Sub-1% mortgages gone in a week, despite unchanged base rate

Even before the Chancellor dropped the mic on last month's budget, mortgage lenders were putting up prices.

The rises began, in part, thanks to the Governor of the Bank of England.

He stated that the central bank "[would] have to act" in the face of rising inflation.

Lo and behold, we have that scenario: inflation hovering around 3%.

However, he chose not to raise the base rate when he had the chance, last week.

This has left many commentators exasperated, but it might at least slow the rise in mortgage interest rates…
…might. No promises.

Disappearing sub-1% mortgages

The summer saw mortgage lenders enter their interest rates into what appeared to be a race to the bottom. The budget put the brakes on that, and we soon saw the trend begin to reverse.

To put into context how quickly low rate mortgages are disappearing, The Liverpool Echo reports:

"On October 25 there were 82 fixed-rate mortgages…at 0.84% to 0.99%…
"…but, by [2nd November], this had shrunk to 22 deals"
~Defaqto

That's almost three quarters of all sub-1% mortgages gone in a week!

What this means for homebuyers

For homeowners on their lender's SVR (26% of all homeowners [UK Finance]), it's welcome news. A static base rate is one less excuse for lenders to put their rates up.

But a lot of people sitting on a mortgage close to the end of its fixed rate term will be concerned. They've perhaps been holding out until the end of their fixed term before switching to escape any incumbent fees.

Whether fees are applicable will depend on the small print in your current mortgage. But it might be worth biting the bullet, paying the fees and taking out a remortgage now.

Yes, it's a gamble. But, if rates rise at the same rate of predicted inflation (4%), it might be worth a flutter.

Advice from around the web

Many commentators have slammed the Governor of the BoE for not pushing up the base rate. The backlash may have merit in some quarters. Indeed, many see a rise as 'when, not if', despite last month's reluctance to raise it.

But it's the advice from experts in the housing industry that, to me, is important. Here's a snapshot of what they're saying:

Aaron Strutt, Trinity Financial, most reflects my gut feeling, with this advice:

"Borrowers are advised to lock into the super cheap deals while they can, especially if their remortgage is coming up, or they are in the process of buying a home.

"Even though rates are rising, the lenders have huge targets to meet, so they will want to remain as competitive as possible to attract customers."

Chris Sykes, Private Finance reminds us how low borrowing has been:

"…incredibly cheap debt for borrowers could not last forever, and has — to some degree — fuelled the pandemic property boom…

"…an upcoming rate rise to combat inflation, potentially now before Christmas, [has] seen lenders respond, and have already begun to increase rates."

As does Hiten Ganatra, of Visionary Finance

"We must bear in mind that the BoE rate is only likely to raise to 0.25%, which will still be half of what it was between 2008-2020."

Mark Harris, SPF Private Clients, warns of rises despite the base rate staying 'as is' for now:

"Whether base rate rises or not, mortgage rates have started edging upwards as the markets have already priced in a rate rise, and possibly two or three more by the end of next year."

And perhaps the starkest reality now that furlough is over comes from Richard Pike, of Phoebus Software:

"…we are already seeing loan servicers recruiting a lot more collectors, which is a good indicator that they are preparing for a rise in arrears."

Remortgage or buy now to avoid disappointment

Any 'holidays' the mortgage market has enjoyed are categorically over. It's time to get serious about looking after the roof over your head, and all those living beneath it.

If you're interested in switching your mortgage, the advice is clear: don't delay!

A remortgage today could save you hundreds over the course of a new fixed term. The sooner you switch, the sooner you get peace of mind and start saving.