Cheap mortgages soon a thing of the past
Mortgage lenders are withdrawing their cheapest deals, in the wake of the Bank of England's talk of raising interest rates. Mark Carney, the Bank's Governor, warned at the end of last week that interest rate rises were on their way - and could hit before the end of the year. Some mortgage companies have responded by axing some of the most competitive deals.
So what does this mean for you?%VIRTUAL-SkimlinksPromo%
At the end of last week, the Yorkshire Building Society increased the cost of its mortgages, while yesterday West Bromwich withdrew its cheap two year fixed rate deal, and Newcastle Building Society bumped up the cost of its two-year fix.
Why?The banks and building societies have made this move because of two factors which kick in whenever there is talk of rate rises.
The first is that borrowers are quick to react. The Bank of England interest rate has been at a record low of 0.5% for more than five years, so the prospect of a rise will mean a real shift for mortgage customers.
This means that over the last few days there has been an influx of people looking to fix as cheaply as possible. The lenders - particularly the smaller building societies - only have a certain amount of cash to lend at this rate, so the hike in demand means the deal soon runs out.
The second factor is that as soon as there is talk of interest rate rises, the rate at which banks are prepared to lend to one another rises - which increases the cost of providing mortgages. Banks and building societies will then price this into their products - which will push up the price of their mortgages.
David Hollingworth, Associate Director of London & Country Mortgages told AOL that rates were already rising before Carney's warning. The cheapest five year fixed mortgage this time last year was around 2.5%, whereas now it is closer to 3%. The Bank of England's move has simply triggered more activity. He says: "It's likely to ensure that the trend continues."
What should you do?If you are on a variable rate mortgage and you are worried about raising rates, you might want to think about a fixed rate mortgage, and whether it would suit you. The experts advise that if you want to make the move to a fixed rate you do it as soon as possible, before even more of these cheaper deals disappear.
Hollingworth says: "As we draw ever closer to the point where interest rates start to rise, mortgage rates will continue to climb. If you wait until the point where interest rates have started to rise, you will pay significantly more for your mortgage."
He points out that this doesn't mean everyone should fix. Those who have a cheap variable rate deal from 2007, for example, may need to think very carefully before giving it up. However, those who are on an SVR could actually pay less if they choose to switch to a fixed rate mortgage - as well as having the security of a fixed rate if rates were to rise. He adds: "You have to look at your own circumstances and assess how important it is to you to lock into a rate, and how current fixed rates compare to your existing mortgage deal."