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Your Money > Mortgages Articles > Fix your mortgage...
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By Jane Baker
Fixed rate mortgages are becoming really popular again. According to the latest data from the Council of Mortgage Lenders (CML), 69% of borrowers took out a fixed rate deal in April. I suspect many borrowers are keen to fix while rates are still relatively low. But it doesn't look like these deals will stay that way for long. It's a real blow that just when mortgage affordability was starting to improve, borrowers will be hit with higher fixed rates. Why are fixed rates rising? Because the Bank of England base rate is still at its all-time low, you might expect fixed rates will generally stay low too. But, unfortunately, it doesn't work that way because fixed rates are more influenced by what's known as 'swap rates'. Put simply, swap rates are a mechanism lenders use to make sure their margin - or profits - remain steady, and they represent the cost of funding for fixed rate lending. So, it follows when swap rates change, fixed rate deals will normally be re-priced accordingly. Clearly, it's not good news that swap rates have risen significantly this month. This is likely to filter through to higher fixed rates quite quickly. In fact, we are already seeing it happen. This week alone a number of lenders - including Nationwide, Northern Rock and Cheltenham & Gloucester - have already stepped up some of their fixed rate deals in response to a rise in the cost of funding. I expect more lenders will follow suit. Top fixed rate mortgages That said, there are still some great fixed rate mortgages around at the moment. But they could disappear soon, so I suggest you act quickly. Let's take a look at some of the best buys:
Source: Moneyfacts.co.uk. If you're looking for a short-term fix, Abbey has a market-leading two-year deal with a rate of just 2.95% for borrowers who are remortgaging. For other borrowers, First Direct is also offering a competitive deal at 2.99%, although the fees are quite steep at £1,498. But I would be very wary of choosing a short-term fix now. There's only one direction interest rates can head from here. By fixing for just two years, you could find you'll need to remortgage while rates are still rising, which means the fixed rate deals on offer at that time probably won't be anywhere near as attractive as they are today. So, I would far more comfortable fixing for a longer period even though the rates are higher. The best buy rate over five years is Britannia Building Society at 4.44%, with a product fee of £999. Top fixed rate mortgages for borrowers who want a long-term fix If you're happy to fix for an even longer period, there are some decent 10-year deals on offer now too:
Source: Moneyfacts.co.uk. Again, you will have to pay a bit extra, but you'll be completely protected from rate rises for a whole decade! Britannia BS takes the top spot once again with a rate of 5.09%. I think that's pretty attractive, given the long-term certainty you'll get in return. The top fixed rates I've talked about so far are only for borrowers with a low loan-to-value (LTV) ratio. The LTV is the mortgage loan as a percentage of the property value. In other words, these deals all require a hefty deposit of between 25% and 40%. But are there any attractive deals if you're a first-time buyer with a deposit of 10% or less? Top fixed rate mortgages for FTBs with a 10% deposit (or less)
Source: Moneyfacts.co.uk. Admittedly, there aren't masses of choice at the high LTV end of the market. But Lloyds TSB may have a solution if your parents are keen to help you get onto the property ladder. The Lend a Hand mortgage effectively requires a total deposit of 25%. A deposit of at least 5% must be paid by you, but the remaining 20% must be contributed by your parents - or other relatives - and held in a Lend a Hand savings account for three years which Lloyds has a legal charge over. After the deal ends, if the LTV has fallen to 90%, or lower, the charge on the savings account will be removed, and the mortgage can then be run independently. If you can't dip into the Bank of Mum and Dad for help, Britannia has a range of decent mortgage deals as long as you can stump up a deposit of 10% yourself. Finally, a quick word on Rate Matcher If you're due to come to the end of your mortgage deal soon, or you're already paying your lenders standard variable rate, you may be interested to hear HSBC has just relaunched its Rate Matcher deal. For a limited period, HSBC is offering to match - or even beat - your current rate, and fix it for up to five years. Can't be bad! Find out more in Get a fixed rate mortgage at 2.49%! More from lovemoney.com Useful links: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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