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Mortgage alert! Top mortgage rates have already started disappearing... why you must act now to beat £500 bill hike

Fri 16 Feb 2018

  • The rise of interest rates has caused banks to start pulling their best deals

  • Mortgage rates are being tipped to rise by 0.5% - the same as interest rates 

  • Borrowers failing to act may pay hundreds of pounds more for their mortgage

Homeowners could face a £500 increase in their mortgage bills this year, experts warn.

Banks and building societies have started pulling their best deals after the Bank of England last week signalled the end of low interest rates.

Experts believe the Bank will be forced to increase rates from 0.5 per cent to 1 per cent by the end of the year as it grapples with rising inflation. Mortgage rates are being tipped to rise by at least the same amount. 

That would take the average 2.36 per cent two-year fixed rate to 2.86 per cent, adding as much as £500 a year to a typical £150,000 mortgage. 

Five-year rates could rise from 2.86 per cent on average to 3.36 per cent, experts say.

Borrowers are being warned that the final curtain is falling on cheap mortgage deals.

A rapid increase in the cost of funding mortgages has already forced lenders such as Halifax to hike rates by as much as 0.5 percentage points since Thursday. 

Tesco Bank and Coventry Building Society put rates up by 0.34 points and 0.24 points respectively.

More rates are expected to go at the end of this month, when the Treasury pulls the plug on the £108billion Term Funding scheme (quantitative easing) that provides cheap cash to banks.

Mortgage lenders may have to pay higher rates to attract money from savers to lend out. That means they won't be able to afford such cheap home loan deals, experts say.

Borrowers who fail to act face paying hundreds of pounds more for their mortgage.

Andrew Montlake, a director at mortgage broker Coreco, says: 'It's likely more banks will follow with rises in the coming weeks. 

'Mortgage rates could rise by up to 0.5 per cent over the next year, which will come as a shock to borrowers used to ultra-cheap home loans.'

John Eastgate, sales director of OneSavings Bank, says: 'I see mortgage rates rising in line with base rate over the next year.'

What deal should you go for? 

Two-year fixed rates offer the cheapest deals and are ideal if you are planning to move soon.

But if you plump for a two-year deal, you will be remortgaging not long after the Bank of England starts dialling up interest rates. That could make these deals a bad idea.

For most people, five-year fixed rates will be the way to go.

They are slightly more expensive than two-year deals, but it could give you peace of mind knowing that your payments will remain the same for five years.

The lowest five-year deal on the market at the moment is Principality Building Society's 1.65 per cent deal, which is available to borrowers with at least a 35 per cent deposit.

On a £150,000 mortgage, the monthly repayments are £611 a month and £38,027 over five years, including the £1,395 fee.

Principality also has the lowest five-year deal for borrowers with a 25 per cent deposit — 1.75 per cent.

It costs £618 a month on a typical £150,000 mortgage, or £38,456 over five years including the £1,395 fee.

For borrowers with a 10 per cent deposit, a top pick is Coventry BS's 2.45 per cent. The monthly repayments on a £150,000 loan are £669 and it costs £41,148 over five years including a £999 fee.

With a 5 per cent deposit, then Newcastle BS's 3.95 per cent deal is the cheapest. It costs £787 a month and you'll pay £48,057 over five years, with the £800 fee.

Borrowers who are worried about coping after interest rates go up might want to consider fixing for longer. 

Beware that you will have to pay a higher rate and there are often steep early repayment penalties of up to 6 per cent — £9,000 on a £150,000 loan — if you need to end the deal. 

Coventry BS is offering a seven-year fixed rate at 2.19 per cent, which costs £650 a month on a £150,000 loan. There is a £999 fee and the deal is open to borrowers with at least a 35 per cent deposit.

Alternatively, you could fix for 10 years. The lowest rate on the market for remortgage customers at the moment is TSB's 2.39 per cent loan. It costs £665 a month, has a £995 fee and you need a 40 per cent deposit.

For borrowers with a smaller deposit, the lowest rate is TSB's 2.59 per cent. The monthly repayments are £680 and the fee is £995. You need at least a 25 per cent deposit.

David Hollingworth, of broker L&C Mortgages, says: 'We have seen rates rise as lenders grapple with higher funding costs and there will be more in the coming weeks. 

Borrowers can still get a super-cheap deal for now, but you need to act fast.'


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