‘A bitter blow to borrowers’ as major lenders increase mortgage rates – four moves to make now
BORROWERS are being dealt a “bitter blow” as more lenders prepare to hike their mortgage rates.
Halifax, Santander and Co-op have all announced that they will be increasing their rates over the coming days.
It comes after lenders including HSBC and Natwest pulled cheaper deals only to come back with higher rates.
Santander has said a number of its fixed rates for purchases and remortgage customers will increase by between 0.06 and 0.43 percentage points.
Its fee-free two-year fixed rate deal for buys with a 40% deposit will go up from 4.77% to 4.92%.
The banking giant were offering rates below 4% just three weeks ago.
Elsewhere, Halifax has revealed that several of its fixed-rate deals will increase by up to 0.2% from Wednesday.
The Co-operative bank has also said it will be increasing rates.
Its product switch fixed mortgages are among those affected and will increase by up to 0.72 percentage points.
Meanwhile, Natwest is increasing rates by up to 0.1 percentage points on some two-year and five-year deals for existing customers switching their mortgages.
The average two-year fixed residential mortgage rate today is 5.78%, according to financial website Moneyfacts.
Meanwhile, the average five-year fixed residential mortgage rate today is 5.35%.
This is up from an average rate of 5.34% on the previous working day.
Justin Moy, managing director at EHF Mortages, said the move spells “more disappointment in the mortgage market”.
He said: “This is a bitter blow to borrowers, especially when we are rapidly moving towards the most important time of the year for buying and selling property.
“Rates need to fall, and fall quickly, to rescue both the economy and property market.”
Mortgage rates have been edging upwards amid tough market conditions.
Swap rates, which underpin fixed-rate mortgages, have been fluctuating in recent months.
Karen Noye, a mortgage expert at Quilter, said: “There have been some increases in mortgage rates in recent weeks as a result of swap rates being higher, which could spell trouble for those prospective buyers who were hoping to take advantage of the lower rates seen at the start of the year.”
The Sun asked Karen and Nicholas Mendes, technical manager at broker firm John Charcol, how budding buyers can still bag a good deal in today’s mortgage market.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
Get pre-approved for a mortgage
A mortgage pre-approval is a document a lender produces to tell a home seller how much money you authorised to borrow to buy a house.
It also indicates what kind of mortgage loan you qualify for, and the interest rate the lender would charge you once you have completed a mortgage application.
Nick said: “Being preapproved for a mortgage gives you a competitive edge and shows sellers that you are a serious and qualified buyer.
“It will also mean you can start to compare mortgage offers from different lenders to secure the best terms.”
Getting pre-approved requires you to submit a mortgage application, so you will need to share all your personal details, as well as things like permission for a credit check.
The pre-approval will be granted in the form of a letter, which will be valid for a limited time, which is usually between 60 and 90 days.
Save for a larger deposit
The more money you have, the less money you’ll need to borrow and the more attractive you are to a lender.
This is because the loan-to-value ratio is smaller and makes you less of a risk to lenders.
So if you’ve managed to save more money than expected, stick to your budget rather than take out a bigger mortgage.
And if you’re in a position to be able to put down a bigger deposit, this could help you in the long run.
Nick said: “Determine a budget based on your financial situation, including deposit, monthly mortgage payments, and other associated costs.
” It’s important to be realistic about what you can afford to avoid overextending yourself.”
Consider your fix
Longer mortgage terms can make monthly payments more manageable, but borrowers can end up paying more in interest.
But more budding buyers are choosing longer mortgage terms as a way of coping with interest rate hikes.
Karen said: “The length of time you fix your mortgage deal for can impact the rate you pay.
“Many five-year fixes will come with lower mortgage rates than a two or three-year fixed deal.
“However, it is important to consider the longer term as if rates drop in the coming years then you could end up paying more than is necessary in the longer run if you lock in for a longer initial term when rates are elevated.”
Seek mortgage advice
It can be tempting to go directly to a bank or building society for your first mortgage, but doing so could severely limit your options.
A broker will be able to review a wider range of products and advise you on the right one for your circumstances, as well as assess any hidden costs which can sometimes be difficult to find.
Remember though, they’ll usually take a fee for their services so you’ll need to factor that into your costs.
Karen said: “A mortgage adviser will be better able to keep up with changes in the market and can help you explore all of the options available to you to help ensure you get the best possible deal for your personal circumstances.”
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