between the renter and owner.
The site has proved a particular godsend to self-employed artists such as DJs and film-makers, who are able to rent equipment for a fraction of the price they would normally pay, or, if they own the equipment, make a decent return on it. Many of Fat Lama's users are making around £650 a month, says co-founder Chaz Englander.
Plans to overhaul Link, Britain's largest ATM network, could result in the loss of at least 10,000 of the country's 55,000 free-to-use cash machines, leading to "ATM deserts" in deprived areas. Although the amount of cash being withdrawn is declining by around 5% a year, 45% of all transactions are still in cash. Losing 10,000 ATMs isn't such a hardship, says Patrick Collinson in The Guardian. France, which is much bigger than Britain, gets by with fewer than 50,000. But privacy is a "thornier issue". Once we go "fully cashless everything we spend will be tracked".