The interest rates charged on fixed rate loans are rising again after steep increases in mortgage-lenders’ own borrowing costs.
The average interest rate on a two-year fixed rate mortgage will soon rise above 7 per cent, according to moneyfacts.co.uk, a financial product comparison service.
A rate of 7.25 per cent would make the monthly payment on a £150,000 two-year fixed rate mortgage to £1,084.
Monthly payments on a similar mortgage fixed at 5.25 per cent would be £898.
Higher rates for fixed mortgages will come as a particularly heavy blow to thousands of homeowners looking for new loans as their previous fixed-rate periods come to an end. Two years ago, the average rate on a fixed mortgage was 4.34 per cent.
There are around 5.9
Mortgage rates are being driven upwards by the increasing costs banks and other lenders face when raising money for loans.
Swap rates, which measure the interest rates banks have to pay to borrow, have been rising steadily in recent weeks, even though the Bank of England’s base rate has remained on hold at 5 per cent.
Rates charged on fixed-rate mortgages typically lag swap rates by two or three weeks.
Abbey and the Woolwich this week increased the rates on some of their new fixed rate mortgages, and brokers say other lenders are now poised to follow suit.
Sarah Robson of the Council of Mortgage Lenders, confirmed that rising swap-rates will mean more expensive mortgages.
She said: "The pricing of new mortgages will reflect the cost of the funds to the lender — if the cost of funds increases then the mortgage rates offered will increase."
In the last few years, the mortgage market abounded with competitive products as lenders vied for our business. There were thousands of products available, and lenders had ready access to enormous levels of wholesale funding. This made mortgage rates highly competitive and mortgage lending quite simple and straightforward. When a lender launched a fixed rate product, for example, it usually borrowed a tranche of money at a fixed cost on the money markets. So there is not as much money to lend and far fewer products on the mortgage market. Last year there were 15,000 mortgage products available and now there are just 4,000, according to Moneyfacts.
Aside from poorer service standards, mortgage products are staying on the market for a significantly shorter period than we have been used to.
If you find your ideal mortgage, it won’t stick around for long. If it’s competitive there’ll be others wanting to get their slice of the available funds too. If you already have a mortgage do this well in advance of your renewal date so you have a good idea of the type of product you are looking for– fixed, discounted or tracker rate for example — rather than the actual deal. 2. Secondly, consider products that do not tie you in with Early Repayment Charges, usually tracker rates. In addition they usually come with lower arrangement fees than fixed rates.
A good deal, low fees, and no tie-ins. This type of deal leaves you plenty of options when the market changes.
3. Finally, think about taking independent mortgage advice.
From the UK:
First direct has chosen a different approach to mortgage lending as it announces a rate cut on its popular fixed rate mortgages.
The news comes in the wake of a contradictory announcement from Abbey. Only two weeks ago, Abbey cut its rates but announced a swift u-turn earlier this week as it raised rates on new fixed rate mortgage deals by between 0.15 and 0.56 per cent.
The rate cuts on first direct mortgages come just weeks after the lender announced it was resuming the sale of mortgages to new customers after a six week halt. Both steps indicate the bank – a division of HSBC – remains in a strong lending position.
Since the credit crisis began to constrict mortgage criteria, first direct found itself inundated with applications for its popular and competitive mortgage deals. Consequently, the bank was forced to withdraw its entire mortgage range for new customers, but the bank has since resumed these services.
While several banks have fallen victim to sub-prime lending and been forced to make cash calls, first direct (and HSBC) has so far remained unscathed, and these latest rate cuts emphasise this.
Meanwhile Barclays’ home loan arm, the Woolwich, has joined Abbey in raising its mortgage rates with hikes of up to 3 per cent. Speaking of first direct’s rate cuts, chief executive, Chris Pulling, said:
"We regularly review our fixed rate mortgage offers to make sure they’re competitive. Today we’re reducing the cost of our popular two year fixed rates, which is likely to give them a prominent place in the best buy tables."
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