The base rate might have stuck stubbornly at 0.50% for the past three years, but some of the country's biggest lenders are increasing their standard variable rates (SVRs) from May 1.
Halifax, Co-operative Bank, Clydesdale Bank and Royal Bank of Scotland are all about to put up their SVRs, hitting one million borrowers where it hurts. The average rise is 0.62%, which will add an extra £52.58 a month to a £150,000 mortgage, according to MoneySupermarket.
Fixed rates are going up, too. The average rate for two-year fixes hit a low of 3.82% in October 2011, but has now climbed back up to 4.15% – a difference of £27.31 a month on a £150,000 mortgage. Similarly, five-year fixed rates fell to a low in January this year with an average rate of 4.57%. The average has now crept up to 4.72%.
There has also been an increase in the average rate for two-year trackers. In August last year, the average tracker loan was pegged at 2.87 percentage points above the base rate to give a pay rate of 3.37%; it now stands at 3.13 points above base, or 3.63%.
Experts are, therefore, advising borrowers to check their current mortgage rate to make sure they are not paying over the odds. Clare Francis, mortgage expert at MoneySupermarket.com, says: "Mortgage rates are nudging upwards so anyone looking for a mortgage or whose mortgage deal will end in the next few months should act sooner rather than later to secure one of the current rates in case they rise further."
Borrowers who are paying the lender's SVR have enjoyed low rates over the past few years. But the imminent hikes should prompt a mortgage review. For example, Halifax's SVR will go up from 3.50% to 3.99% on May 1. Customers of Clydesdale Bank will pay 4.95%, up from 4.59%. But there are cheaper deals available elsewhere. David Hollingworth of L&C Mortgages, a broker, says: "The rate rises highlight the fact that lenders can move their SVRs arbitrarily, whether or not there is a change in the base rate. However, borrowers can save money and put more certainty into their mortgage, either by fixing the rate or opting for a tracker."
Tracker mortgages are pegged to the base rate. In other words, a lender cannot raise the rate unless the base rate also rises. Yorkshire Building Society is currently offering a tracker pegged at 1.99 percentage points above the base rate for two years, to give a current rate of 2.49%. There is a £995 fee and a minimum 25% deposit. Or, HSBC has a tracker at 2.19 points above base for the life of the loan, so the current pay rate is 2.69%. Borrowers must put down a minimum deposit of 40%, but there is no fee.
Many economists expect the base rate to remain at 0.5% for some time. But if you are worried by the prospect of interest rate rises in the future, you might prefer to fix your mortgage.
You can normally fix for between one and five years, but you should consider your options carefully because there are penalties if you want to get out of the mortgage before the fixed rate expires. David Carmichael, a director of Taylor Carmichael Financial Services in Glasgow, says: "The choice depends on individual circumstances, but if you are expecting a change in your employment or lifestyle in the short term, then it might be better to opt for a two-year fix rather than lock in for five years. Or what about a three-year fix as a compromise?"
The difference in the cost of two- and five-year fixes is also relatively small, pushing many borrowers towards the long-term deals. For example, you can fix for two years with HSBC at 2.64% as long as you have a deposit of at least 40%. The fee is £1999. Or there's a two-year fix from First Direct at 2.89% with a minimum deposit of 35% and a £499 fee.
But Yorkshire Building Society is offering a three-year fix at 3.14%, only slightly higher. The minimum deposit is 25% and the fee is £995. Or there's a five-year fix from Yorkshire Building Society at 3.79%, with a minimum deposit of 25% and a fee of £495. A number of lenders have tried to solve the dilemma by combining a tracker with a fixed rate. Accord Mortgages, for example, offers a five-year hybrid deal that is pegged at 2.85 points above base for two years, followed by a three-year fix at 4.35%. There is a £1995 fee and a minimum deposit of 25%.
Borrowers should, however, remember that it is not always easy to arrange the mortgage of your choice.
Mark Dyason, director of Edinburgh Mortgage Advice, an independent mortgage broker, says: "Over the past couple of months, lenders have significantly tightened their scorecards. A credit score that would have secured a loan six months ago now has every chance of being rejected."
Julie and Brian Teaz live in Irvine, Ayrshire with their three children – Elizabeth, 12, Joseph, 10, and three-year-old Jacquelyn. They recently took out a five-year fixed-rate mortgage after their previous deal expired. Julie, 41, says: "We always fix our mortgage rate for peace of mind. I don't work so we rely on my husband's income, which makes us ultra careful. We want to be sure that we can pay the bills."
She talked through a range of options with London & Country, a mortgage broker, before she eventually decided on a home loan from ING Direct fixed at 3.79% for five years, with no fee.
Julie said: "We looked at fixes over three, four and five years and this one seemed like a good deal. We are also hoping the fix will work in our favour as interest rates can't go any lower over the next five years."
