Good Fixed Rate Deals Becoming Rare and May Go Extinct Soon
Good fixed rate deals for mortgage and remortgage are becoming a rare animal it seems and could be close to becoming extinct, at least those that could be considered good. What was available in December and early January disappeared quickly in the middle and close of January. Now as February reaches the middle mark there are even more fixed-rate deals disappearing and the average fixed rate has risen when compared to months past.
The reason behind the changes in the fixed-rate deals available involves the higher demand for the loans as well as the cost of swap rates increasing. Swap rate costs are the costs involved when banks lend to one another. The cost of these swap rates is passed along to the borrower and therefore the fixed rates reflect the increase.
Melanie Bien, director of the mortgage broker Private Finance, said: “There has been very little incentive to remortgage over the past year, with interest rates stuck at historic lows and the majority of borrowers slipping onto cheap variable rates with no remortgage fees or early redemption charges to worry about.
“However, this situation is likely to change this year with remortgaging growing in popularity if borrowers seriously believe that interest rates are going to rise significantly.”
In response to the rising swap rate costs, Ms Bien remarked: “” Several lenders have already increased their fixed rates on the back of rising ‘swap rates’ – the rate banks pay to borrow from each other – and others are expected to follow suit in the next few days,” says Melanie Bien at mortgage broker Private Finance. “Most at risk are market-leading rates, which are being snapped up by borrowers fearful of an imminent rate rise. Lenders are pulling fixes with little or no notice, so it can be difficult to plan ahead.”
Those who want the security a fixed-rate deal offers are being advised to move quickly, while rates are still quite low. However, Bien says: “It’s important that borrowers don’t panic.” A lot depends on your own circumstances. If you would struggle to pay your mortgage if rates were to rise, then a fixed rate makes sense. If you can secure a good rate now, that makes even more sense.
“You can book a rate up to six months before you actually take it out, depending on the lender, so this may enable you to enjoy a cheap variable rate for a while longer, before moving on to the fix, giving you peace of mind,” says Bien. “Otherwise, there are some good trackers available, some with options to switch to a fix without penalty. The potential downside of this strategy is that fixes will be more expensive if you wait until interest rates are rising.”
This week the inflation rates are due out. Should inflation put more pressure on the interest rate regulators by hovering around 4 per cent or more then there is likely to be more changes seen in the lender’s rates. Lenders will view an increase in living costs as a cause to look at borrowers as having more difficulty in repaying loans successfully. Higher risk causes lenders to tighten up on lending and already the lending is constricted to the point of concern. In fact, the Housing Minister is due to meet with those in the lending and housing markets to discuss the ability to bring first-time buyers back into the picture to give the housing market a much-needed boost this week.