Recently, the Bank of England surprised many with its decision to stick with its ultra-low 0.1% base rate. In spite of this, mortgage lenders have started to cut back on cheap mortgage deals, with both HSBC and Nationwide recently upping interest rates on their two- and five-year fixed-rate deals.
So what does this emerging trend mean if you’re on the lookout for a new mortgage?
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What is happening with cheap mortgage deals?
According to Moneyfacts, 131 mortgage deals offered rates below 1% during the first week of October. Fast forward to the middle of last week, and that figure shrunk to just 30 deals.
HSBC is one of the banks responsible for this trend. It raised the interest rate on its two-year fixed-rate mortgage product from 0.99% to 1.14%.
Commenting on the speed of sub-1% deals being removed, David Hollingworth, associate director of broker L & C Mortgages, explained that the lowest ever rates below 1% are “disappearing rapidly”.
Aside from sub-1% deals, other mortgage products are becoming more expensive too. Nationwide has upped its five-year 60% loan-to-value product from 1.24% to 1.34%, while Skipton Building Society announced it was getting rid of its three-year fixed range entirety.
Those in fear of worsening mortgage deals won’t welcome the news that the average rate for a two-year fix increased by two basis points (or 0.02%) to 2.29% in the past week. Meanwhile, the average three-year fix rose by five basis points (or 0.05%) to 2.31% and the average five-year fix rose by two basis points (or 0.02%) to 2.59%.
Interestingly, Moneyfacts reports that those with relatively large deposits are being particularly targeted by lenders. Average 65% loan-to-value mortgages have witnessed a rise of 15 basis points (or 0.15%) to 2.56%. On a similar note, 60% loan-to-value products rose five basis points (or 0.05%) to 1.5%.
What do higher mortgage rates mean for you?
The impact of rising mortgage rates will likely depend on your situation as a homeowner.
On a fixed mortgage deal?
If you’re currently on a fixed deal, mortgages becoming more expensive won’t have an impact on you in the short term. Yet the disappearance of ultra-low deals will undoubtedly make it more painful when the time comes to remortgage.
In other words, if you’ve become used to low monthly mortgage payments, be aware that this may not always be the case.
Looking to remortgage, or a first-time buyer?
If you’re on the cusp of remortgaging, or a first-time buyer, the disappearance of cheap mortgage deals is obviously bad news. That being said, while a large number of sub-1% deals have vanished over the past month, you can take comfort from the fact that mortgage rates are still historically very low.
If you are looking to remortgage, you may wish to act sooner rather than later, before more cheap deals vanish. However, before deciding on this, take into account any early repayment charge that may apply. If it’s hefty, you’ll have to weigh up the risk of remortgaging now and paying it, or carrying on with your current mortgage hoping that deals won’t significantly worsen when your fix ends.
On a standard variable rate mortgage?
If you’re on a standard variable rate (SVR) mortgage, you may find that your lender will increase its interest rate should lenders continue to slash cheap deals. If you’re worried about this, consider whether you should explore fixing your mortgage now. This is especially important if you don’t think you could cope with higher payments.
While SVR mortgages are often a lot more expensive than fixed deals, one advantage of this type of mortgage is that they rarely have an early repayment charge.
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Will this trend continue?
With cheap mortgage deals being cut left, right and centre, you may be wondering whether other lenders will follow suit and pull the plug.
While nobody can know for sure, the Bank of England will almost certainly raise its base rate at some point. Many expect it to happen next year.
If and when it happens, the disappearance of cheap mortgage deals may accelerate. That’s because lenders will look to compensate for increased borrowing costs.
Should you remortgage now?
Whether you should remortgage will depend on a number of variables, including:
- How long your current fix has to run
- The cost of the early repayment charge on your current deal
- Your risk appetite, and whether you have the financial capability to cope with increased monthly payments
Our complete guide to mortgages can help you make a decision on whether you should remortgage.
