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What next for mortgage rates? Fixed rates tumble to as low as 1.18% as lenders keep on cutting

Mortgage rates are at record lows and homeowners can fix for two years at just 1.18 per cent and up to ten years at less than 3 per cent.

For some those may feel too short or too long, but five-year fixes at below 2.5 per cent for those with the biggest deposits - or below 3.5 per cent at up to 85 per cent loan-to-value - might look a very tempting middle ground.

The prospect of an interest rate rise has been pushed into the distance by low inflation, slowing world growth, the oil price slump, the eurozone and lots of other things that keep central bankers awake at night.

Thanks to all that, homeowners have the opportunity to take out some very cheap mortgages. Rates could fall further still, but borrowers considering a new mortgage should bear in mind that if things change the low fixed rates on offer may vanish swiftly. 

Lenders have been steadily cutting rates since the end of summer 2014 and the current crop of fixed rates now includes the lowest we've ever seen 

The Bank of England is concerned that Britain's recovery could still be derailed by lifting base rate from its record low 0.5 per cent level. Meanwhile, the falling oil price, a supermarket price war and slipping energy costs have all contributed to pushing inflation down to just 0.5 per cent.

That is substantially below the 2 per cent target level the Bank has and with concerns over slow wage growth still dominating its thinking, the consensus is that base rate will not rise until at least the second half of 2015.

Money markets suggest no rise in rates until much later - almost the end of 2016 - although it is worth bearing in mind this can change quickly.

Subsequently, swap rates – which influence the cost of funding fixed rate mortgages on the money market – have taken a pronounced tumble.  

Banks and building societies have also now broadly got to grips with the tougher new mortgage rules introduced last April. These produced a marked slowdown in lending, and now lenders are playing catch-up while rising house prices have boosted their confidence.

That has delivered something of a sweet spot for mortgage rates, hence the raft of cuts.

Reflecting those reductions, the cheapest two-year fix is now at 1.24 per cent from Chelsea BS, while the cheapest five-year fix is at 2.34 per cent from Yorkshire BS.

There are a couple of things to look out for if you do decide to take a cheap fix up.

You need to check the bumper arrangement fees are worth paying – if you don’t have a big mortgage you may be better off with a slightly higher rate and lower fee.

It’s wise to also think carefully about whether you expect to move home soon. A good five-year fix should be portable, so you can take it with you. But your new property will need to be assessed and you might need to borrow extra money, and so your lender could still say no.

Getting out of a fix typically requires a hefty hit to the pocket from early repayment charges.

You will also need to get your finances in order and be prepared for the lengthier application and interviews getting a mortgage requires nowadays.

Weigh up the above, have a scout around what the best deals look like – and speak to a good independent broker if you need help deciding.

Today's low rates may stick around, they may even inch a little lower, but they may be swiftly axed.

If you think you’d kick yourself if you miss out on one, then set aside some time to consider what to do.

Source:  thisismoney.co.uk

Money Matters: 11th Mar 2015 09:11:00

 

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