Fixed rates at record lows

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Mortgage rates are at rock bottom as lenders continue to chip away at the cost of monthly repayments in a bid to muscle their way to the top of the best buy tables.

The latest round of deals have seen two-year fixes below 1.5 per cent for those with 40 per cent deposits and at 1.99 per cent for those with a 25 per cent deposit.

Meanwhile, a five-year fix can be had at 2.49 per cent with the biggest deposits and 2.84 per cent for those with a 25 per cent deposit.

Overall, things look good for homeowners and potential buyers. But some mortgage market watchers argue they will not go much lower and with rates on the floor, now is the time to fix.

Martin Mayo, of Independent Financial Adviser Ferguson Oliver, notes that money markets are pricing in a swifter rise in interest rates than the Bank of England’s recent suggestion of a first move to 0.75 per cent in 2016, adding: “Fixed rates are on the floor, and for most people, there is little or nothing to be gained by waiting for lower rates.”

Recent cuts have seen a series of new record low two-year fixed rates delivered as banks and building societies jostle for position with the lowest now just 1.48 per cent.

But borrowers need to beware some lenders are hitting homeowners with big fees to bump up margins on loans and claw back some of the gain delivered by a ‘best rate’.

For example, the 1.48 per cent deal comes with huge fees nudging £2,500, while a rival deal at 1.84 per cent carries a £745 fee and £500 cash back for home buyers.

Take all that into account, and the rival product works out more than £1,500 cheaper than the cheaper rated offer over the two-year deal period for someone with a £150,000 repayment mortgage over 25 years.

In fact, you would need to be taking out a mortgage worth £515,000 to make the cheaper deal more cost effective, £15,000 above the lender’s maximum criteria.

To the same extent for those who can raise the 35 per cent deposit, 2.59 per cent five year fix with a £295 fee and £200 cash back for buyers looks unbeatable value.

Big fees are a bigger issue for those opting for shorter fixes or trackers, as they will most likely need to remortgage again in two years’ time and pay a fresh set of charges – potentially just as interest rates are rising.

Away from the big deposit mortgages, where rates are best, there has been plenty of good news for those looking to move home or remortgage, with rates coming down for those with 20 per cent or 10 per cent deposits.

At the five per cent deposit level, things remain much tighter, and most deals are only open to borrowers taking part in the new build Help to Buy scheme.

Those sat on a higher rate right now could find remortgaging would save hundreds of pounds a month, and it may be worth grabbing one of these good deals while you can – you could gamble on rates going lower, but they may not – and may even rise.

In the meantime, you could be shelling out much more than you need to on your monthly payments, which is an important aspect to consider when deciding whether to play the waiting game.

The mortgage market is probably more complex than it has been for many years with pitfalls a plenty for the unwary. Consider all aspects and if you don’t want to do the sums for yourself, seek Independent Advice.