What next for mortgage rates? The best fixed rates inch up as rate rise chatter increases - so is it time to fix?
By Simon Lambert for Thisismoney.co.uk 12:55 17 Nov 2014, updated 10:56 20 Aug 2015
With interest rates tipped to rise in early 2016, homeowners have been rushing to fix their mortgages.
Some of the absolute cheapest mortgage rates have been pulled, as banks look to squeeze a little more from borrowers, but rates remain historically low.
The path mapped out for interest rate rises is a gentle upward curve, yet borrowers should consider that rates are forecast to be rising in two year's time and so those taking shorter term fixed rates will need to bear in mind that costs when those deals end are likely to be higher.
For those with the largest deposits - of about 35 to 40 per cent - it is possible to fix for five years below 2.5 per cent and for two years at below 1.2 per cent.
At the benchmark 25 per cent deposit mark, five-year fixed rate mortgages hover at about 2.5 per cent, while two-year fixes stand at about 1.3 per cent.
Bank of England figures show that average mortgage rates inched up ever so slightly in July after hitting a record low in June 2015. The average two-year fix at 75 per cent loan-to-value was 1.87 per cent, while the average five-year fix was 2.83 per cent - this compared to 1.83 per cent and 2.82 per cent the previous month.
The best rates on offer are even lower than this. Homeowners can fix for two years at just 1.07 per cent and up to ten years at just over 3 per cent.
For some those may feel too short or too long, but a five-year fixes at below 2.5 per cent might look a very tempting middle ground.
On the slide: Mortgage rates have tumbled as this chart using Bank of England data for the average rates at 75 per cent loan-to-value shows
What is happening with rates?
The prospect of an interest rate rise was pushed into the distance by low inflation, slowing world growth, the oil price slump, the eurozone's continuing woes, and lots of other things that keep central bankers awake at night.
Thanks to all that, homeowners were served up the opportunity to take out some very cheap mortgages.
The mood seems to have shifted for interest rates though.
Hints are being dropped by Bank of England officials that its ratesetters will have to start considering raising interest rates at around the start of 2016.
As an interest rate rise draws closer, banks and building societies
will face slightly higher costs for their own funding on the money markets and with demand for fixed rates high, they are likely to start raising rates.
Can you get a mortgage?
Banks and building societies have broadly got to grips with the tougher new mortgage rules introduced in April 2014. These produced a marked slowdown in lending and home sales but transactions have now risen back towards the level they were at previously.
Getting a mortgage is tougher though.
You will need to get your finances in order and be prepared for the lengthier application process and in-depth affordability interviews getting a mortgage requires nowadays.
Weigh up the above, check the rates below and in our best buy tables, have a scout around what the best deals look like – and speak to a good independent broker if you need help deciding.
There are a couple of things to look out for if you do decide to take a cheap fix up.
You need to check the bumper arrangement fees are worth paying – if you don’t have a big mortgage you may be better off with a slightly higher rate and lower fee.
It’s wise to also think carefully about whether you expect to move home soon. A good five-year fix should be portable, so you can take it with you.
But your new property will need to be assessed and you might need to borrow extra money, and so your lender could still say no.
Getting out of a fix typically requires a hefty hit to the pocket from early repayment charges.
Today's low rates may stick around, they may even inch a little lower, but they may also be swiftly axed.
If you think you’d kick yourself if you miss out on one, then set aside some time to consider what to do.
Fix vs tracker: where are the best rates?
Borrowers should have a quick look at the rates below, these are regularly updated by This is Money's mortgage product specialist Marc Shoffman. If you spot a deal you think has been pulled or should be in there, email him via firstname.lastname@example.org with mortgage rates in the subject field.
For a fuller rate check use This is Money's mortgage finder service and best buy tables. these are supplied by our independent broker partner London & Country. When dealing with any broker, remember some lenders will not usually be included as they do not pay commission, some of these such as HSBC and First Direct consistently offer top rates, so check their deals.Source: www.thisismoney.co.uk