Mortgage chase is on before rates start to move

Although the Bank of England’s base lending rate has been at a record low of 0.5 per cent for more than six years, there are signs that loan rates are starting to rise and the best deals won’t be around for much longer.

In a recent speech, Bank Governor Mark Carney said the decision to increase its base lending rate, which shapes how High Street banks and building societies price their home loans, is likely to come into “sharper relief around the turn of this year”.

His prediction that, once the process begins, base rate rises will continue for around three years, is good news for savers, but not for mortgage borrowers.

Charlotte Nelson, finance expert at comparison site Moneyfacts.co.uk, said: “Since Mark Carney’s speech, we have seen providers prepare for the inevitable with many opting to increase selected rates in their range.”

The cost of the average two-year fixed-rate deal rose from 2.76 per cent at the start of August to 2.82 per cent at the end of the month, while the typical five-year fix increased from 3.24 per cent to 3.29 per cent over the same time.

Ms Nelson added: “This goes to show that we do not necessarily need a base rate rise to see rates move upwards. Borrowers, therefore, need to act fast to secure the remaining record-low deals on the market, as these offers will not last forever.”

According to Halifax, the current low-rate environment, combined with high rental costs, means it is now almost £750 a year cheaper to buy a home in Scotland than to rent one.

The bank puts typical monthly outgoings for mortgage, insurance and household repairs on a three-bedroom house north of the Border at just £537, compared to an average rent of £599.

Many Scots have already taken the opportunity to climb onto the property ladder or improve on their existing loan deal this year.

The Council of Mortgage Lenders says that in the three months to the end of June, lending to first-time buyers was up 11 per cent on the same quarter in 2014, while remortgage borrowing rose 21 per cent in the same period.

Kennedy Foster, the CML’s policy consultant for Scotland, said: “With competitive mortgage deals, better affordability than the UK overall and the replacement of stamp duty with a new taxation system that benefits the majority of borrowers, it appears conditions are relatively favourable at the moment in Scotland for those looking to buy a home.”

For first-timers keen to take the plunge, Tesco Bank is offering a two-year fix at 3.99 per cent annual interest with a fee of £495, while Clydesdale Bank has a fee-free three-year fix at 4.59 per cent. Tesco also has a five-year fix for first-time buyers at 4.49 per cent with a £495 fee. All these deals are available up to 95 per cent of property value.

Those seeking to remortgage at no more than 75 per cent of their property’s worth and able to pay a £975 fee could fix for two years at 1.29 per cent with Yorkshire Building Society.

Leeds Building Society will lend up to 80 per cent of value, fixed at 1.99 per cent for two years, with a £199 fee, while Norwich and Peterborough has a three-year fix at 1.88 per cent with a £195 fee for those who can put down a 35 per cent deposit.

Norwich and Peterborough also has a five-year fix at 2.64 per cent for those with a 25 per cent deposit. The fee for this deal is £345.

Anyone thinking of remortgaging should first check if there are any early repayment penalties on their existing loan and factor these into their calculations. It could still be worth making a switch, particularly if it is near the end of the penalty period.

Dan Plant, consumer expert at MoneySupermarket.com, said: “Many lenders allow mortgage holders to reserve rates available now for up to six months for a small fee, so even those who still have some time left on their current deal can benefit.

“As always, prospective buyers need to think about the long term and work out the total cost of the mortgage, including both rates and fees, before committing to a deal.”

Borrowers choosing a short-term fix or a variable rate also need to be sure that they can continue to afford the repayments when, as now seems inevitable, the rate rises come.

CASE STUDY

Angela and Steven Anderson’s decision to remortgage earlier this year will save them almost £10,000 by the time their loan is paid off.

The Greenock couple decided to look into changing lenders after project manager Steven switched jobs.

Lecturer Angela explained: “A TV advert for Clydesdale mortgages caught my eye and, although we weren’t Clydesdale customers, I decided to pop down to the branch.

“Within 15 minutes, they’d explained their deals and the move seemed really attractive.”

By swapping from their existing lender’s standard variable rate to a fee-free two-year fix at 2.19 per cent, they were able to reduce their loan term by three years with only a slight increase to their monthly repayment.

Angela said: “It’s a particularly good rate and it was just so easy to switch, so we’re very happy customers.”