Mortgage rates have been at record low levels for the last few years, with a combination of the drop in base rate and the launch of the Funding for Lending Scheme having pushed rates down dramatically. It's meant borrowers have been able to enjoy equally as low repayments, but unfortunately that's about to change – the run of low rates is well and truly over.
Research from Moneyfacts.co.uk can reveal that the cost of direct fixed rate mortgage deals, especially the most popular two-year versions, are creeping upwards. After three months of historically low rates in the two-year 60%, 65%, 70%, 75% and 80% loan-to-value (LTV) tiers, the lowest rates offered by lenders has shot up in the last month, and the cheapest 90% LTV has also increased.
The five-year sector provides little comfort either as the cheapest rate on four out of seven LTVs increased over the month, some considerably. The table below shows just how much things have changed.
Lowest direct mortgage rates offered
Highlighted number reflect lowest ever rates
As you can see, there's been significant change. The biggest increase in rate was in the two-year 65% LTV tier which rose from its record low of 1.63% to 1.89% – up a whopping 0.26% in a single month. A lot of other rates weren't far behind, however, with the five-year 65% LTV tier rising by 0.21% and both the two-year 80% and five-year 75% LTV tiers posting a 0.20% rise.
Sylvia Waycot, editor of Moneyfacts.co.uk, comments:
"These are not averages; they are the lowest rates being offered by lenders direct to borrowers for fixed rate mortgages and they are moving upwards - now. Anyone taking the cheapest deal today will still get the cheapest deal, but it is going to cost more than it did last month."
What's also interesting to note is that it's those at the lower end of the LTV scale that are losing out. "For the first time in a long time, the people with the biggest deposits are coming off worse as the cheapest rates for FTBs are the same as last month," added Ms Waycot.
Historically it's tended to be the case that those with a larger deposit would benefit from the most improved rates, while conversely those with the lowest deposit would see their rates increase first.
This no longer looks to be the case, perhaps as lenders are capitalising on the increased competition in the high-LTV sector, or perhaps because many are offering 95% LTV deals with the Government guarantee behind them – meaning they're exposed to a lower level of risk and, therefore, don't have to increase rates quite so quickly in response to market changes.
Whatever the reason, the fact that rates are increasing so rapidly elsewhere in the market is bound to be cause for concern for a lot of borrowers. But just why is it happening?
Well, analysis would suggest that a lot of it is down to ongoing speculation of an impending rise to the Bank of England base rate, which would understandably lead to a corresponding jump in mortgage rates. Providers are aware that this is in the pipeline and so are reacting ahead of time, going on the assumption that an increase in base rate will mean, essentially, it costs them more to lend out the same mortgage.
"Fixed rate mortgages are finely tuned to SWAP rates which are in turn finely tuned to base rate speculation," explained Ms Waycot. "The continual stop/start over when BoE base rate will rise has caused SWAP rates to increase, with the end result now showing in the direct-to-borrower market. Borrowers are literally set to pay the price of a rate rise before the BoE rate has in fact risen."
Unfortunately, the end result is likely to be a continuing increase in mortgage rates for the foreseeable future, so if you're coming to the end of your term and are thinking about remortgaging, now's the time to do it. There are still great deals to be found but chances are they won't be here for long, so make sure to start comparing the options and consider fixing to a new rate before they creep up even more.
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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