Despite brief dips last week, swap rates have continued to increase and currently stand at 6.32 per cent. Many lenders have re-priced their fixed rates at least monthly since the first rate rise of the year in January, including Abbey, Bank of Ireland, Halifax and Northern Rock.
Katie Tucker, product specialist for John Charcol, comments: “It is widely expected that interest rates will rise again next month pushing trackers and discounts up again, yet fixed rates are already priced higher to account for a rise. With Inflation only dropping to 2.4 per cent, which was not as low as analysts had hoped, combined with increasing oil costs and continuing economic growth, borrowers should be wary that another rate rise is on the cards.”
Fixing seems to be the safest thing to do, but rates are typically two per cent higher than they were two years ago, unless you opt for one with a premium arrangement fee, as these supplement the rate. An example is Cheltenham and Gloucester’s 5.28 per cent fixed rate with a 2.5 per cent arrangement fee.
Tucker continues: “What’s vital is that borrowers remortgage to a rate that makes monthly payments affordable. Invariably the lowest rates have higher fees, but parting with perhaps some of the equity accrued if your house has increased in value to pay a higher arrangement fee, in exchange for the peace of mind that your monthly payments are comfortable, may well be worth it.
“If you are considering a tracker or discount rate because you think that rates will fall again next year, ask yourself if you can afford the potential one or more rate increases that we may see before then. One option currently available is a wait and see mortgage with the Woolwich. It is a one year fixed rate, priced at 5.39 per cent, with a modest arrangement fee of £595 and free valuation and legals. After the one year period, you can choose to track at 0.39 over base indefinitely or you can select one of Woolwich’s two year fixed rates. This would allow borrowers to fix for a short period of time before the anticipated downward movement in bank rate kicks in next year.
“If you do not require the certainty of a fixed rate in the short term then there are still plenty of good trackers available, and borrowers must pick the rate versus arrangement fee combination carefully based on their loan amount. Borrowers should also check that discount rates are priced using the lenders’ new Standard Variable Rate changed to reflect the last rate rise.
“BM Solutions has a two year discounted tracker deal at Bank Rate -0.65 per cent giving a pay rate of just 5.1 per cent with a fee of one per cent which is superb value for any mortgage up to £240,000. However, for anything larger than this its 0.31 discounted tracker under base with a pay rate of 5.44 per cent with £599 fee is better value. If you’re borrowing less than 75 per cent loan to value Standard Life's two year discount at 2.12 under its SVR for two years is very good. The pay rate is now only 5.19 per cent for a flat arrangement fee of £1,489.”
Tucker concludes: “The diverse range of rate versus fee combinations available now is a benefit to consumers who choose the right one. Some maths is required to work out the cost over the next few years and an independent mortgage advisor will easily be able to calculate which product will be best value for your personal situation.”
