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Top tips to beat high mortgage rates

·4-min read
Mortgage interest rates are on their way up, so if you are on a variable rate, now might be the time to switch to something fixed.
Mortgage interest rates are on their way up, so if you are on a variable rate, now might be the time to switch to something fixed.

As a borrower with a mortgage, you may be wondering what to do right now.

Interest rates have already had their first nudge upwards from 0.1 to 0.25% in December.

And, with the latest figures showing inflation at its highest in nearly 30 years at 5.4%, there is not only speculation of another rise next month, but also the potential for multiple rises in the year ahead.

While those on a fix won’t be affected by higher rates until their deal expires, if you are on a variable deal, your rate will increase in line with the Bank of England’s changes.

What’s happening to mortgage rates?

A rise in the base rate tends to feed into borrowing rates fairly quickly – in some cases, even before the rise itself is announced.

Right now, variable-rate mortgages are already beginning to get more expensive. According to Moneyfacts, the average tracker mortgage is up 0.15% to 3.53%, while the average standard variable rate is up to 4.42%.

The analyst found that the average two-year and five-year fixed-rate mortgages have also risen for the third consecutive month.

Miles Robinson from online broker, Trussle, said: “Increased interest rates have already had a big impact on mortgages with sub-1% deals all but disappearing from the market overnight.”

Read more: 10 ways to increase the value of your home for under £500

So what should I do now?

If you’re on a variable rate mortgage, now could be the time to think about moving to a fix.

Sarah Coles from Hargreaves Lansdown, said: “If it makes sense for your circumstances, you should seriously consider remortgaging to fix your rate.”

This will give you the peace of mind of knowing you are protected from rate rises until your deal comes to an end.

Robinson said: “Locking your monthly payments for a period of time can save money and help households better plan for the future.”

What rate could I get?

Even though mortgage rates have crept up following December’s interest rate rise, they remain low by historical standards – especially if you have a big enough deposit.

Coles said: “You can fix for five years for as low as 1.39%, and for two years for 1.11%. These are still fantastically low rates.”

Read more: UK's most and least affordable areas to live

Plan ahead

If you have a deal coming to an end within the next six months, you can arrange a new fix now. This will kick in immediately after your deal expires and could mean big savings.

Watch out for exit fees

One of the things you need to check for though, is whether you have a hefty exit fee to leave your current deal. If this is the case, it could make any move too expensive. The key is to do the maths.

What does this mean for first-time buyers?

Right now, getting access to cheap mortgages is not an issue for those looking to take the first step, it’s saving for the deposit which is the bigger hurdle.

Myron Jobson from Interactive Investor, said: “The key challenge is building a large enough deposit as property prices continue to outpace wage growth.”

The ONS UK house price data for November – the latest available – shows that despite the drop in prices in October, and the fact we are two months on from the withdrawal of the stamp duty holiday, the average house price rose to £271,000 in November.

Karen Noye, mortgage expert at Quilter, said: “Buying a home in these times will be out of reach for many, particularly as even if there were to be a slowing of growth, it would likely be very gradual. Those holding out for a dip in prices following the end of the stamp duty tax break will be disappointed. Rising mortgage rates, alongside inflated house prices – and the seemingly ever-increasing cost of living – will make buying a new home even more challenging.”

Watch: How much money do I need to buy a house

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