Mortgage rates: How to lock in your mortgage and secure low rates before they rise
MORTGAGE interest rates remain low despite inflation creeping up. With a rise in rates thought to be imminent, how can you lock in your all-time low deal before it changes?
Martin Lewis talks about rising interest rates on mortgages
A booming property market has led to ‘rock-bottom’ mortgage rates since the start of the pandemic, though a recent announcement from the Bank of England’s governor has sparked fears this will soon end. Money Saving Expert Martin Lewis has warned Brits that rising inflation will almost definitely kick-start an increase in mortgage rates - but this is how you can avoid being caught out.
Why are mortgage rates so low?
Nick Chadbourne, CEO of LMS, told Express.co.uk: “Over the course of the pandemic, many borrowers have increased their savings, which has given banks the opportunity to offer very low base rates to those with high deposits, who fit their risk criteria.
“These rates will stay in the short-term, since banks are looking to increase lending, but these eye-catching deals are not a new phenomenon and are often short-lived."
Should there be any change, it is predicted that borrowers on variable-rate loans will feel the immediate effect.
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Why you should fix your mortgage now
With inflation creeping up at a rapid rate, Andrew Bailey’s warning of action being taken on low interest rates in light of a continual rise means it’s a good time to consider fixing your mortgage.
Fixing your rate acts as an insurance policy to avoid future increases, which in turn can make sticking to a budget or juggling your finances even more difficult.
You may end up paying more if rates don’t go up but taking the risk offers certainty in your finances for the future.
In order to secure a low mortgage rate ahead of the possible rise, you first need to find out and understand your current mortgage details.
How to fix your mortgage rate
Comparing your current deal with alternatives will allow you to make an informed decision to either stick or switch to a better rate which could save you hundreds in the long run.
Martin advises gathering the following information before making the switch:
- The rate - factor in monthly payments and outstanding debt
- The type of mortgage - fix, tracker, SVR
- Payment deadlines
- Switching fees - you may owe an early repayment charge if you decide to switch
- The loan to value figure (LTV) - this is the proportion of the home’s current value you borrow
- Introductory deal deadline - some fees are reduced for the initial few months but will soon rise so check when this ends
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Shop around
Much like switching phone contracts or car insurance, you may be able to secure a better deal with your existing lender.
Martin advises phoning your lender and asking for a product transfer to find inside deals from your lender.
Compare inside deals with wider market offers to see whether bigger savings are possible - though remember that low-rate deals may incur higher fees.
When looking for better deals always keep in mind affordability as lenders do stringent checks to test how you will manage a mortgage based on current and future market conditions.
Be prepared
If you’re a while away from the end of your current mortgage deal, remind yourself to check your rate six months and three months before it is done.
Many lenders will let you lock in ahead for a minor fee, says Martin, though it can be worth it if you’re concerned about rising rates.
Locking in could incur a non-refundable fee of £100 to £250, but Martin recommends ‘bagging the rate you need now’ and foregoing the fee if you find a cheaper option down the line.
Use your savings to bag a better deal now rather than potentially losing them to higher rates in the future - rates tend to improve as you move down to 90, 80 or 70 percent LTV so you will need to borrow far less when you re-mortgage.
How much will the base rate for mortgages increase by?
Market predictions are not certain, but some have forecasted an increase from the current 0.1 percent base rate to:
- 0.25 percent in November
- 0.5 percent by February
- 0.75 percent later in 2022
According to the Guardian, a family with a £200,000 mortgage over 20 years, with a variable interest rate at 3.59 percent will pay an additional £15 a month if the rate goes up by 0.15 percent as it is expected to next month.
If it goes up again by another 0.25 percent in early 2022, the same family will pay an extra £25 per month, which adds up to around £500 more each year.
This article does not equate to financial advice.