As the Bank of England holds-off raising the interest rate yet again, Stirling Ackroyd Legal see how this impacts mortgage rates?
Whether you’re borrowing or saving, we’ve been on tenterhooks for months wondering just when the interest rates are going to rise. Before Christmas, talk on the street and in the city counting houses suggested that it would definitely be January 2016. The first month of the new year came and went and the rate rise was postponed again. Bad news for savers; happy new year for borrowers.
Let’s start at the seat of power on the matter. The Bank of England kept the interest rate at its record historic low of 0.5% for more than six years. Despite the first rate rise in the US for nine years, the signs are that the UK rate won’t be changing any time soon. Mutterings in the financial markets suggest that it looks set to remain fixed until well into 2019 and perhaps longer.
Stirling Ackroyd Legal highlights that the interest rate has a direct impact on mortgage rates – lenders are more willing to loan at attractive rates when the interest rate is low. Simply put, low mortgage rates mean your monthly repayments will be cheaper. Market figures indicate that more than 90 percent of people buying and remortgaging are choosing fixed rates. The cost of a fixed-rate mortgage remains low compared to ‘trackers’, especially if it’s a long-term loan.
There are hints that the price of fixed-rates may even fall. Why is this? Essentially, this is because the ‘swap rates’ that is, the rates at which lenders ‘buy’ money for a fixed period of time on the money markets dropped dramatically in the first few weeks of 2016. That said, swap rates have more of an effect on short-term fixed-rate mortgages. All three rates are currently low – interest, swap, and mortgage – and when combined, the outlook for borrowers good.
If you’re buying a property we can understand the temptation to jump at the first mortgage offer, but there are some factors you need to consider carefully first:
Arrangement fees – “Arrangement fees – sometimes also called product fees – should be looked at closely when you are choosing a mortgage. You might have a low-interest rate but this may come with a large fee. Sometimes arrangement fees can range from being a percentage of the loan to fees in the region of £2,500 plus. We strongly recommend doing some research, getting expert advice and shopping around, as you may find something with a slightly higher interest rate but with a lower fee – bringing the overall cost of the mortgage down.
Watch out for throw away lines suggesting that the arrangement fee can be added to the mortgage. Initially, this may not seem like a problem, but remember, you are then paying interest on this higher arrangement fee for possibly the next 25 years. Sometimes it pays to have a higher mortgage rate than a lower arrangement fee.”
Also worth considering are early redemption fees – the charge incurred when you leave a fixed-rate mortgage prematurely.
For more information on securing a mortgage or independent mortgage advice the Financial Conduct Authority website has lots of information and useful links. For expert advice on remortgaging, refinancing or restructuring, please contact us at Stirling Ackroyd Legal