May 8th, 2014
The Bank of England base rate has been held at 0.5% again, as the clock counts down to a base rate increase in early 2015.
Bank of England chief Mark Carney stated recently that any rate increase will not be delayed by the General Election next year, stating it would be ‘a welcome time’ when rates increase as it would signal the end of the recession.
Something that may be of more concern to those with mortgages right now is the fastest increase in mortgage rates in two years, which has happened irrespective of any base rate movement.
Research from price comparison site moneyfacts.co.uk has revealed that the average rate across 2 year fixed rates, the most popular product choice amongst contractors, increased by 0.09% in April, the highest increase in rates since February 2012.
With many contractors looking to buy a new home or changing their mortgage in the coming months, the increasing popularity of fixed rates is due to continue.
Andy McBride, Business Development Director at specialist mortgage broker Contractor Mortgages Made Easy, makes the following observations about the decisions faced by contractors when reviewing their mortgage options.
“Product availability for contractors has been more plentiful in the last 6 months than it has ever been before. With more lenders looking to target contractors as sources of good quality lending, more choice has been on offer when selecting a mortgage deal.”
“However, there were figures released showing that over 96% of new mortgages taken, were done so on a fixed basis in February, which is a staggering figure when you consider that the base rate hasn’t moved for over 5 years.”
McBride went onto comment on the decision-making process that most contractors face when deciding on how to structure their new mortgage.
“Any news regarding mortgages inevitably talks about when the base rate will increase. It is therefore understandable that contractors want to opt for stability, when a rate increase is looking inevitable within a year. What is surprising is that most of these fixed rates are 2 year products, the very same rates that have now started to increase.”
The recent sharp increases in 2 year fixed rates have been blamed on volatile swap rates, which largely determine pricing by banks of fixed mortgage products.
Moneyfacts editor, Sylvia Waycot, sympathised with the predicament of the potential mortgage borrower, and had some advice to give.
“The two-year fixed rate mortgage has been the favoured option for the risk-averse borrower who enjoys the knowledge that they know what their mortgage will cost each month. However, as these deals have come to an end, many borrowers have reverted to the SVR of their lender, as in many cases it has proved a cheaper alternative.”
“However, the average two-year fixed rate increased fourteen of the twenty business days in April and the average five-year fixed rates have fared no better, increasing 14 out of 20 working days in April.”
“Don’t make the mistake of thinking that we need a change to base rate to increase the cost of mortgages, as prices are creeping upwards now. So if fixed rates are your preference, now is the time to fix.”
Article By:Taj Kang, Business Development Director at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager