MORTGAGE rates may be tumbling, but millions still face a shock rise in bills.
Big-name lenders including Barclays, Halifax, HSBC and Nationwide have recently lowered rates, with some deals now below 4 per cent.
SuppliedMortgage rates may be tumbling, but millions, like Lucy Woods, above, still face a shock rise in bills. Our guide explains what’s happening and how to navigate the mortgage market[/caption]
Yet homeowners are still set to see a jump in costs.
Harriet Meyer explains what’s happening and how to navigate the mortgage market.
WHAT’S HAPPENING TO MORTGAGE RATES?
MORTGAGE rates are at their lowest since June, which is good news for first-time buyers.
David Hollingworth, of broker L&C Mortgages, says: “Lenders have released a flurry of rate cuts that will help ease things.”
Nationwide this week dropped rates to as low as 3.84 per cent.
The average two-year fix is now 5.56 per cent, according to Moneyfactscompare.co.uk, and a typical five-year fix sits at 5.18 per cent.
WILL COSTS DROP EVEN LOWER?
SADLY, mortgage rates may not sink much more this year.
The recent fall in costs reflects expectations that the Bank of England will drop the base rate later this year, down from the current level of 5.25 per cent.
Ben Thompson, deputy chief executive of broker firm Mortgage Advice Bureau, says: “The picture looks much more positive than last year, but it comes with some caution.
“Who knows what the year holds, with global conflict, the Budget and an election.”
And with average mortgage rates higher than 5 per cent, borrowers are likely to get a shock when remortgaging from low fixes available pre-2022.
Around 1.5million homeowners will come to the end of their fix in 2024, according to the Resolution Foundation.
The think tank says average annual costs will jump by around £1,800 for a typical family moving on to a new mortgage rate this year.
DON’T WAIT FOR YOUR DEAL TO END
YOU can lock in a new rate up to six months ahead of your mortgage ending.
Check the rate your existing lender offers first, and compare this to the market.
Sticking with your current lender can be simplest if they offer a good deal.
You won’t have to face another round of affordability checks and a valuation.
An independent mortgage adviser can help you get the best deal. Find one at unbiased.co.uk.
Mark Harris, of mortgage broker SPF Private Clients, says: “Starting the remortgage process early gives you peace of mind.
“This means your rate is guaranteed even if rates rise.
“If rates fall further, you can go for a cheaper option.”
If you want to leave your current deal early, you’ll usually pay an exit fee.
It could be worth paying this money to save in the long run, but do your sums first.
A mortgage adviser can work out whether you’ll save money by leaving a deal early.
FIX OR TRACKER?
A FIX is likely to be your best option with the outlook still uncertain as it gives you the security of regular monthly payments. Five-year fixes are currently cheaper than two-year fixes.
But Harris says: “Many of our clients are choosing shorter, two-year fixes in the hope that rates will have fallen when they remortgage again.
“A few are opting for two-year trackers with no early repayment charges.
“They’ll fix if rates come down further, but this is a riskier option for borrowers.”
Tracker mortgages are linked to the base rate, so the rate could rise or fall in line with interest rates.
“You’ll pay more for the flexibility of a tracker, with average rates at 6.14 per cent.
WHAT TO DO IF YOU’RE ON YOUR LENDER’S SVR
IF you roll on to a standard variable rate (SVR) when you deal ends, you could get stung — the average is an eye-watering 8.18 per cent.
Harris says: “If you’re on an SVR because you need flexibility, a penalty-free base rate tracker is an option.
“They are still cheaper than the average SVR.”
GET THE BEST RATE AS A FIRST-TIME BUYER
THE bigger your deposit, the cheaper your mortgage deal.
“Every five per cent more deposit you have can make a difference to your rate,” says Hollingworth.
Lengthening the term of your mortgage brings payments down, but means paying more interest in the long run.
And factor in mortgage fees.
You can also add these to the mortgage, but this could cost more in the long run.
Always compare the overall cost of the mortgage including any fees. Comparison tables above taken from Moneyfactscompare.co.uk.
‘I’LL HAVE TO TIGHTEN BELT WHEN HIGHER RATE HITS’
FREELANCE marketing consultant Lucy Woods, 34, pictured at top, is remortgaging on to a two-year fix with Santander at 4.69 per cent.
She says: “A five-year fix felt too long when rates could come down.”
From March, she will pay £686 a month for a 31-year £131,000 repayment mortgage.
This compares to £460 a month for her current four-year fix at 2.04 per cent with Halifax.
“I started looking at rates in October last year, and they were higher then, so the rise hasn’t been as bad as expected.
“I’ll just have to tighten my belt and do more things like batch cooking.”
She bought her two-bed house in Thurston, Suffolk, for £220,000 in March 2021.
It is now worth £250,000.
ROB’S £22k BENEFIT BILL A MISTAKE
A PENSIONER has won his months-long fight with the Department for Work and Pensions after being told he owed £22,000 – thanks to Sun Money.
Last year we told how Robert Vincent, 75, from Porthcawl, Mid Glamorgan, was ordered to repay the cash due to “errors” in his pension credit application.
He was blamed for providing the incorrect pension income when he applied six years ago.
When Sun Money got involved, we asked the DWP to look into the case and it quickly emerged that it was their mistake.
The DWP has apologised, and refunded the £976 he had already repaid.
Mr Vincent said: “It’s great news the DWP has finally admitted it made errors.”
Mr Vincent is just one of thousands of claimants who have been asked to pay money back they were awarded by the DWP in error.
Government figures show around £330million was overpaid in pension credit in the year to October 2022.
If you’ve been asked to repay benefits and you think it’s wrong, make sure to contact the DWP.
2M FACE ENERGY AXE OVER DEBTS
MORE than two million people will have their gas and electricity cut off this winter because they can’t afford to top up their prepayment meter, it is feared.
Citizens Advice has raised concerns after the energy regulator, Ofgem, let EDF, Octopus Energy and Scottish Power return to forcibly fitting the pay-as-you-go devices to recover debt.
The practice was temporarily banned for elderly households and those with young children amid worries over how customers were being treated.
Citizens Advice said it expects this to be its busiest winter helping people who can’t afford to top up.
The charity found 1.7million people were disconnected at least once a month last year.
If you have a prepayment meter and you’re struggling to pay, speak to your supplier and ask to be put on a repayment plan.
Several energy firms also have grants for customers having trouble paying.
British Gas offers up to £1,500 each while Scottish Power gives out £750.
Contact your provider for details on what’s on offer, eligibility criteria and how to apply.