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Homeowners benefit from years of low rates

Homeowners benefit from years of low rates

Category: Mortgages

Updated: 04/03/2014
First Published: 04/03/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Thursday's Bank of England base rate announcement is expected to mark the fifth year of rates being at the historically low level of 0.5% – something which will leave many homeowners smiling, as they can continue to benefit from record low mortgages rates as a result.

Moneyfacts analysis has revealed just how much mortgage rates have fallen over the last few years. In March 2009, the lowest rate available for a two-year fixed rate 60% loan-to-value (LTV) mortgage was 2.99%, whereas today's equivalent charges just 1.48%.

That means, after working out the true cost of the mortgage (including fees and introductory offers) and based on a £150,000 loan over 25 years, today's borrower will be saving almost £800 (£788.96).

Even this amount falls into insignificance when compared to that of the first-time buyer looking for a mortgage at 90% LTV. Five years ago the best rate that could be found was 5.99%, but today that has fallen to 3.45% – making a true cost saving of £5,046.88 over a two-year term.

"In 2009, no one would have dreamed that mortgage rates would fall to their present low and stay that way for five years," said Sylvia Waycot, editor of Moneyfacts.co.uk. "The savings on a two-year mortgage now compared to 2009 is literally thousands of pounds for a first time buyer.

"Of course, had it not been for the Help to Buy initiative, first-time buyer rates would not be looking so good, as for the majority of the past five years this category of borrower has been shunned by lenders as far too risky. It is only now that the mortgage market, which has been closed for five years to all but the 60% LTV sector, is once again open for business."

Help to Buy has therefore been a catalyst for the increased availability and improved competition of high LTV mortgages, which means that many first-time buyers can not only get on the ladder but they can do so at much better rates.

Rates for current owners are even better, and with low base rate expected to continue it means homeowners could easily benefit – particularly if they take the opportunity to remortgage, with there being some great deals available from a range of providers (check out our best buys to see for yourself).

However, unfortunately rates won't stay this way forever. That's why it's even more imperative to get a great deal, while first-time buyers need to be especially cautious: "… wonderful though it is to be paying less for a mortgage, the current base rate is not the norm and rates will rise eventually. First-time buyers particularly need to be aware of over-stretching themselves financially," added Ms Waycot.

Helping with this will be the new rules being implemented in April, which will ensure lenders check any potential borrowers can comfortably afford a rate rise – thereby not making affordability an issue in the future – but it's always best to do your own calculations as well to make sure you won't come unstuck should rates start to increase. In the meantime you'll want to make the most of current conditions by getting the best value mortgage you can find, ensuring you're able to reap the rewards of record low rates for as long as possible.

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