In a low interest rate environment it can be hard to know what mortgage deal is best for your circumstances so Unbiased.co.uk, the professional advice website, brings you three top tips on choosing a new mortgage deal.
1. Jane King, Mortgage Adviser – Ash-Ridge Private Finance
“With interest rates currently at 0.5 per cent there is really only one way to go in the future – up! My top tip for any purchase is to select a tracker with the option to switch to a fixed rate later. This will offer the best of both worlds. A very competitive rate for as long as rates stay low with the option to lock into a fixed rate later if base rates start to rise. Although there is normally a booking fee to pay for the switch, I feel it is worth paying for the option of being able to take advantage of low tracker rates now, and possibly for several more months to come.”
2. Rob Simpson, managing director at Simpson Financial Services Limited
“Hedge your bets on future interest rate movements. Did you know that some lenders will let you have part of your mortgage on a fixed rate and part of your mortgage on a tracker rate? You have to be careful you don’t end up paying too much in arrangement fees but that’s all part of the value of advice. We only charge a fee for our mortgage advice which means that if a lender is offering a better product for “direct customers only” we’re happy to advise you accordingly.”
3. Peter McGahan, Independent Mortgage Broker, Worldwide Financial Planning
“Last month most lenders withdrew their fixed rate offerings and replaced them with higher rates. This is in anticipation that rates will begin to rise, which is peculiar, given that we have benign inflation. In fact the retail price index is still at -1.1 per cent.
Either way the anticipation is that rates will rise and fixed rate mortgages are now 20 per cent more expensive than they were last month. Should you fix now? It very much depends on what your current mortgage deal is. For example, some lenders set their own standard variable rate and that is typically around 4.8 per cent today whilst others track the base rate and that’s down at 0.5 per cent.
For some it would be quite a leap to hop from 0.5 per cent to today’s typical fixed rates. The typical fixed rates are: two year 3.98 per cent, three year 4.99 per cent and five year is 5.64 per cent. And so it’s a much more difficult decision for you if you are on a lower tracking rate as above but a sure fire winner if you are on a standard variable of around 4.8 per cent.
Much also depends on the impact of quantitative easing. If the extra money in the system bites, inflation is a real risk and interest rate rises will be the quickest way to slow down the economy. With that in mind, a three year deal at 4.99 per cent looks like a bargain with the safety of knowing what you will be paying for the next 36 months. The better rates are still being offered to those who borrowed less in relation to the value of the property (i.e. loan to value).
For example if you are borrowing less than 75 per cent loan to value you could have a two year fixed rate at 3.09 per cent whereas if you are borrowing at 90 per cent loan to value, the best two year fixed rate is 5.99 per cent – almost double! Finally be careful when you are looking at mortgage rates and ensure you look at all the underlying fees as they can soon mount up.”
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