Mortgage rates September 2014 (1)

Rising house prices could give some homeowners the chance to grab a cheap mortgage. What next for mortgage rates?

Last year borrowers could lock in at an astonishingly low level of less than 2.5 per cent for five years - now the best five-year deals on offer come in at just under 3 per cent.

But while some homeowners may be left kicking themselves that they didn't take advantage of those super low rates, there are still plenty of opportunities around to bag yourself a historically cheap home loan.

And crucially rising house prices may have done some borrowers a favour if they want to remortgage. Those who had seen their equity fall after the 2007 peak, or were close to a loan-to-value threshold, may find the rising market has lifted them to a level where they can get a better rate.

On the up: House prices are rising across the country and that could give some homeowners a better chance of remortgaging.

On the up: House prices are rising across the country and that could give some homeowners a better chance of remortgaging.


A borrower with a £180,000 mortgage on a £200,000 home a year ago could have seen its value rise by ten per cent thanks to rapid house price inflation. 

They would previously have only been able to borrow at 90 per cent loan to value, but if their property was now worth £220,000 and they had cleared some debt with a year's worth of mortgage payments they could now fall into the 80 per cent loan-to-value mortgage bracket and get a better rate.

The bigger barrier some now face is tougher affordability tests and the requirement for financial advice that the mortgage market review brought in.

Banks and building societies must now delve in much deeper detail into borrowers' finances, assess their incomes against outgoings to decide how much they can lend - and ask for far more proof on this, and stress test against rates rising in future - typically by 2 to 3 per cent.

All this is aimed at making sure people are only borrowing what they can afford to, an endeavour that it is difficult to fault.

However, borrowers will find they must join a queue even for telephone mortgage interviews and that these can now last two hours or longer.

Mortgage rates have risen in recent months off the back of speculation about a sooner than expected interest rate rise from the Bank of England, with fixed rate deals seeing the biggest rises.

Tracker mortgage rates look more tempting set against these but borrowers must do their sums and ensure they can afford rates to rise - factoring in bigger than expected increases in order to build an all-important margin of safety


 Fix vs tracker: where are the best rates?

Bigger deposits

 Five-year fixes

Barclays has a five-year fixed rate at 3.09 per cent with a £999 fee or a rate of 2.99 per cent for loans worth more than £500,000.

Nationwide has a four-year fix Flexclusive for its Flexaccount holders at 2.89 per cent with £499 fees for those with a 40 per cent deposit, or 3.19 per cent with a £99 fee. 

Two year fixes

Chelsea BS has a two-year fix at just 1.89 per cent for those with a 35 per cent deposit paying fees of £1,675.

Barclays has a rate of 1.99 per cent with a £499 fee but borrowers must have an open and active personal current account with the lender that has been credited with a minimum of £800 in each of the last three months.


Smaller deposits

15 per cent

Chelsea BS has a two-year fixed rate at 2.74 per cent with £1,675 in fees for those with a 15 per cent deposit.

Chelsea Building Society has a five-year fixed rate at 3.64 per cent with a £1,675 fee.

Norwich and Peterborough has a rate of 3.79 per cent with a £195 fee.

10 per cent

Chelsea Building Society has a rate of 3.44 per cent for two years, but you will have to pay £1,675 in fees.

Norwich and Peterborough has a two-year fixed rate of 3.79 per cent for a £345 fee.


5 per cent

The Government has launched a Help to Buy guarantee scheme that provides an indemnity of up to 15 per cent for lenders to allow them to offer mortgages for a 5 per cent deposit.

Halifax is offering a two-year fixed rate at 5.19 per cent with a £995 fee or 5.59 per cent with no fee.

Lloyds Bank is offering a two-year fixed rate at 5.19 per cent under the Help to Buy mortgage guarantee scheme with a £995 fee.

This is similar to its sister-brand Halifax, but you will need to open a current account with Lloyds Bank to get this rate.

Non-account holders can get a higher rate of 5.39 per cent with a £995 fee.

There is also a fee-free version for 5.59 per cent for current account holders or 5.79 per cent for non-account holders.


Virgin Money is offering a fee-free two-year fixed rate at 5.59 per cent or a five-year fixed rate at 5.79 per cent.

Virgin Money also has a fee-free three-year fixed rate of 5.69 per cent.

It offers £300 cashback with its deals.

Aldermore has a two, three or five-year fixed rate mortgage at 5.93 per cent  with a £999 fee.

Santander offers a two-year tracker with a rate of 4.49 above the Bank of England base rate, meaning you would currently pay 4.99 per cent.

It also has a two-year or five-year fixed rate at 5.49 per cent. The deals have a free valuation and £250 cashback.

Barclays offers fee-free rates of 4.99 per cent for three years or 5.49 per cent for five years. 

The fee-free deals have free valuations and £250 cashback.

There are also 5 per cent deposits available outside of Help to Buy that can work out cheaper.

Hinckley & Rugby Building Society has a two-year fixed rate at 4.89 per cent with a £990 fee.

Leeds Building Society offers a five-year fix at 5.69 per cent with a £199 fee.


Tracking a 0.5 per cent base rate that is only likely to rise may seem an odd decision when you could fix for up to five years at a lower rate, however, there is one big advantage to a good lifetime tracker - flexibility.

A fixed rate mortgage will almost inevitably carry early repayment charges, you will be limited as to how much you can overpay, or face potentially thousands of pounds in fees if you opt to leave before the initial deal period is up. You should be able to take a good fixed mortgage with you if you move, most are portable, but there is no guarantee your new property will be eligible or you may even have a gap between ownership.

A good lifetime tracker has no early repayment charges, you can up sticks whenever you want and that suits some people.

Tracking at a low rate looks good now, especially when rates are not predicted to go up for the next three and not rise substantially over the next five years, but that may not turn out to be the case, so make sure you stress test yourself against a sharp rise in base rate. 


Santander is offering a lifetime tracker with no early repayment charges or fees at a rate of 2.49 per cent for a 40 per cent deposit. It also has a rate of 2.49 with a £495 fee for a 25 per cent deposit.


Should you get a new mortgage? And what to get?

Certainly, those on standard variable rates of 4 per cent or higher with reasonable equity in their home should seriously consider moving.


One option is a fee-free, early repayment charge free, life-time tracker.  This could shave money off their monthly repayments - or leave them equal - and ensure their rate will only rise when base rate does. 


Many could grab a fix and pay less than they are now, or just slightly more. If you are on an SVR you should seriously think about moving, unless you have a Nationwide / C&G-style guarantee capping it at a certain level above base rate.

Events have highlighted the vulnerability of standard variable rates and discount rates linked to them, with Santander's rise following mortgage giant Halifax raising its SVR, along with Bank of Ireland, Co-op and Clydesdale/Yorkshire Banks. RBS also raised rates for 200,000 borrowers with Offset and One Account  mortgages. Unlike standard variable rates, which are at the mercy of bank's whims, trackers will only move up if the base rate rises.)


Safety first or take a gamble

Locked in: A five-year fix offers the security that your payments will not rise.

Locked in: A two to five-year fix offers the security that your payments will not rise.

The appeal of a fix to both buyers and remortgagers is the longer term security it gives and that there is no need to remortgage in a short period of time, when rates are likely to be higher.

Homeowners should check that deals they are looking at are portable, and can therefore go with them if they move home.

Never forget the pay rate on trackers will rise when the base rate does.

The bigger margin on fixed rates means that borrowers willing to take a gamble on rates rising slowly are being tempted by tracker rate mortgages.

Those happy to take a punt on rates rising slowly can save money over time by opting for a tracker,but they need to be comfortable with the risk of higher payments and factor in a decent safety margin when working out future mortgage costs. 

Big fees vs rates

The best rates require big fees, but in most instances, fee-free or low-fee options are available and that highlights how vital it is for borrowers to work out if a big fee-low rate mortgage is worth it for them. 

Typically, the bigger your mortgage the more worthwhile it is paying a large fee, although watch out for those that are a percentage of your loan. 

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