If you are about to embark on a search for a mortgage you may be wondering what sort of prices you will be facing in light of recent interest rate hikes.
Perhaps you are buying your first home or moving house. Maybe you are remortgaging from a two-year fixed deal you signed up to when interest rates were set to the low of 0.1% during the pandemic?
Either way, you are probably braced to hear a figure which is higher than you would have been offered this time last year.
New data from Moneyfacts.co.uk this week will confirm your suspicions. It has revealed, a few weeks on from the most recent decision to increase base rate by a further 0.5% to 1.75%, the average two-year fixed rate mortgage has now topped 4%.
This time last year the average two-year deal was 2.52% but it has now soared to 4.09%, according to Moneyfacts.
It’s an average figure and therefore will be different depending your circumstances, loan size and borrowing history. However, it provides a benchmark by which we can see how expensive mortgages are getting as the Bank of England has been raising its base rate.
Why you should be quick to grab the best deals
Another factor which is having an influence on mortgages at the moment is the shelf life of products. This is the length of time mortgages are being put on the market before being pulled and the rates ‘revised’.
Eleanor Williams, finance expert at Moneyfacts.co.uk, explained the average time mortgages are being put on the market at the moment is just 17 days.
“In the aftermath of another base rate increase since then, providers are continuing to react with further revision of their offerings,” she said.
“The level of choice has reduced, dropping by 269 products and leaving 4,138 on sale currently. We have seen lenders withdraw parts of, or entire product ranges, with a number citing the pause in lending being due to unprecedented demand.
“Providers need to manage their service levels following an influx of applications, as borrowers have rushed to secure deals before rates have a chance to climb even further.”
How to ensure you are getting the best deal
It’s not just two-year rates which have soared in the last nine months, average five-year fixed rate deals have risen from 2.75% in August 2021 to 4.24% today.
Eleanor said: “Those wanting to fix for an even lengthier time might be pleased to see that the average 10-year fixed average rate has barely changed since the start of month, inching up by 0.01% to sit at 4.20% today.
“This is actually 0.04% lower than the current average five-year fixed rate.”
However, it’s worth considering the pros as well of the cons when it comes to fixing rates for 10 years.
“Locking into a decade-long fixed deal could be a double-edged sword,” said Eleanor. “Mortgage rates are currently on an upwards trajectory and there is anticipation that further base rate rises could impact the sector, so securing a long-term, stable fixed rate deal may well be foremost in many consumers’ minds.
“However, there may equally be others who believe rates could fall over that time, and as many deals in this sector carry hefty early repayment penalties, some may be concerned they may be tied in to a higher rate and repayments, should cheaper deals resurface down the line.”
Ultimately, the best course of action if you want to ensure you are getting the best mortgage possible is to speak to a broker.
Eleanor added: “For consumers hoping to mitigate some of the impact of the ongoing cost of living crisis with a new fixed deal, seeking advice may well be wise as this remains a very changeable landscape, and ensuring they select a product that suits their future plans and priorities is crucial.”
