Money expert Martin Lewis is urging homeowners to act now before its to late to benefit from cheaper mortgage deals. It comes after the presenter warned borrowers on a fixed rate deal that it will end soon.
Martin Lewis has also put out a warning to those on a variable rate. Current interest rates have risen 1.25% and the latest Bank of England base rate will put more pressure on mortgage borrowers.
Lancashire Live reports that the rate edged up to 1.25% on Thursday (23 June), up from 1% previously. It is the latest rise and experts say even savers are yet to feel much benefit.
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Three-quarters (75%) of the just under nine million residential mortgages outstanding are fixed rates, according to trade association UK Finance. These borrowers will not immediately see the impact of the base rate increase on their mortgage payments.
Homeowners on variable deals tracking the base rate will see an impact. Some lenders may also decide to put up their SVRs (standard variable rates), which they set themselves and those on tracker rate mortgage see their interest rates go up automatically in line with the BoE rate hike.
The average SVR has already increased from 4.40% in December 2021 to 4.91% in June 2022, according to Moneyfacts.co.uk. According to UK Finance, 1.3 million fixed mortgages are ending at some point this year – meaning many homeowners will be looking for a new deal.
You'll usually be on an SVR type mortgage deal after your fixed or tracker rate ends - with deals likely to be between 4.5% and 5.5% for most. Fixed rate deals aren’t affected by base rate changes - but lenders have slowly been pulling cheap deals in recent months in anticipation of more rate hikes, The Mirror reports.
In the latest MoneySavingExpert alert, Martin said: "Action now to check if you can save is a must. Lenders are repricing new deals weekly, meaning today's rates may disappear tomorrow, so delay may be costly."
David Hollingworth, associate director at mortgage adviser L&C Mortgages said: “We’ve seen more borrowers looking to secure a rate further ahead of the end of their current deal, in an effort to get ahead of the increases.”
Homeowners looking to fix into a new mortgage deal may find that their choice has shrunk. According to financial information business Defaqto, the number of fixed-rate mortgages on the market has decreased recently after it counted 1,953 fixed-rate mortgage deals available, down from 2,086 deals two months ago.
Rachel Springall, a finance expert at Moneyfacts.co.uk, said: "Borrowers who lock into a fixed deal can protect themselves from future rate rises, but those building a deposit may not be able to afford a mortgage as interest rates and living costs continue to climb. Fixed rates are on the rise, with the average two-year fixed-rate rising by almost one percentage point since December 2021.
"As the rate gap between the average two-year and five-year fixed-rate has narrowed, fixing for longer may be a sensible choice. Borrowers could even lock into a fixed mortgage for a decade if they are prepared to commit to such a lengthy fixed term.
"Seeking advice is sensible to assess the abundance of deals out there to ensure borrowers find the most appropriate choice based on the overall true cost." Ms Springall said switching from an SVR, which borrowers often end up on when their initial deal comes to an end, to a fixed rate could significantly reduce someone’s mortgage repayments.
How to compare mortgage deals
If you think you’re overpaying on your mortgage, the first step is to ask your current lender if you’re on their best deal. Next, use mortgage comparison tools that you can use to check whether you are on the cheapest deal.
Once you’ve found the best rates on the open market, check how they compare to your current deal. If you're thinking about making a switch, remember to factor in any other costs and check if there is an early exit fee associated with your current deal.
Martin explained how the lowest cheapest fixed mortgage deals right now are 2.49% over two years with Leeds Building Society. He also flagged a fixed rate of 2.74% over five years with Santander, and 2.78% over ten years with Lloyds Bank.
This is based on a property valued at £120,000 for a mortgage, or borrowing amount, of £90,000. Of course, the actual amount you could save by switching does depend on your property size, how big of a mortgage you have and what you're currently paying.
Interest rates are expected to keep rising as part of the BoE's plans to cool soaring inflation levels. UK inflation climbed to 9.1% in the 12 months to May as the cost of living crisis continues to squeeze household finances.
CPI had already hit a 40-year high when it reached 9% the previous month, according to latest Office for National Statistics (ONS) data.
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