Homeowners have been rushing to switching their mortgage to a cheaper deal after the Bank of England raised interest rates last month – but better deals could be imminent.
Mortgage rates have been rising steadily since September but now experts claim lenders will slash them again briefly before the year ends.
According to Moneyfacts data, the average two-year fixed rate hit a low of 2.17 per cent on 25 September this year and has now risen back up to 2.35 per cent.
But Rachel Springall, finance expert at Moneyfacts, said December usually sees lenders launch a flurry of best buy rates to whip up interest and help them hit their end of year targets.
Mortgage rates have been falling for several years but have ticked up in the past two months
‘While fixed rates are gradually rising, lenders are still launching some decent offers to entice new borrowers,’ said Springall.
‘Not only do they have to appease existing borrowers with some well-priced deals so that they don’t lost their custom, many are also under pressure to lend out to new borrowers and the end of the year is edging ever closer.’
She added: ‘As they come towards their end of year targets, we are bound to see some best buy deals before 2018 hits.’
Two-year best buy rates are now hovering around 1.17 per cent, having been as low as 0.98 per cent earlier this year.
But as speculation mounted that the Bank of England would hike the base rate back up from 0.25 per cent to 0.5 per cent in November, mortgage lenders began to withdraw their cheapest deals.
Now the cheapest two-year fixed rate available is 1.19 per cent from Sainsbury’s Bank, with the next best rate 1.24 per cent from Yorkshire Building Society.
The Sainsbury’s deal requires 40 per cent equity in the property, charges a £745 fee and would see monthly repayments of £386 on a mortgage balance of £100,000.
The Yorkshire deal comes with a £1,700 fee and is available to homeowners with a minimum of 25 per cent equity in their homes. Monthly payments would be £388 on a £100,000 mortgage.
Why remortgage?
According to online mortgage broker Habito, some £35billion of British mortgage deals matured over September and October, meaning unless they remortgaged in a timely fashion, millions of people slipped off the rate they secured two, three or five years ago and are now paying their lender’s standard variable rate.
Nine months ago SVRs averaged 4.56 per cent. Since the Bank of England’s November rate rise, the cost of not remortgaging has gone up a further 0.25 per cent.
On a £100,000 mortgage balance, paying an SVR equal to 4.81 per cent would mean monthly repayments of £573.57.
Remortgaging to a more competitive rate – the Sainsbury’s Bank deal for example – would shave £187.57 off your mortgage repayment a month.
Will mortgage rates fall in December?
There’s not much of December left to take advantage of low rates that may or may not get cheaper so if you’re paying your lender’s standard variable rate, it’s probably going to save you more money remortgaging now than hanging on for another three weeks.
Delaying could mean making another month’s mortgage payment at a rate likely to be much higher than the product rates available now.
That said, it is true that December often sees a number of mortgage lenders offer super cheap rates for a limited time only.
Post Office Money has just launched a new range of fixed mortgages, including a two-year fixed rate at 1.48 per cent up to 75 per cent loan-to-value with a free valuation.
Virgin Money meanwhile has cut the rate on its first and second-time buyer two-year fixed-rate mortgage, which is now priced at 4.09 per cent for those with a 5 per cent deposit or equity. No product fee is payable and the deal comes with £300 cashback.
You can secure a rate three months ahead of the end of your current deal with the same lender
Should you remortgage now?
If you’re approaching the end of your deal but don’t need to remortgage for a month or two then hanging on to see if rates come down briefly won’t cost you anything.
It’s possible to secure a rate up to three months ahead of the end of your current mortgage deal (if you stay with the same lender) and agree to remortgage on the day your deal expires so you don’t incur an early repayment charge.
Jeremy Duncombe, director of Legal & General Mortgage Club, said: ‘Borrowers who are worried or unsure about their long-term finances following the interest rate rise should get in touch with a financial adviser to discuss their situation.
‘Advisers can talk through options like remortgaging or product transfers for borrowers at the end of their initial deal period. Switching onto a better suited product can provide borrowers with the equivalent of a pay rise, family holiday, or early Christmas present.’
True cost mortgage calculator
This mortgage payment calculator will allow you to see the effect of sneaky arrangement fees on your repayments. Use the second part of the calculator to compare deals.