The last few years have proved incredibly beneficial for homeowners, many of whom have been able to take advantage of record low mortgage rates. But, it couldn't last forever – mortgage rates have started to creep up, so it looks like the party's well and truly over.
The Government's Funding for Lending Scheme, a key reason mortgage rates fell to such lows, was withdrawn from the retail market in January this year. It was thought that this would lead to an increase in rates eventually, but Moneyfacts can reveal that average rates have already started to escalate.
But, this isn't an industry-wide phenomenon. The most popular five and two-year fixed rate mortgages have started to rise, and have done so pretty quickly, but at the same time the lesser-known three-year fixed rate has actually continued to fall.
The table below shows this in more detail.
As you can see, the average rate for a two-year fixed rate mortgage – while still lower than it was in August 2012 when FLS was introduced – has risen considerably since January. From 3.52% it's now risen to 3.81%, equating to an additional £23.55 per month, based on a £150,000 mortgage.
Five-year fixed rates have fared worse still, and will now set you back £24.11 more per month than they would have in January.
Sylvia Waycot, editor at Moneyfacts.co.uk, commented on the findings:
"FLS continues to weave its misery even after its withdrawal, only this time it is potential mortgage borrowers that will feel the pain as average rates rise on two and five-year fixed rates.
"Bearing this in mind, it is even more alarming to find that the average rate on the less well known three-year fixed rate mortgage continues to fall, dropping from 5.02% in August 2012 to just 3.79% today – and having fallen by 0.04% since January alone.
"This means that attractive deals are still available, but borrowers need to look beyond the overtly marketed ones. Three-year fixed rate deals can easily be overlooked as they tend to not be the norm or readily marketed by providers, and yet they are as viable a product as any two-year mortgage."
So, what does this mean for consumers? Well, even though fixed rates on the most popular mortgages are heading upwards, it might be time to consider the alternatives. There are clearly some great deals to be found if you opted for a three-year mortgage, particularly with interest rates actually falling in this sector of the market – currently being cheaper than average two-year deals.
Given that you'll have an extra year of knowing exactly what you're paying, and at a lower rate – and therefore lower monthly repayments – the three-year mortgage could well be a viable alternative. Check out our best buy tables to see if a three-year mortgage could be the solution for you.
Compare fixed rate mortgages
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