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• Experts predict sharp rise in interest rates
• First-time buyers offered greater choice of mortgages
Borrowers should take advantage of low fixed-rate mortgages before interest rates start rising again, mortgage brokers have advised.
The Bank of England monetary policy committee (MPC) left the base rate unchanged at 0.5% yesterday, and this is expected to be its strategy for several months to come. But Ray Boulger of mortgage broker John Charcol warned that when rates do start rising again the increase is likely to be very steep.
"[Yesterday's] decision by the MPC to leave the bank rate unchanged for the second month running is likely to be the precursor for several more months of the same. However, whilst it is difficult to be confident how long bank rate will stay at 0.5%, it is likely than when the MPC starts increasing it it will move up quite quickly, which could be very uncomfortable for anyone still locked into a variable rate mortgage at that time.
"Borrowers on variable rate mortgages, especially those with any sort of interest-only mortgage, should therefore be very aware of the risk of a rapid rise in their payments at some stage, even though that may not happen this year.
"Switching to a fixed rate will be the best way for most people to buy protection from rising rates."
David Hollingworth at mortgage broker London & Country agreed that people should be opting for fixed rates: "There has been just a little bit of movement in fixed rates, which suggests that rates could start going higher. There seems to be little value in going for a variable rate mortgage now."
The Woolwich cut the interest on its fixed-rate mortgages by up to 0.7% earlier this week. The bank is selling loans fixed for two years at 3.69% up to 70% loan-to-value, and 4.99% for loans up to 80% loan-to-value. Three-year fixed rates cost 3.99% for loans up to 70% loan-to-value.
Hollingworth pointed out that HSBC is also offering loans fixed at 3.99% for three years but at the higher loan-to-value ratio of 75% with a £599 application fee, while Britannia Building Society is fixing loans at 3.94% for three years or 4.24% for five years, up to 60% loan-to-value.
Mortgage choice is also beginning to widen for first-time buyers. Clydesdale Bank and Yorkshire Bank are offering first-time buyer loans fixed at 6.99% for three years up to 95% loan-to-value, or 5.99% for those who can put down a 10% deposit, with a £599 application fee.
The Royal Bank of Scotland is fixing rates at 5.99% for five years up to 90% loan-to-value, again with no application fee.
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