Martin Lewis has issued new advice on whether or not you should fix your mortgage after rates saw an increase. New figures this week showed a two-year fixed-rate mortgage deal is now £35 more expensive than it was a few weeks ago.
It follows a 0.3% increase in interest charges and predictions that the Bank of England could raise rates to 5% or higher despite previous forecasts that it would not rise above its current rate of 4.5%. The changes come as data shows inflation - which was 8.7% in the 12 months to April 2023 - is not falling by as much as expected.
A number of lenders have pulled mortgage deals off the market in recent weeks as well as making changes to their current deals, putting further financial pressure on cash-strapped households. To get all the latest money-saving news straight to your inbox twice a week sign up here.
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Financial journalist Martin Lewis has now given his opinion on what customers whose mortgage deals are ending soon should do with many uncertain about whether to fix their rates or not.
Speaking on his BBC Martin Lewis Podcast the money guru explained the current situation, saying he was getting queries from people whose mortgage deals were coming to an end and were unsure of what to do next. He said this was a "tricky scenario" as the Bank of England base rate - against which tracker mortgage rates are set - was initially expected to peak at 4.5%, the level they are currently at.
But Mr Lewis said the bank now expects that to peak at 5% or 5.5% due to general inflation not falling by as much as expected. He said the rise in some fixed rates had come based on The City of London financial district's long-term predictions for interest rates.
"The reason the fixed rate has gone up since the inflation period is because The City's view is interest rates in the UK are going to rise further," he said. "If I look at the cheapest fixes for a 75% loan-to-value mortgage right now, and I contrast where we are now to where we were three and a half weeks ago, the cheapest two-year fix that most people get with various criteria was 4.27% and is now 4.54%, so it's gone up just under 0.3%.
"The cheapest five-year fix was 4.06% and is now 4.29%, so fix year fixes are now cheaper than two year fixes. The cheapest ten-year fix was 4.15% and has gone up to 4.39%, a rise of about 0.24%."
Mr Lewis explained that this meant the period which the financial sector believed interest rates rises were most likely was in the next two years, which was the reason two-year fixes were more expensive than their alternatives.
"This says that they think the much longer-term view of interest rates is still relatively stable. The issue of interest rates going up by more than they thought is more about the short term, more than the longer term. It still affects the longer-term, but not as much as it affects the short term."
Mr Lewis later heard from a caller asking for advice on whether she should move to a new rate when her current mortgage deal ends soon. He responded that this would come down to the financial situation of each customer and the length of the mortgage they wanted.
"The question is how much could you afford to miss the boat? How close are you on the new rates to not being able to pay your mortgage? The first question is 'can I afford the gamble?' Lots of people listening won't be able to and will have to look to fix. If things then got better, they would feel very frustrated."
But he urged customers who did opt for a fix not to "look back in hindsight. If you make the decision to fix, remember you made it because it gave you certainty, not because you thought it was going to be cheaper." He added that five- and ten- year fixes looked "relatively" cheap compared to two-year fixes right now, but that it would depend on how long the customer wanted.
Mr Lewis said he would not put off buying a property if would-be buyers found one suitable to their needs given the current uncertainty. He said: "There are many people who say to me 'when interest rates go back down' - that is wrong. It is 'if' interest go back down. A 4% mortgage, historically, is a very cheap mortgage. We've just lived in this 17-year anomaly of hyper-low interest rates. The idea that things will go back is a very difficult concept.
"My view tends to be the more you want certainty, the more you want to know that you can afford to pay the mortgage, the more you should hedge towards a fix and the more you should hedge towards fixing for longer.
"Right now, the cheapest ten-year fixes are cheaper than the cheapest two-year fixes. So if you're buying a property you know you're going to be in for ten years, you might want to look at getting a ten year fix.
"Certainty is really difficult to come by. The one bit of certainty at the moment is that it will be uncertain. You have to hope for the best, plan for the worst and make a decision not assuming things are going to move in your favour or against you."
Halifax have reported that UK house prices have dropped 1% compared to a year ago - the first drop like this since 2012. Mr Lewis said this drop had not particularly benefited first-time buyers, while mortgage rates had "gone up phenomenally.
"You combine the two and we're sort of in the worst of both worlds at the moment."
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