Borrowers urged to lock in mortgage deal ‘early’ to avoid interest rate peak

Successive Bank of England Base Rate rises have sent mortgage interest rates spiralling since the start of last year and while inflation remains high, further increases are still expected.

While some analysts predict a Base Rate peak of 5.75 percent this year, Britons are being urged to be proactive with sourcing a new mortgage deal to cash in on the current and slight fall in interest rates, which are a product of the drop in inflation pace from 8.7 percent to 7.9 percent.

Commenting on the current mortgage market, Pete Mugleston, MD and mortgage expert at Online Mortgage Advisor, said that while we’ve seen mortgage rates consistently rise for the most part of the year, there’s been a slight downshift recently with some rates falling.

Mr Mugleston told “This is due to the latest announcement that inflation dropped to 7.9 percent in the year to June, bringing some relief to lenders.”

The Bank of England is now widely expected to raise its Base Rate by just 0.25 percent at the next adjustment on August 1, which Mr Mugleston said could explain the fall in mortgage borrowing costs.

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That being said, he added: “It should be noted that mortgage rates remain much higher than they were in previous years.”

Looking ahead, Mr Mugleston said: “We currently estimate that the Bank of England’s Base Rate, which largely determines mortgage rate levels, will peak at 5.75 percent, lower than previous expert predictions of a six percent peak.

“So, mortgage rates will continue to rise over the coming months, albeit slower than previously predicted thanks to falling inflation.”

Nigel Green, CEO of financial advisory firm deVere group, said: “We believe the Bank will insist that although inflation is certainly coming down, it is doing so very, very gradually. It remains sticky – still the highest in the G7 – and a long way from the [Government’s] two percent target.

“We believe that although the battle to tame inflation seems to be being won, with the lowest reading in 16 months, the Bank of England is highly unlikely to be dissuaded from its course of rate hiking action for the time being.”

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For those who are coming close to the end of their current mortgage deal, Mr Mugleston provided four key tips, which he “urges” borrowers to consider.

First, Mr Mugleston suggested people assess their ability to make payments on any new deal they’re considering. He explained: “Given the fact that mortgage rates are considerably higher than they were five years ago, it’s crucial to evaluate your financial capacity to handle monthly repayments that will likely be higher than what you’re paying at the moment.

“If you are concerned about this, there are some temporary options that could help, such as switching to an interest-only mortgage, but this should be discussed with your lender before making any decisions.”

Secondly, borrowers should pinpoint the exact date their current deal will end. Mr Mugleston said: “If you’re on a fixed-rate mortgage at the moment and take no action, you’ll be switched to your lender’s Standard Variable Rate (SVR) once your deal ends, typically resulting in higher costs.”

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At present, SVRs are averaging 8.49 percent, which is up 0.04 percent from the previous week. This works out significantly higher than fixed rate deals, with two and five-year fixes averaging at 6.88 percent and 6.54 percent, respectively, according to research by experts at Uswitch.

In addition to this, Mr Mugleston suggested borrowers “explore the idea” of locking in a new mortgage rate “early” before rates climb higher.

He said: “If the rates go down before your deal switches over, your lender may allow you to cancel the arrangement you locked in without incurring a fee – discuss this possibility with them before agreeing to lock in a new deal.”

Lastly, Mr Mugleston suggested seeking advice from an experienced mortgage broker who can help compare mortgage options.

He said: “Their expertise and experience means that they are best-positioned to find the most affordable deals for you, and advise you on the best decision for your financial situation.”

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