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The end of cheap borrowing could cost you hundreds a year - how to protect yourself now

Mirror logo Mirror 11/10/2017 Tricia Phillips
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The threat of the Bank of England’s base rate rising sooner than expected could mean it’s time to fix your mortgage repayments – or risk ending up hundreds of pounds worse off.

Best buy loans are already disappearing fast, with 20 lenders upping fixed rates in the last few weeks in anticipation of a hike as early as November.

Barclays and NatWest are the latest to join the bandwagon including other big names such as the Halifax and Nationwide Building Society.

Barclays raised its two-year fixed mortgages by up to 0.2% and Natwest has whacked up rates on around 45 two and five-year deals by up to 0.9%.

Mortgage price war ended

Industry experts reckon this could spell the end of the rock bottom mortgage rates we have enjoyed for years.

They say most borrowers should be looking at locking into a fixed-rate deal now to ensure they bag a bargain before they disappear – and to protect themselves against rate hikes and rising monthly repayments.

David Hollingworth, of London & Country Mortgages, says: “There are still some ultra-low fixed rates available, but the trend seems to suggest they may not last forever.

“Borrowers who have failed to take advantage of the record lows may need to move fast to have a chance of bagging some of the keenest rates.”

David says there are still two-year fixed rates from as little as 0.99%. Yorkshire Building Society offers that to borrowers with 25% deposits but it comes with a £1,495 fee.

He says: “This underlines the importance of taking fees and other costs into account. Yorkshire also offers 1.09% on 35% loans with a lower £495 fee, free valuation and £250 cashback, which could work for many.”

Sainsbury’s Bank also offers 1.09%, only for those with a bigger 40% deposit, but with a lower £745 fee and free valuation and legal work for remortgages.

Is longer better - protecting yourself from rises

While shorter term fixed deals offer the lowest rates, it could be worth opting for a longer-term fix to give more security and protection from the risk of future hikes.

Yorkshire Building Society offers a five-year at 1.55% for those with a 35% deposit, although again it comes with a £1,495 fee. Sainsbury’s Bank offers a rate of 1.59% on 40% deposits with a £745 fee.

Although no one is suggesting the interest rate will rise rapidly and to a high figure, a five- year fix could give peace of mind.

It is expected the base rate will double from 0.25% to 0.5%, adding £15 onto the monthly cost of a £120,000 mortgage – and each 0.25% increase after that will add even more – hitting £62 if the rate goes up by 1%.

On a typical £200,000 loan, 0.25% would mean repayments increasing by £25 a month, and by £102 if it goes up by 1%. With many households already struggling to keep up with the rising cost of living, this will be just another unbearable increase in pressure on the purse strings.

The damage done in the past

Many older homeowners will know the pain of month after month of increases when the base rate has shot up in the past.

In 1991, the rate went from 8% to 13% in just six months and hit many homeowners hard. Younger borrowers could be in for a shock as they have only ever known the current very low interest rates.

Now could be the perfect time to prepare your finances to ensure you don’t get hit with rising bills and end up paying way over the odds for your home loan.

Independent financial expert, Andrew Hagger from Moneycomms.co.uk, says: “With the Governor of the Bank of England Mark Carney dropping a big hint that interest rates will rise in the coming months, we’ve already seen lenders starting to hike the cost of home loans.

”If your fixed deal has less than six months to run, or even worse, you’re on your lender’s Standard Variable Rate, now’s the time to get your skates on to lock into a new fixed-rate deal before rates rise even further.

“By acting now you can save yourself hundreds of pounds a year in mortgage repayment costs – so put it at the top of your to-do list for the coming week.”

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