Homebuyers and those looking to remortgage were this week being urged to act fast if they want to lock in a competitive home loan deal.
Many banks and building societies have been pulling their mortgage deals or repricing them upwards, often at very short notice, as they grapple with rising interest rates and inflation, and the wider economic volatility.
Many economists reckon the news this week that inflation has hit 7% puts more pressure on the Bank of England to hike interest rates rapidly. But at the same time, some odd things going on with fixed-rate mortgage pricing suggest some lenders think a sharp economic slowdown may be coming down the tracks that means the Bank would need to stop putting interest rates up or even cut them in the future.
That could leave some people on the hunt for a fixed-rate mortgage facing a dilemma: do you sign up for a longer-term fix – five or even 10 years – on the basis that this will protect you from the economic “storms” for longer, or do you go for a shorter-term deal – two years, say – so you are free to hop on to another loan if rates drop in maybe two years? Ultimately it will be down to individual circumstances and things such as how tight your finances are.
What’s not in doubt is that many mortgage deals are getting pricier, and lenders are also starting to tighten their affordability tests because of the cost of living crisis, which may mean some borrowers can’t borrow as much as they would like – so that’s two reasons why it’s a good idea to act speedily if you can.
Financial data provider Moneyfacts this week said the average two-year fixed-rate mortgage on sale in April was priced at 2.86% – up from 2.65% in March, and the highest figure since 2015. Meanwhile, the average five-year fix rose from 2.88% to 3.01%.
Eleanor Williams at Moneyfacts says: “Those hoping to secure a new mortgage may wish to act sooner rather than later.”
Lloyds Bank this week launched ads to promote its new 10-year fixed rate aimed at those looking for long-term security. The headline rate is 2.23%, which was table-topping, but the maximum loan-to-value (LTV) for that rate is 60%, which will rule out many people. Those looking to borrow, say, 90% of the property’s value will pay quite a bit more. For example, Virgin Money has a 10-year fix at 3.99%.
In terms of two-year fixes, rates start at 1.75% (Hanley Economic building society) to 1.79% (Cumberland building society). These were two of the best rates available on Thursday.
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Not only are the rates on offer increasing, but the best deals are becoming harder for borrowers to grab as they don’t hang around for long, says Williams. This month, the average “shelf life” of new mortgages fell to just 21 days.
Chris Sykes at the mortgage broker Private Finance says the cost of short-term borrowing and long-term borrowing has converged, with only 0.15% separating the best two-year fixed rate from the best 10-year fixed rate earlier this week. “We are seeing an increasing number of clients opt for longer fixed terms of five years and up,” he adds.
Sykes says there has been a fundamental shift in the interest rate environment, from one where it made sense to take the shortest-term mortgage possible as it was highly likely a cheaper rate would be available when you came to remortgage, to one where rates are rising and it’s possible the Bank of England base rate could catch up with the best available rates today in a year or two.
Samantha Bickford, a mortgage specialist at Clarity Wealth Management, says that “another interest rate rise, and soon, is inevitable … For those due to remortgage soon, don’t delay”. She says her advice would be to secure a longer-term fixed rate now, while you can, “to ride out the mortgage market storm that is brewing”.
Amanda Aumonier at online mortgage broker Trussle says many lenders are clearly betting on an economic downturn impacting the property market. However, she adds that borrowers should be aware that “we will likely see rates increase further before any potential decrease”.
Retrieved from：https://www.theguardian.com/money/2022/apr/16/looking-for-a-mortgage-time-to-get-move-on-inflation-best-offers-interest-rates?CMP=share_btn_wa (16 April, 2022)
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