A SERIES of mortgage lenders have cut rates this week. But is now the right time to fix your deal?
Olivia Marshall takes a look at the state of play and how low rates could fall . . .
WHY ARE RATES HIGH?
Last year, a succession of Bank of England base rate hikes and disappointing inflation figures led to rises, with two-year fixes averaging 6.86 per cent in July.
But since then lower inflation and a steadying BoE base rate — followed by a cut from 5.25 per cent to 5 per cent on August 1 — have seen mortgage rates edge down. Lenders including NatWest, Halifax and Virgin Money have cut rates.
STATE OF THE MARKET
The vast majority of mortgage customers are on fixed rates — almost seven million. Around 700,000 loans are up for renewal in the second half of this year, says UK Finance, and borrowers face huge bill increases.
Borrowers with tracker and standard variable rate (SVR) mortgages usually see an imm-ediate change to payments as the base rate changes.
HSBC and TSB confirm they have already cut their tracker rates to reflect the new base rate. UK Finance says the base rate cut saved homeowners on average tracker mortgages £28.44 a month or £341 a year.
TO FIX, OR NOT TO FIX?
If you’re nearing the end of your mortgage or buying a house, should you fix now?
Standard variable rates are unlikely to offer borrowers value because they are usually higher than trackers or fixed rates.
Trackers, on the other hand, are linked to the BoE base rate. These have proved popular as they follow the base rate and allow some flexibility.
The average tracker is 5.75 per cent as of August 6.
Meanwhile, the average five- year fixed-rate mortgage is 5.36 per cent and two-year fixes are close to 5.75 per cent, according to Moneyfacts.
The market-leading rate is 3.84 per cent for a five-year fix with Barclays.
If you fixed now for five years on the average rate of 5.42 per cent with a £250,000 mortgage, you’d pay back £84,420 over that time.
But if you fixed in April when average deals were 5.08 per cent, you’d pay back £81,240.
This shows the difference a tiny percentage difference can make to how much you pay.
David Hollingworth, associate director of L&C Mortgages, says: “Fixed rates have slowly been coming down and that’s likely to continue, so there could be cheaper rates appearing from lenders over time.
“Most people will want to fix their rate so they know where they stand.
“If your current deal is coming to an end in a few months, it makes sense to select a deal now and make sure that everything is lined up.
“You can still check whether rates have improved in the months to come and most lenders will allow you to switch on to a new lower rate.”
But Ryan Davies, strategy director at Bluestone Mortgages, cautions that borrowers must consider their circumstances before locking into a deal that looks good.
He says: “In this challenging environment, a key factor when making a decision should be whether you can afford your repayments.
Speaking to a broker is the best place to start.”
Mortgage brokers scour the market for the best deals based on your personal circumstances and requirements.
You want to make sure you speak to one who covers the “whole of market” and is not tied to any specific lenders.
Some brokers charge a fee up front, while others will instead earn commission from the lender.
But make sure you know your fee before going ahead with any advice they are offering.
HOW LOW WILL RATES GO?
Brokers say it’s unlikely we’ll see rates of one to two per cent any time soon.
Nicholas Mendes, at broker John Charcol, says: “The outlook for 2024 suggests a modest reduction in mortgage rates by the end of the year, but bigger drops are expected in 2025.”
However, with lenders already dropping rates below four per cent, experts say they are heading in the “right direction” for buyers.
Mr Hollingworth says: “There’s room for fixed rates to come down further as long as there’s no negative news. That could therefore mean more five-year rates below four per cent, and two-year rates could come close to this as well.”
Holly Tomlinson, financial planner at wealth manager Quilter, adds: “A feeling that rates are going in the right direction will help many people decide to take the leap back into the market, pushing up demand for homes.”
Finding the best deal
THERE are a number of ways to secure the best mortgage deal.
1) PUT DOWN A BIG DEPOSIT: Lenders usually offer a better deal if you have a larger deposit.
For example, if you put down 20 per cent of the value of your home, you are likely to get a better rate than if you put down ten per cent.
2) IMPROVE YOUR CREDIT SCORE: This will give you access to lower rates, as will getting a pay rise.
You can check your report for free across all reference agencies using checkmyfile.com.
3) GO ONLINE: Begin by doing a search online to find a mortgage. For example, moneysavingexpert.com has a useful tool.
But using brokers can also help you get a better deal, as they can have access to rates you can’t find anywhere else. Top brokers include L&C Mortgages, John Charcol, Moneybox Mortgages, Habito and Mortgage Advice Bureau.
Some firms will charge you a fee, while others will take commission for setting you up with a deal.
You want to use a broker who is “whole of market”, as they offer deals from 90-plus lenders and have specific broker-only deals.
You should also check lenders that don’t operate through brokers, such as Yorkshire Bank, Forest Direct and Yorkshire Building Society.
4) START EARLY: If you’re remortgaging, you can lock in a deal up to six months before your current deal ends.
Use a mortgage calculator to see how much you can borrow and what rates you might get.
Rules overhauled to help savers
HOUSEHOLDS could get new support to help them boost their savings under new government and watchdog plans, Sun Money can reveal.
Currently, savers who have cash with pension and investment firms can’t get help with where to put their money without paying for financial advice.
But under new plans, financial firms will be able to provide “targeted support” to savers to assess options for their money, according to sources involved in discussions about the policy.
It is understood the plans will allow providers to recommend products or solutions to savers based on what is suitable for “other people like them”.
A consultation for pension firms will run this winter, followed by one for investment firms next spring, and the final rules will be confirmed later.
A consultation is where the Government or watchdogs ask the industry affected by policy changes for feedback before finalising their plans.
An FCA spokesperson told The Sun: “We have been talking to a range of interested parties about this important piece of work. We intend to set out our plans later this year.”
Tom Selby, director of public policy at AJ Bell, believes the changes are positive for savers.
He said: “Deciding how to save and invest can feel intimidating, so ensuring ordinary people get the best possible help with their finances is crucial.
“The regulator and Government deserve huge credit for pushing forwards with these ambitious plans, which have the potential to benefit millions of Brits.”
Home-buyers in stamp duty peril
FIRST-time buyers could end up paying thousands of pounds extra in stamp duty because of delays to house sales.
A number of mortgage brokers told Sun Money they are seeing sales take much longer since the Covid pandemic and buyers are not factoring this in.
As a result, those thinking about buying now could miss out on the temporarily higher stamp duty threshold of £425,000, as it is set to fall back to the lower threshold of £300,000 from April next year.
Currently, anyone buying a £425,000 first home wouldn’t pay any stamp duty at all, but after this deadline, they would have to pay £6,250 in stamp duty.
Martin Lewis, mortgage broker at London Money, said: “The problem with cliff edges is that they tend to arrive just when you least expect them.
“Many will have lost sight of this particular one due to the distraction of the General Election. But the matter is further complicated by the fact that the process of home-buying is now taking much longer than it used to.”
The time it takes to complete on buying a home depends on individual circumstances.
If you are concerned your house purchase is taking too long, speak to your broker and conveyancer.
