Over the past year borrowers have been treated to record low mortgage rates, giving many the chance to reap the rewards of low monthly repayments. However, those days may be coming to an end, with research from Moneyfacts showing that the lowest five-year fixed mortgage rates may already be a thing of the past.
After months of providers continually cutting rates in an attempt to secure borrowers, the near-constant speculation of an upcoming base rate rise means that this trend is beginning to wane. Take a look at the table below – it highlights the lowest ever rates recorded, and as you can see, the days of all-time low rates have been and gone, with rates already beginning to edge back up.
However, this isn't the result of a lack of competition, and instead, it's all to do with wholesale costs. Competition is still incredibly fierce in the mortgage market, but speculation of a base rate rise has meant that wholesale costs – or the price at which providers borrow money to lend out to borrowers – have started to increase, and providers have had little option to but to raise their rates in response.
"While competition in the mortgage market remains high, it's clear that record low rates are starting to disappear," said Charlotte Nelson, finance expert at Moneyfacts. "Five-year fixed rates have been particularly affected by wholesale pricing as the likelihood of a base rate rise within the next five years is high. For instance, the average five-year fixed rate at 60% loan-to-value has increased from 2.54% to 2.66% in the space of just two months."
However, even though rates are beginning to rise, there shouldn't be too much cause for concern just yet. They're still low in comparison to a few years ago, after all, which means that now could be the perfect time to re-consider your options before they edge up further.
But why stick with your usual pattern? Mortgage rates are only likely to increase in the foreseeable future, so it could be time to consider fixing your mortgage rate for longer, suggests Charlotte. "Borrowers have been in the habit of fixing for two years at a time, with many preferring to re-evaluate their deal on a regular basis. However, committing to a low five-year deal now is likely to pay off if base rate does rise, especially if there is a set of consecutive increases. For example, our calculations show that a small rise of just 0.25% on today's average standard variable rate (SVR) of 4.84% would cost the typical borrower an extra £261.72 a year, so it could pay to think longer-term."
Did you blink and miss the lowest rates on the market? It wouldn't be surprising, as many were only available for a couple of months before they were withdrawn, but that doesn't mean there aren't good deals to be found (take a look at our mortgage best buys and you'll see what we mean). Long-term mortgage rates are still highly competitive, so if you're sitting on your lender's SVR or are coming to the end of a fixed rate mortgage deal, now's the time to grab the opportunity to fix to a low rate and secure low repayments for years to come – even if base rate rises.
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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