How low can mortgage rates go?
Everybody likes to bag a good deal and the proliferation of voucher code websites shows that when the going gets tough, the British get bargain hunting. And where better to save a serious amount of money than on your biggest financial commitment, your mortgage?
Cheapest ever dealsIf you are on the lookout for a new homeloan you may have had your head turned by recent headlines about the launch of some of the cheapest ever deals.
Indeed, this week Chelsea Building Society launched the lowest ever five-year fixed rate mortgage at a fantastic 3.19%. It came hot on the heels of last week's launch by Norwich & Peterborough Building Society of a mortgage fixed for 10 years at an all-time low of 3.99%.
Factor in the fact that there are some trackers still available at less than 2% and it looks like borrowers have a bumper crop of tempting deals to choose from.
But with experts predicting that the Bank of England Base Rate will stay at its historic low of 0.5% for the foreseeable future, is it possible that mortgages could get cheaper still?
All that glitters...It's true that the last few weeks have seen the launch of some mega low-rate mortgages, and the current best buys are extremely competitive. But the market isn't quite as clear cut as that. At the same time lenders have actually been increasing some of their mortgage rates, meaning some types of deal are becoming less attractive. It all depends what type of mortgage you are after.
David Hollingworth, associate director at advisers London & Country Mortgages says: "There are lots of very attractively priced products and if you look at the headlines you might think that mortgages are getting cheaper.
"Some rates are going down, like long-term fixed rates - but the bigger trend is actually that rates are going up. Nationwide, Woolwich and Santander have all repriced in the last couple of weeks, reducing some rates but increasing others. So it's a mixed bag."
But what is going to happen to mortgage deals in the coming months?
Upward not downward pressureJonathan Harris, director of broker Anderson Harris, doesn't think that hanging on for cheaper deals is necessarily a wise move in light of wider economic pressures.
He explains: "Swap rates have fallen significantly in recent weeks, resulting in some of the cheapest longer-term fixes ever seen. However, uncertainty in the Eurozone is preying on lenders' minds, with several raising rates in recent days. If you like the look of one of the current deals you should therefore move now to secure a rate rather than waiting in the hope that they will become cheaper still."
Hollingworth agrees: "Problems in Europe are feeding through into tighter funding and the knock on effect of this is more expensive mortgages. We are already seeing upward pressure on rates and, as a borrower, I wouldn't wait for rates to drop further, because they may well rise."
Have rates bottomed out?While there is a very real risk that mortgage rates could rise in the coming months – especially short-term fixes and variable rates, there is also huge uncertainty, so it is also worth considering just how much lower the cheapest deals could get.
After all, if current long-term fixed rate mortgages are at all-time lows already, it's possible that they don't really have much further to fall.
Ray Boulger, senior technical manager at mortgage brokers John Charcol, says: "It's unlikely we will see much movement either way in five or 10-year fixed rates in the next few months. There is little upwards pressure on these long-term deals, but at the same time it is very difficult to see them come down much more. There is simply not enough appetite for them and not enough competition in the market."
Hollingworth agrees: "There is not a lot of scope for mortgage rates to get any cheaper – maybe some rates could drop slightly by 10 basis points (i.e. 0.10%) but remember that when lenders push down rates they often add large arrangement fees, so you always have to look at the overall cost."
This is certainly true of Chelsea Building Society's five-year fix, which may have a record low rate of 3.19% but it also comes with a sizeable £1,495 fee. For those with a modest mortgage (up to around £100,000) there are cheaper overall deals available, albeit with slightly higher interest rates.
Stick or twist?
If you are contemplating a new mortgage there are three things to consider according to Boulger – your payrate (or the rate you will move onto at the end of your current deal), your level of equity in the property and your credit record.
"If you are paying 3.5% or more and are not tied into your mortgage, have 25% equity and your credit status is good you should certainly think of looking around for a better deal," he explains. "Even those with 15% equity should consider switching as some lenders have recently started to reduce their rates for borrowers with a smaller deposit."