Long term fixed rate mortgage costs are beginning to creep up, with the current period of historically low interest offerings drawing to a close after almost 5 years.
All of NatWest, Nationwide, Santander and the Yorkshire Building Society have implemented rate rises on their 5 year fixed mortgage products in the last week, with it thought that the increases are as a result of the countryís leading financial organisations anticipating a rise in the Bank of Englandís base rate sometime in the near future.
And prospective homeowners have been advised to fix their mortgages now if they desire to acquire a long term secured loan that will shield them from the initial affects of rate rises, that is expected to happen sometime in 2015.
Previously, the Bank of England said that they would not consider rate rises until at least 2016, as part of their forward guidance policy that attached the future trajectory of rates to unemployment.
However, the recent economic performance of the country, the staggering rate in which unemployment fell over 2013 and the Bank of Englandís recent withdrawal of their Funding for Lending scheme to mortgage providers has led most market analysts to forecast that rates will rise sometime next year now instead.
David Hollingworth, of prominent broker London and Country, has argued that whilst the offerings on the market are still highly competitive and worth obtaining, that nevertheless the market has reached a watershed and that the trajectory of rates will only be on the up from now.
ìYou tend to see a domino effect once a handful of lenders start changing their pricing. Borrowers looking to fix should not wait until just before a base rate rise. Lenders are proactive and prepare for changes well before they happen. We will inevitably see rates continue to edge up this year as we get closer to a base rate rise,î said Mr Hollingworth.
Anticipation of rate rises is not the only reason that people are being encouraged to fix now rather than later, with others in the finance industry highlighting the new mortgage application system that is set to be introduced in April this year.
The new procedure will see lenders move away from the typical income multiples system that has been the cornerstone for gauging how much a lender can borrow for years now.
Instead, prospective borrowers will have their income strenuously tested against how much they will have to pay at the present time on their monthly repayments, and then again over how well it will cope when rate rises do go up.
Applicants will have to have incomes that are able to pass both these tests, or will likely be rejected; meaning that from April the likelihood is that smaller loan to value mortgages will be available to prospective homeowners, whilst it will also be generally harder to acquire one in the first place.
Simon Gammon, chief executive of Knight Frank Finance, has called for people to fix now whilst lenders still ëhave the appetiteí to dish money out, and warned that it will only get harder and more expensive to obtain a secured loan.
ìWe have already witnessed many lenders over the last few years pick and choose the best borrowers, and mortgage application declines have at times been very high,î he said.
ìExpect this trend to re-appear more as the number of borrowers wanting to fix their rates increase. The message then is get in early while they is still appetite to lend and many banks have large targets for this year to hit.î
Ultimately, it was inevitable that interest rates would rise from their historically low 0.5%, which they have been retained at for nearly five years now.
The general message that financial bodies are sending out is that anyone who wishes to acquire a home should act fast now, and fix in for as long as possible, because this will shield them from the higher repayments that will be incurred from the first round of interest rate rises.
Whilst this is not forecasted until next year, and will likely only increase at a steady pace, providers are already moving to adjust their products in anticipation of rises.
With the application procedure set to get a whole lot harder, and the costs only heading one way, it can be argued that now is the final opportunity to obtain a mortgage product at a low cost, so acting fast and fixing for a long term can only be beneficial to the prospective homeowners of today.
The long term mortgages that are well worth you considering
Though rates are on the up, there is nevertheless a multitude of different deals that are worth considering if you are someone who desires to obtain a property at present. The following is a list of the top 5 year fixed rate deals, with information about their costs and charges attached to them.
NatWest – 5 year fixed rate at 2.95%. Enables you to fix until 2019, though you can only acquire a 60% loan to value mortgage. The handling fee for this product is £995, which is relatively competitive, whilst all administrative work for remortgaging and valuation services is included.
Woolwich- 5 year fixed rate at 2.95%. Enables you to fix until 2019, though you can only acquire a 60% loan to value mortgage. The handling fee for this product is £999, which is slightly more expensive than NatWest, whilst all administrative work for remortgaging and valuation services is included.
Santander- 5 year fixed rate at 3.09%. Fixes you in until 2019 and mortgages of up to 70% loan to value are available with this deal. Handling fee is £999, and remortgaging procedure done on your behalf in the future.
Yorkshire Bank- 5 year fixed rate at 4.29%. Enables you to fix until 2019, whilst you can obtain mortgages with as high as 90% loan to value with this product. The handling fee is £999, and all administrative and legal work for remortgaging is included as well as future valuations of your home.
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