Fixed-rate mortgages below 6% could soon disappear as the cost of inter-bank borrowing continues to rise.
Rates for lenders to secure cash on the money markets for two, three and five years have increased by up to 0.44% over the past month, pushing up the price of fixed-rate deals.
Most of the large mortgage lenders have increased the cost of fixed-rate loans for home buyers, with Nationwide the latest to hike costs. This is the second time the building society, the second largest lender in the UK, has increased rates this month.
Its fixed-rate mortgages have all been increased by between 0.25% and 0.50%, taking its most expensive fixed rate to 7.85%. Tracker deals have also been increased by 0.20%, in a move that takes its two-year tracker up to 6.68%.
David Knight, a mortgage expert at Moneyfacts.co.uk, says it won’t be long before all fixed-rate best-buy products top the 6% mark. “With Nationwide upping its rates it won’t be too long before the big players such as Halifax follow its lead.
"Even the smaller building societies, which have been strong players in the best-buy tables because of the credit crunch, will be forced to increase their rates to control consumer demand for their products.”
In a fix
More than 116,000 borrowers a month are coming to the end of their fixed-rate deals. Mortgage website mform.co.uk warns that fixed-rate mortgages at rates below 6% will disappear over the next few weeks, with those at under 6% including hefty arrangement fees
Marketing and business development director Francis Ghiloni says borrowers should consider discount and variable rate products.
“Mortgage rates are continuing to rise despite concerted action by the Bank of England and it is unlikely there will be many fixed-rate deals left below 6%. The gap between variable and fixed rates is widening," he adds. "Despite this, borrowers are still looking for the certainty delivered by fixed-rates, but we’d urge people to consider variable products such as discount rates.
"Borrowers should always focus on the true cost of a loan taking into account monthly payments and fees.”
But David Hollingworth, a mortgage expert at brokerage London & Country, says tracker mortgages are not suitable for all borrowers, especially those that need the security of knowing how much their repayments will be each month.
He says: “Borrowers coming to the end of their deals need to consider right now what they want from their new deals. With inflation on the up, the base rate could indeed be increased in the coming months, so if borrowers need the security and peace of mind of a fixed rate we’d urge them to grab one now with both hands.”