UK borrowers warn: The days of cheap mortgages are over | Money


The era of record-breaking mortgage rates appears to be over, borrowers warned this week, independent government forecasters predicting costs will rise rapidly over the next two years.

The Office for Budget Responsibility (OBR) inflation forecast released alongside Wednesday’s budget suggests the cost of running a mortgage could rise 5.6% next year and 13 , 1% the following year, as increases in the Bank of England’s base rate are exceeded. to borrowers.

According to the financial firm AJ Bell, if the forecast is correct, a person who borrowed £ 250,000 on a two-year fixed rate mortgage at 2.06% earlier this year could see their annual payments increase by £ 600 when ‘she will remortgage in 2023. Someone with £ 450,000 on loan on the same terms would see costs increase by £ 1,068 per year.

The OBR prediction follows weeks of speculation about how quickly the Bank could act to try to curb the rise in consumer prices. Loaded with a target of keeping inflation at 2%, it is likely to hike the base rate by 0.1% at some point – with some economists predicting that could happen as early as next week.

In recent years, fixed rate mortgages have been so cheap that most borrowers have chosen them. Industry data shows that 74% of borrowers are on this type of deal, and the $ 2.2 million with variable rate loans typically owe less.

Some of these borrowers may have watched the price war in recent months and decided to sit still, but lenders have started to revise the cheapest deals upwards.

This week, “the price changes have increased in number and rapidly,” says David Hollingworth of L&C Mortgages brokers. There are no longer five-year fixed rate mortgages below 1%, although on Thursday it was still possible to lock in at just 1.04% with HSBC if you had a 40% deposit. Two-year best buy rates were still below 1%, with TSB leading the market at 0.84% ​​with a 40% deposit.

But it is not known how long these will last.

“People have gotten used to fixed rates that keep going down,” Hollingworth explains. “It’s a stark reminder that this is not one-way traffic when it comes to tariffs. If you’ve been waiting for a cheaper deal, you probably missed it.

NatWest is among the lenders to have raised rates for those who borrow up to 75% of the loan-to-value ratio. Photograph: Vuk Valcic / SOPA Images / Rex / Shutterstock

Mark Harris, managing director of mortgage broker SPF Private Clients, said most of the price changes were in transactions targeted at those who borrow up to 75% loan-to-value (LTV).

“Lenders including NatWest, Santander and Nationwide have increased selected rates, further reducing the number of options below 1%,” he adds.

For those who borrow higher percentages, interest rates are not currently changing, but an increase in the base rate could result in upward adjustments.

For anyone with a variable rate mortgage, an increase in the discount rate is likely to quickly result in higher monthly repayments.

“I see no reason why lenders wouldn’t pass on the full hike,” Hollingworth says.

He specifies that for any standard variable rate loan or linked to it, repayments could even be increased further, the cost being at the discretion of the lender.

Anyone on a base rate tracker is guaranteed to see an increase, but this will only be in accordance with the bank’s decision.

If you are on a follow-up offer, it is unlikely that you will be able to skip it without paying an early redemption fee. But if you pay for the SVR, you might want to fix it. Likewise, if your current fixed rate is due to end in the next few months, you might want to get a good deal while you can.

Harris says if you stick with your current lender, you may be able to apply for one of their current offers up to three months before your old lender expires.

The new rate will normally take effect when the old one expires, so you will switch directly from one to the other.

But some lenders operate differently, he says. He quotes Clydesdale Bank, which will allow you to apply up to 180 days in advance and choose to switch to the new rate within 90 days of your old one expiring, without incurring a prepayment charge.

Clydesdale Bank in St Vincent Place, Glasgow
Clydesdale Bank allows borrowers to apply up to 180 days in advance. Photograph: Russell Cheyne / Reuters

If you are a current Clydesdale borrower, it is worth finding out what it can offer.

You can also arrange for a change to a new lender sometime before your current contract expires.

Hollingworth says that once you’ve paid your fees, the market is yours. However, it does warn you to verify what you are signing up for. “If you go for a two-year fixed rate and it ends on a certain date rather than running for two years from the day you finish, you won’t get the benefit if you don’t. not pass for five or six months, ”he says.

Some lenders are still vying for remortgage borrowers with low rates and incentives. Harris says TSB’s two-year deal is worth reviewing – it includes a free assessment and the choice of cash back or free legal work. “If you need a higher LTV, Skipton and Platform have some good remortgage deals with similar incentives,” he adds.

But keep in mind that the fallout from the pandemic could make it harder than expected to get accepted for a really cheap mortgage.

Lenders are always very picky about self-employed borrowers, especially those who have benefited from any form of government assistance in the past 18 months.

Harris says some lenders cap LTVs or offer smaller-to-income loans.

If you have any concerns about this or the impact of any payment interruptions you have taken, it may be helpful to seek advice from a mortgage broker before applying or staying with your current lender.

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