Mortgage rates are rising. Finance website Moneyfacts reports that average two- and five-year fixed rates stood at 2.29% and 2.59% respectively at the start of November. That is a small increase compared to early October and marks the first monthly rise since June. Although the Bank of England held interest rates at 0.1% last week, lenders are positioning themselves for rate rises ahead. Moneyfacts says that the number of deals offering rates below 1% has also fallen, from 131 in early October to 30 by 1 November.
When they do come, Bank of England interest-rate rises will most immediately hit the 850,000 people on tracker mortgages, say Fiona Parker, Amelia Murray and Helena Kelly in the Daily Mail. A rise in the base rate to 0.75% would cost a borrower with a £150,000 25-year tracker loan an extra £600 in annual mortgage payments, says AJ Bell. The 1.1 million households on standard variable-rate (SVR) mortgages will also feel the heat from an interest rate rise.
Staying on your lender’s SVR after the fixed deal is up can still make sense for some people, say Rachel Mortimer and Will Kirkman in The Daily Telegraph. “If you have a mortgage that is relatively small, say under £50,000, it might not be worth remortgaging if the new mortgage fees outweigh the potential savings.” Yet for most borrowers, fixed-rate mortgages are the clear choice. Today 81% of the mortgage stock is fixed, up from 41% in the late 2000s. For new loans the figure is even higher: over 90% of new mortgages are now fixed-rate, according to data from UK Finance; 46% are fixed for five years, and 45% for two years.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Beware steep exit fees
With rates heading up, some are opting to switch now to lock in a better rate, even if they have to pay steep exit charges to do so. Aaron Strutt of Trinity Financial tells the Financial Times that “one client recently decided to pay £12,000 in exit fees on two five-year mortgages... to lock in a low rate over ten years”. Rising property values also mean some homeowners are now eligible for lower rates. But early repayment charges, typically about 5% of the loan, are only worth paying if you are desperate to escape your current deal.
If you don’t want to pay exit charges there are other things you can do. Kate Palmer and Ali Hussain in The Times suggest overpaying the mortgage: “Even a small amount every month can make a dent over the long term, reducing the amount that you will need to borrow when you next come to remortgage”. That will also help you get a better rate when you do. For those with six months or less left on their current deal it is time to go shopping, either by comparing online or contacting a mortgage broker. Lenders will typically allow you to lock in a rate three to six months ahead.
While lenders have been withdrawing the best rates – especially ultra-low ones offered to people with large deposits – there are still good deals on offer, says Palmer. You can find a 0.88% two-year fix with a £1,999 fee from Cumberland Building Society, while Lloyds Bank offers a 1.07% five-year fix with a £1,499 fee for re-mortgagers. Factor the fees into your calculation when deciding what deal is right for you. Indeed, those coming off two- and five-year fixed rates now are in luck, says Helen Crane for This Is Money. In November 2019 the average borrower paid 2.45% for a two-year fix, versus 2.29% now. “Those who fixed for five years in 2016, when rates were slightly higher still, could also find a better deal.”
The fallout from the war on landlords
Investors fleeing the market and the rise in rents are affecting us all.
By Charlie Ellingworth Published
Eight small-cap trusts to bet on
Funds investing in market minnows are out of favour, but the cycle will turn. Here are the best bets.
By Max King Published
How to cut the cost of home insurance
Home insurance policies are becoming increasingly expensive, but there are several ways you can keep costs down.
By Ruth Jackson-Kirby Published
Are lifestyle funds still fit for purpose?
Lifestyle funds have failed to do what they were supposed to do – shield savers from risk in the run-up to retirement.
By David Prosser Published
NatWest-owned Ulster bank boosts easy access savings rate to 5.2%
Rates on easy access savings accounts have hit over 5%, with Ulster Bank now giving savers the chance to earn 5.2% on their cash savings. We have all the details.
By Marc Shoffman Published
Moneybox raises market-leading cash ISA to 5%
Savings and investing app MoneyBox has boosted the rate on its cash ISA again, hiking it from 4.75% to 5% making it one of top rates. We have all the details.
By Ruth Emery Published
October NS&I Premium Bonds winners - check now to see what you won
NS&I Premium Bonds holders can check now to see if they have won a prize this month. We explain how to check your premium bonds
By Kalpana Fitzpatrick Published
October’s NS&I Premium Bond winners revealed - have you scooped £1 million?
Two lucky NS&I Premium Bond winners are now millionaires this October. Find out here you are one of them
By Kalpana Fitzpatrick Published
The best packaged bank accounts
Advice Packaged bank accounts can offer great value with useful additional perks – but get it wrong and you could be out of pocket
By Tom Higgins Published
Energy bills to fall 7% under new price cap
Energy bills could fall by an average 7% from October under the new Energy Price cap announced today. We explain what the new cap mean for you and when it will come into play
By Pedro Gonçalves Published