The UK’s core interest rate has now been at a historic low of 0.50% for six years, and opinion is still divided on when rates are likely to rise.
Economists have spent the past couple of years predicting that a rate rise is just around the corner, only for low inflation or deflation to derail those expectations, as happened this month. The reality is that no one quite knows for sure.
The UK economy has been performing well, with strong employment and wages starting to catch up, which ordinarily would set the case for a rate rise. But with inflation turning to deflation in the short term, meaning that prices are falling, monetary policy makers are limited in their ability to raise rates; to do so could send prices tumbling lower and risk the recovery.
So what does this all mean for household mortgages?
It means that mortgage rates are currently at record lows – with some fixed deals available below 2% (for 2 year fixed years).
Whilst it can’t be guaranteed that interest rates will rise anytime soon, we do know they won’t last forever, and that there has never been a better time to fix a mortgage rate than now. There are a number of competitive deals available in the market with 2, 3 and 5 year fixed rates.
The table below shows some of the 5 year fixed deals that are currently available in the market;*
| Loan to value | Interest Rate for 5 year fixed remortgage | Monthly cost for £150,000 borrowing over 20 years |
| 75% | 2.75% | £813.25 |
| 80% | 2.95% | £828.15 |
| 85% | 3.19% | £846.24 |
| 90% | 3.65% | £881.55 |
Why fix?
If the Bank of England raises interest rates, mortgage lenders will follow suit and raise their Standard Variable Rates and borrowers who have not fixed their rates will see their mortgage costs increase.
Example:
The current Halifax Standard Variable Rate is 3.99%.
If the Bank of England base interest rate rises by just 1.50%, and subsequently the Standard Variable Rate rises to 5.49%, the monthly cost of a mortgage for £150,000 over 20 years (as above) would increase to £1,045.12.
A difference of between £163.57 and £231.87 per month, based on the figures in the table above.
Can you afford an increase in your mortgage interest rate?
So if you are currently on your lender’s standard variable rate (SVR) or coming to the end of a fixed term deal, an Independent Financial Adviser here at Cambrian will be able to look at the whole of the market to source the most competitive deals for you based on your circumstances.
Call us on 01244 539595 or contact your Advisers PA to arrange a consultation meeting to review your current mortgage deal and see whether you could benefit by fixing your mortgage rate.
Your home may be repossessed if you do not keep up repayments on your mortgage.
* Figures are based on 5 year fixed rates with free valuation, free legal work (not inclusive of name changes or transfers of equity), and no arrangement fees.
These rates are based on a remortgage only. If you require extra borrowing for debt consolidation, home improvements, capital raising or divorce settlements the rates may change slightly.
All mortgage application are subject to credit score and affordability checks.
There may be a fee for mortgage advice. We typically receive a procuration fee from the mortgage lender, which is offset against our minimum mortgage fee of £500, and we don’t normally need to charge an additional mortgage fee. The exact amount will depend on your circumstances.
