Borrowers are being urged to lock in bargain interest rates that could save them thousands of pounds on their mortgage bill.
Homeowners are currently being offered some of the lowest mortgage rates ever seen in the UK, as lenders fight for borrowers’ business. Last week, Halifax launched a two-year fixed deal at 0.9pc and a five-year deal at 0.98pc for its remortgage customers. Today, Halifax will present one of the cheapest two-year deals ever at 0.83 pc for borrowers with a 40pc deposit.
According to UK Finance, the banking trade body, an estimated 700,000 borrowers are expected to seek a new mortgage this year once their current deal ends.
Matt Coulson of mortgage broker Heron Financial, says rates are incredibly low at the moment, so if an individual’s current deal is due to end and they will be remortgaging soon, they should lock in now. He adds that prospective borrowers in the process of buying a property should also act now to secure a cheap deal. He points out that once an application has begun, the rate is fixed even if interest rates rise before it is completed.
A good mortgage broker, he says, will keep an eye on the market and if something better turns up, the opportunity to make a new application can be discussed. In this way, all eventualities are covered.
Vital to obtain right mortgage advice
Experts have predicted that rates will continue to fall in a price war that has surged between banks and building societies in recent months.
Hinckley & Rugby Building Society was the first on the market since the pandemic began to introduce a sub-1pc mortgage in April. Since then, the banking giants and smaller building societies have entered the sub-1pc market to entice new borrowers and cash in on soaring property demand.
Kevin Roberts of the Legal and General Mortgage Club says increasing price competition among mortgage lenders is great news for borrowers and provides a chance for many to reduce their monthly repayments. Yet it is vital, he adds, to obtain the right advice when looking for a mortgage, as finding the best option is about more than seeking the lowest rate.
Here are some of the details that need to be considered.
Early repayment charges
Brokers have reported increasing numbers of clients remortgaging early to make the most of record low rates, even if they have to pay early repayment charges on their current loan. In some instances, savings made over the lifetime of a sub-1pc loan can outweigh the early repayment charges. But in other cases, these charges can cost borrowers thousands of pounds.
According to Legal and General, someone with a five-year deal on a £250,000 mortgage could be charged around £11,000 if they move home or change mortgage before the loan’s term ends.
These fees, Mr Roberts says, should be an especially important consideration for those wishing to move home in the near future. However, he found when asking borrowers what motivated them to choose a particular mortgage, almost two thirds said the rate was the most important feature and only 10pc considered exit fees.
Upfront fees
Another reason for borrowers to look beyond headline interest rates is the matter of fixed upfront fees. Sub-1pc deals often impose the heaviest fees which can outweigh any savings made from a lower rate, depending, of course, on the length of the deal.
It is important to consider not only the headline rate but all the costs involved, Mr Coulson says. An attractive interest rate may not be good value if the borrower ends up paying thousands of pounds in fees, especially on smaller loans, he adds.
Financial experts have warned against borrowers being lured into ‘honeytrap’ mortgages that appear to be better value than they really are. In some cases, lenders have increased upfront fees in order to maintain profit margins as rates are pushed even lower.
