by Mark Johnston
Is Now the Time to Grab a Fixed Rate Mortgage?
Mortgage rates have been slashed to record lows in the wake of government schemes such as the funding for lending scheme, to stimulate the property market.
Currently four in five new mortgages are arranged on a fixed-rate basis, according to lenders’ trade body the Council of Mortgage Lenders (CML). This suggests most borrowers are protecting themselves against rate rises.
Banks typically price their fixed mortgages according to the rates on the money markets “swaps”. Over the past week, the rate on five year swaps has risen from 1.77 per cent to 2.01 per cent.
Swap rates, which are also called interbank lending rates, like mortgages, apply to money lent over set periods. Two year swap rates have risen by 16 per cent in the fortnight since July 30 from 0.68 per cent to 0.79 per cent.
David Hollingworth of mortgage broker London & Country said: “Although swaps may be less closely linked to fixed rate mortgage pricing than in the past, it is still a key indicator. A rise in swap rates would indicate that fixed-rate deals are pretty much at rock bottom and potentially at risk of increasing.
So it would seem then that these increases mean the market expects the Bank Rate to rise sooner than Mr Carney has indicated.
Therefore, some lenders are now removing their best buy mortgages or pushing up rates. Yorkshire Building Society, one of the keenest competitors in recent years, has signalled that the low rate party may be coming to an end after it increased the rate on its five year fixed rate for the second consecutive week. The rate was 2.44 just per cent two weeks ago, now it is 2.59 per cent.
Elsewhere Principality Building Society withdrew its market leading five year fixed rate of 2.99 per cent, previously available to borrowers with deposits as small as 25 per cent of the property value.
These moves come as a surprise because it is barely 10 days since Mark Carney, the Bank of England Governor, indicated that rates would stay low until 2016.
In light of these increases some industry experts suggest that mortgage borrowers who want to lock in to current low rates are being encouraged to act quickly.
“It shows that while Carney says one thing, the markets think another” according to Mark Harris of mortgage broker SPF Private Clients.
Ray Boulger of John Charcol, the UK’s leading independent mortgage and remortgage adviser, said rates had “bottomed out” and said: “This reinforces our recent message for borrowers, which is that fixed rates are on the floor and for most people there is little or nothing to be gained by waiting.”
Although all this said other experts state that lenders are still competing fiercely for business, as Britain’s property market rejuvenation continues so this should keep rates from rising rapidly.
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