MortgagesJul 20 2015

Comparison site urges consumers to lock in before rate rise

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Comparison site urges consumers to lock in before rate rise

With rates at record lows - mortgage holders now pay £12,000 less on a five-year fixed deal and £6,000 less on a two-year fix than in 2008 - MoneySupermarket is urging consumers whose mortgage ends this year to book one of the current cheap deals to beat any future interest rate hikes.

The comparison website noted that last week saw Bank of England governor Mark Carney giving his strongest indication yet that interest rates could rise at the turn of the year.

Analysis of the latest rates and their fees found that leading five-year deal offers a fixed rate of 2.14 per cent, with a booking and arrangement fee of £1,675. This means the total amount paid back over the five years for someone borrowing £150,000 is £40,435.

By comparison, in 2008, during the peak period during the credit crunch when mortgage costs increased, the best five-year fixed rate mortgage came in at 4.89 per cent.

Although the fees for this were £1,094, the total cost to be paid back amounts to £53,114 – £12,679 more than today’s best offer.

It’s a similar story for two-year fixed rate mortgages. In November 2008, the leading mortgage rate on offer was 4.79 per cent and came with fees of £995, meaning the total paid back over the period amounted to £21,611. The best two-year fixed rate now is 1.05 per cent, which comes with more expensive fees of £1,995, but the total cost owed is £15,651 – a saving of £5,960.

MoneySupermarket explained that many lenders have begun allowing rates to be ‘booked’ up to six months in advance, subject to its terms and conditions.

Anyone on an “expensive” standard variable rate with their current lender could see their monthly payments rise by an extra £264 per year if a rumored 0.25 per cent rise in base rate happens.

For example, the current average SVR for existing borrowers is 4.84 per cent – on a typical £150,000 over 25 years, this equates to £863 per month in repayments. A base rate increase of just 0.25 per cent could push up a monthly payment on the same mortgage to £885.

Dan Plant, head of content at MoneySupermarket said that fervour about a potential rate rise is likely to make lenders jittery, meaning they could start pricing this into their available deals soon.

“If you are in a position to fix right now, doing so will get you security at a cheap rate. But even if your current deal doesn’t end until December, many lenders will let you reserve rates that are available right now, for up to six months, for a small fee.

He noted that when comparing mortgages, it’s vital to work out the total cost over the term of the deal, taking both rates and fees into account.

peter.walker@ft.com