Mortgage Rates Fall as Bank of England Unexpectedly Freezes Base Rates: Is Now a Good Time to Fix?

We have seen many ups and downs with interest rates over the years, wreaking havoc with our spending as mortgage rates were hiked up causing us all to tighten our purse strings and save, save, save. After 14 consecutive rises, however, the Bank of England has now held its base rate at 5.25% as of September, and it is even possible for further cuts to occur.

This downward trajectory has caused lenders to steadily reduce their rates on fixed-rate deals, meaning that some 5 and 10-year fixed deals are below 5%, something that has continued following better-than-expected inflation figures published in mid-September.

So, let’s look at the best course of action given this new information. To fix or not to fix? That is the question.

The Direction of Fixed Rate Mortgages

In July of this year, we saw a drop in fixed-rate mortgages to below 5%, something which we have not seen since midsummer. A 60% LTV (loan to value) ratio on a 2-year fix, in July this year, was 5.96%, and the same LTV ratio in July for a 5-year fix was 5.28%. These figures, in September, now sit at 5.39% and 4.93% respectively.

The likes of Nationwide, Halifax, NatWest, Santander, Barclays, HSBC, and Virgin Money have all reduced their rates over the last month with reports that there could be further new deals still to come.

What’s My Best Course of Action if my Mortgage Rate is Coming to an End?

This news brings a sigh of relief to a lot of homeowners and gives them options that they may have not considered previously. However, these options depend on where you are in your current deal and whether you have enough time to jump on a new, lower fixed-rate or maybe try a tracker mortgage. Let’s look at which could be the best course of action for you.

It’s understandable to want to stick to a fixed-rate mortgage, as they provide a certain level of security in knowing how much you will be paying each month, allowing you to plan your expenses much easier. Over the last few years though, this has not been the case. Even though your monthly repayments will always remain the same on a fixed-rate deal, they have been much higher and caused significant strain on households. If you have a fixed-rate deal coming to an end within the next 6 months, then it could be beneficial for you to lock in a new fixed deal right now. Locking into a new deal early gives you time to see whether interest rates come down further, it also gives you insurance against any rate rises and the flexibility to switch to a cheaper deal if one arises before your current deal ends.

Historically, trackers weren’t the favoured option as they have a variable rate of interest set against the base rate, and given its volatility of late, it’s no wonder. However, if time is of the essence, then you may be better off switching to a tracker mortgage, even if only temporarily. If we believe the hype, that rates will continue to fall over the next few months then a tracker mortgage could be a beneficial option, specifically one that doesn’t come with an early repayment charge. You can then move to a fixed-rate deal, penalty-free, once you are happy with the interest rate.

The SVR Trap and How to Navigate it.

SVR or standard variable rate, is the rate you pay once your current mortgage deal comes to an end, meaning that when base rates rise so do your payments. UK Finance has announced that there are approximately 770,000 homeowners stuck on an SVR. In early September, the base rate stood at 8.09% which led to the likes of Virgin Money offering 9.49% as their SVR rate and Barclays, Halifax, and Lloyds Bank offering 8.74%.

If you find yourself stuck in the SVR trap, in the hopes that interest rates will continue to drop, it is still better to switch to a fixed-rate or tracker mortgage. Hunting for a new mortgage usually offers up the below 2 options:

Getting a new deal from a different lender is a much better option than sitting on your current lender's SVR. Most lenders will let you lock in a rate at least 3 months in advance, many allowing up to 6 months. The downside to this, however, is that the remortgaging process can incur more fees and longer, more thorough checks, lengthening the whole process, which may not be possible if you need to lock in a new deal fast.

Another option could be gaining a new deal from your current lender. Most lenders also let you lock in a new deal up to 6 months in advance and this option tends to involve fewer fees and paperwork and is often much quicker.

Help! I’m a Mortgage Prisoner

A mortgage prisoner is a term used for those who are stuck in their lender’s SVR, unable to switch to a new deal or to a new lender and it is estimated there are around 200,000 homeowners currently in this position. Times are very tough for mortgage prisoners right now and for many, there is currently no help, but for some, there are a few options available.

• Lenders with Modified Affordability Assessments – lenders are currently allowed to waive some of the strict checks they carry out, however, it is at the lender’s discretion on whether or not they actually use it.
• Product Transfers for Timely Repayments – a couple of years ago the majority of UK mortgage lenders agreed to help their borrowers move to one of their new deals if they hadn’t missed any repayments and were up to date.
• Same Group Lender Switch – the FCA introduced new regulations back in 2020 that were aimed at helping mortgage prisoners switch to cheaper deals, with lenders that are part of the same financial group. There is no easy way to check this unfortunately, this is where the help of Taylormade, a specialist mortgage broker in Manchester, can really help.

Fixed or Tracker? How an Independent Mortgage Advisor in Manchester Can Help

If you need help in switching your mortgage, TaylorMade can help. We are an independent, specialist mortgage advisor in Manchester and we put you at the heart of what we do. We can help you with your mortgage by benchmarking the current types of rates available today, looking into the details of your current mortgage, and checking out your existing lenders' cheapest deals, to see which would be the easiest and most financially viable option for you.

It's currently more important than ever to seek the advice of a mortgage advisor. As one of the leading, expert mortgage brokers in Manchester, we’re waiting to help you, so call us today.